Written by Karen Moss
Tesco attributed their recession-busting performance last year in large part to double reward points for Clubcard-holders, whereas Asda believe that low prices and not offers entice customers to their stores. But whether you love loyalty schemes or loathe them, there is no denying that they are an invaluable way for retailers to find out more about their customers.
Chief executive of Sainsbury’s, Justin King, was so impressed by the success of the Nectar card over last Christmas that he said a ‘chasm’ was emerging between retailers with loyalty schemes and those without. Most see this as a gulf in retailers’ ability to capture data on their customers and use it to create a more targeted marketing campaign. The information stores can gather from consumers who join loyalty programmes allows them to analyse spending habits, create bespoke offers and therefore drive greater footfall and profitability.
Fiachra Woodman, CIO at Nectar, says: “When people sign up to a loyalty programme, they have chosen to identify themselves to that retailer. There has to be a significant, compelling reason for them to do so. At Nectar we provide
analytics from which we derive insight that can be used to drive out offers that are more relevant to our collectors and targeted to the right segment.
“Honestly I don’t know how retailers who are not using loyalty programmes achieve this. In this day and age it seems almost rude not to know who your customers are.
“I think people are becoming more savvy about sharing data, in return for that shoppers want highly relevant offers, tailored to them that reflect where they are in their lives and their
aspirations. Statistics show that the average UK household has signed up to 18 loyalty programmes, but are only active in about eight of those. Nobody wants to have masses of loyalty cards in their wallet, that’s why people tend to give up on using these programmes.
“With a coalition loyalty programme that incorporates multiple retailers, the collector can acrue value much more quickly.
“The whole drive behind a loyalty programme is to turn data into insight and insight into actionable campaigns to give relevant offers and achieve business goals as well.”
Historically, loyalty has been a defence tactic, but now it’s used by Britain’s biggest retailers for uplift in economically challenging times. Tesco has said very clearly that the Clubcard is one of the main reasons why they have not felt a serious pinch during the recession; because people look for retailers who are offering them something else, something extra. And not just at the supermarket, shoppers are looking for rewards and deals when they buy beauty and fashion products too.
But despite the obvious benefits of having a loyalty scheme, including better performance during harsh trading conditions and the ability to communicate more effectively with your customers, some retailers remain unconvinced. Asda, of course is loyalty’s most prominent critic. They believe that the money they save by not having a loyalty programme means they can invest in everyday low prices.
Phil Szymala, business insight director for ICLP, who previously worked at Tesco Clubcard, says: “A loyalty programme is not a strategy. It’s the price we pay for gaining customer insight and I think that Asda have missed that point. It’s a gateway to enhancing customer experience of your brand and influencing profitability through consumer behaviour, creating value for the customer and for the retailer.
“Tesco understood this from day one. It was always about
using insight to drive other user decisions and prices, or what their merchandising looks like in their store and how to make it easier to do business with the customers. Asda missed a trick with this, they say the money they save from not having a loyalty programme they put into everyday savings on low prices.
“But that’s not the only reason people shop at Asda. People shop there for the brands, just as they do at Tesco. They
want customers to be loyal but they don’t have the data to
understand their customers in the way that Tesco can. They have no means of talking to their customers. They are relying
on product and brand advertising and are therefore operating
in a handicapped manner.”
However Andrew Johnson, UKGCVA director-general, believes that Asda has been clever in its strategy and that ditching the loyalty card has not harmed their brand. “I think that Asda is clever because it’s living by its brand value. And it can only do that because it does not have the expense of running a loyalty scheme. Once you start a loyalty scheme, it is very difficult to suddenly stop. It would be inconceivable for Tesco to close their Clubcard.
“You have to think about what it is you are retailing – the strength of your brand, how the loyalty is earned, how the customer is rewarded. Loyalty should be rewarded, but more important is making the individual feel special. In a big programme how are you as an individual made to feel special?
“Sometimes loyalty schemes can make you feel like you’re no different to anybody else who’s in the programme. People who are not in the programme are also given offers – so where is
the incentive? Actually there are a number of retailers, John Lewis is one, who, through customer services makes customers feel special and defies retailing trends. They are not just a
product or a reward scheme, but offer exceptional service.
“The loyalty scheme’s power is of course in the data and being able to understand much more about your customer. It’s really about data collection and the power of data. Currently in the US there are programmes where gift cards and loyalty cards are coming together.
“At Starbucks one card does all. And at Subway in the US you are started off on their loyalty scheme by buying or giving a gift card. They take the number from the gift card and they just assess your buying patterns over a period of time. You go in and get an offer, like come back tomorrow and you will get a free drink or a free soup etc. As you come back more, they build up your buying pattern. They have less data but they use it more effectively.
“Sometimes you need to ask if certain retailers really need a loyalty scheme behind them, the answer is no in many cases. You can get data if you want to without loyalty schemes. For example gift cards on mobile phones through which the retailer has a connection channel with you. Subway do not need to know anything more about you than a number, they just follow your spending pattern.”
More retailers are now jumping on the loyalty bandwagon, most recently Superdrug launched the Beauty Card as a rival to the long established Boots Advantage Card. Some wonder whether the Beauty Card will be as successful as its Boots counterpart as the scheme offers just a fourth of the savings.
ICLP worked on the Beauty Card with Superdrug, ICLPs Szymala adds: “Boots’ primary focus is discount, it’s the most generous loyalty programme in Europe. They give you four per cent back on what you buy. The industry standard is one per cent, just to put that in perspective. So when Tesco give double Clubcard points they are giving two per cent back.
“But Boots’ generosity means they miss out on other loyalty levers, they give so much back already, it limits their abilities. If you were in a relationship and the other person just kept giving you things, you would begin to feel like that was a transaction based relationship.
“The shopping you do at Boots is not a weekly shop, Tesco know this from their own health and beauty categories. That’s one of the reason Boots are more generous. Loyalty customers will get one per cent back from Superdrug, but they’ve been able to be much more personal with their customers and make them more relevant offers. They have also tried to make their card a bit different by having a mirror on the back.”
So are loyalty cards a fad or are they now a permanent part of retail? Most experts would say that with the march of mobile technology that loyalty programmes are only going to become more sofisticated and convenient for the consumer.
Chris Ford, business development director, Grass Roots, says: “Loyalty is not a fad in terms of how it is used, what’s changed about the card proposition right now, is that there are coalition programmes like Nectar, multi organisations engaging with
customers, so they earning points or money off a bill.
“Tesco changed the game recently by starting to offer
customers the opportunity to spend with associated third
parties that means their points or money off is tripled in value.”
If you walk into a store and don’t swipe a clubcard and just
use your credit card, the retailer will not be able to gather any information about who you are or what you bought. But if you have a club card it will tell the retailer when you made the purchase, what store you bought it in and what you bought. That’s a huge amount of information about a customer. Using the insight, knowledge and data, Grass Roots’ Ford says retailers can have a better relationship with individual customers.
“Not only can you have a better relationship with each customer, but loyalty schemes drive revenue,” he says. “If you have not got a loyalty scheme you are not only missing out on understanding customer behaviour, but on upselling as well.
“Just look at Amazon, they run a loyalty scheme and they are a huge retailer without stores. They use the data they collect on customers to give them pieces of specific information that are relevant to that customer. Once you have registered Amazon remembers what you have bought and the dates you bought it and keeps track of that information. If you buy a present for someone and have it gift wrapped, the following year Amazon will make suggestions to you for another present. These are personalised, timely and relevant offers and recommendations, exactly what customers want.
“Behavioural process is linked closely to being loyal to that organisation. If the best loyalty scheme in the world has poor customer service or the employees don’t understand the loyalty scheme, then the customer will not use it.”
ICLP’s Szymala adds: “Relationship loyalty is an outcome, it’s a desired behaviour. People want three things from a relationship. Firstly, intimacy – you understand the customers’ needs and help them get what they need (customer data helps a lot with this). Passion – you deliver something fresh, something interesting, new information, subjects and ideas. A good example of this is Sainsbury’s Meals for £5 ‘Try something new today’. And lastly commitment – this is a relationship promise. Customers shop with you because they choose to, that’s part of who they are, what is the retailer doing in return? You can’t have one person in a relationship thinking it’s a marriage and the other believing it’s a one night stand.”
While it is all very well for retailers like Tesco, or pureplayers like Amazon, to have a loyalty scheme, for others it may not make sense. Customers may shop with some retailers at least once a week. But what about businesses like Comet and Currys that only sell big ticket purchases?
The challenge with electrical stores and implementing a loyalty scheme is that customers do not go there as frequently as the supermarket. But that is where social networking comes into its own, according to Grass Roots’ Ford.
“Facebook for smaller retailers like electrical stores, gets the propensity to become social, customer reviews of products, Grass Roots’ Ford adds. “It facilitates a social communication between customers and it’s about solving customer problems, this has become a real topic at the moment.
“An individual who has become a complete advocate of the product giving out free, more relevant advice to other customers for free. Who would not, as the producer of that product, want to reward that customer for taking on part of their customer service for nothing?
“Social networking and loyalty absolutely has a place, it is how we will use it. Something we emphasis is that loyalty is not a short term fix. You can tactically offer people money off, but in the end the programme will fail if you only engage with people in the short term.
“The loyalty schemes that are successful can combine and be successful when market forces change, for example Tesco and their double reward points during the recession. The ones that have longevity survive.”
Smartphones are becoming the loyalty cards of the future, a loyalty programme without the need to have a card. The average European consumer has five loyalty cards in their wallet which means they are fast running out of space and will need to decide which cards they can and cannot live without. But if schemes go mobile then suddenly they become much more convenient and more attractive.
“Not only will mobile loyalty schemes creating footfall to retailers’ stores, but it will also increase the redemption of vouchers and offers given out to customers,” says Grass Roots’ Ford. “You never leave the house without your phone, but you may very well forget that Sainsbury’s coupon to get £5 off.
“Customers need to be able to get it when they want it, and that means actually being able to use an offer. Instead of having to bring all the coupons in your purse you would have a rewards balance on your phone. It’s about choice, that’s what consumers really want.”