Customer loyalty schemes – how they empower brands

American Author Jeffrey Gitomer is a loyalty expert. According to Gitomer

you don’t earn loyalty in a day. You earn loyalty day-by-day.

The crusade to convert one-time shoppers into a loyal customer base is one that every brand is necessarily committed to, for survival as well as growth. And it’s not something that happens overnight.

However, with 47% of UK consumers today believing it no longer pays to be loyal, is this a battle any brand can win? And could it really be as simple as setting up a loyalty scheme designed specifically for that purpose?

Loyalty schemes – a brief history

Tesco is the pioneer in this field, establishing the Clubcard and its ‘points for purchases’ model in 1995. This was quickly followed by:

• Boots’ Advantage card (1997)
• Sainsbury’s Nectar card (2002)
• Amazon Prime (2007 - the first of the subscription loyalty models, which was replicated by retailers like ASOS, Selfridges and Next)
• MyWaitrose (2011)
• Morrison’s More (2014)
• M&S Sparks (2015)

Notable exceptions: Asda, Aldi, Lidl and Primark.

Evolutionary times

Loyalty schemes certainly do have the power to influence customer buying choices.

According to a report released by Forrester Research and published in Forbes, 72% of customers online belong to at least one loyalty programme. 78% said loyalty programmes save them money and just under half said loyalty schemes influence what they buy.

There are three key ways in which customer buying choices can be influenced by a loyalty scheme:

1. Offering opportunities to save money. More than half of consumers sign up to a loyalty scheme in order to save themselves money.
2. An attractive set of rewards. 37.5% of consumers are motivated to join loyalty schemes because of the rewards.
3. Improving engagement. Loyalty programmes open up a communication channel between consumers and brands that can be used to optimise engagement. 75% of consumers see loyalty programmes as part of their relationship with brands and 64% of brands identify a loyalty scheme as the best way to connect with consumers.

However, traditional models that rely on cards and vouchers don’t appear to be having quite the impact they used to if the changes taking place in the industry are anything to go by.

Tesco, for example, recently launched a subscription type model - Clubcard Plus costs £7.99 a month and delivers discounts on Tesco products, as well as banking and mobile phone services with a potential value of £400 a year.

Sainsbury’s too is revamping, relaunching as an app, which is also something that Boots has recently done with its Advantage card.

Why do brands invest in loyalty schemes?

• Loyalty scheme customers are more valuable. For example, one survey found that loyalty scheme members spend 5-20% more on average than non-members and buy 5-20% more frequently.
• Giving customers a reason to return. A brand like Apple (the most valuable brand in the world) may not need a loyalty scheme but for more commodified brands it could make a big difference. These are the brands to which consumers feel little natural loyalty. For example, 42% of consumers feel no loyalty to any fashion retailer and one in six consumers switch their main grocery store over the course of a year. Here, a loyalty scheme could influence the choice of one brand over another.
• As a response to increased competition. In saturated markets where competitors are winning ground, a loyalty scheme that has the power to influence consumer preferences is an advantage. For example, according to the experts, Clubcard Plus should benefit Tesco’s larger stores, which have been the most adversely affected by the expansion of Aldi and Lidl.
• Data. Technology fueled developments in data capture provide opportunities for brands to use loyalty schemes to learn more about their customers with more effectiveness than these programmes have ever had the potential for before.

How can a loyalty scheme influence where customers shop in future?

There are three key ways in which a loyalty scheme potentially gives a brand power today.

1. By continuing to offer value. Traditional loyalty scheme models can influence where customers shop by offering a perk that brings customers over from competitors and ensures they continue to return. The key to this is – and will likely always be - value. Customers will be loyal when they feel that they are getting real value in return for loyalty and retailers lose sight of this at their own peril.
2. Through innovation and engagement. Many brands today are beginning to evolve loyalty programmes to integrate other popular marketing tools, such as employing gamification, incentivising user generated content and offering the opportunity to redeem points for experiences, as opposed to just products or discounts.
3. In effectively collecting and using data. Advances in technology have given loyalty scheme data even more relevance, making it faster and simpler to collect and analyse a much wider pool in a way that could never have been achieved in the early days of these programmes.

As a result, today a loyalty scheme can curate a level of customer insight that might previously have taken decades to collect. As Tesco’s chairman said of the new Clubcard Plus:

What scares me about this [loyalty program], is that you know more about my customers in three months than I know in 30 years!

This application of technology to loyalty scheme data has made these programmes a key channel for:

• Generating actionable insights. Retailers now have unique opportunities to understand customers and engage them more intentionally, to identify customer needs and stay on top of these as they change.
• Creating real relationships. A tech-enabled loyalty scheme can collect data that can be used to facilitate personalisation and customised experiences, drive positive communication and enable authentic relationship building.
• Enabling segmentation and targeting. Loyalty scheme data can be fed into omni-channel, offline, and ecommerce segmentation, allowing brands to profile their best customers and personalise offerings to make them more effective.

The end result? In-depth customer connections that give a brand the power to influence how, and when, customers shop, increase brand commitment and drive up sales.

The traditional benefit of loyalty schemes – attracting customers through savings and rewards – still works, especially for those brands that tend towards greater commoditisation.

However, it is the potential for tech-enhanced data capture and what this provides in terms of insight into, and engagement with, a target audience that is potentially so important today.

In terms of brand benefit and influencing where consumers choose to shop, it may be in the tech-enabled collection and use of data where the true power of the loyalty scheme now lies.