retail loyalty programs: a global view retail loyalty... · retail loyalty programs: a global view...

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DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved.

• Many retailers offer loyalty programs. Some companies generate up to 60% of their revenues from loyalty program members. Others, such as warehouse clubs, operate a membership-‐only business model.

• For traditional retailers, loyalty programs can provide valuable data that is used to personalize offers and ensure that the program perks are relevant to each customer.

• Perceptions of loyalty programs vary among consumers in different regions, and can be affected by a country’s economic situation or cultural preferences.

• Smartphone apps are set to become more prominent in loyalty programs with many members likely to use their smartphones in place of plastic membership cards in the years ahead.

RETAIL LOYALTY PROGRAMS:

A GLOBAL VIEW

D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r –

H e a d o f G l o b a l R e t a i l & T e c h n o l o g y F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e

d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m U S : 6 4 6 . 8 3 9 . 7 0 1 7

H K : 8 5 2 . 6 1 1 9 . 1 7 7 9 C H N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

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RETAIL LOYALTY PROGRAMS: A GLOBAL VIEW Many consumers have at least one of them in their wallet or hooked to their keychain—a loyalty card for their local retailer. Lots of retailers offer loyalty programs in an attempt to attract new customers and satisfy loyal ones. With rewards ranging from coupon offers to regular savings to exclusive, personalized experiences, loyalty programs provide perks and value to members. But do they really engender customer loyalty?

According to the Boston Consulting Group, some companies generate up to 60% of their revenues from loyalty program members. Others, such as warehouse clubs, operate a membership-‐only business model, where customers have to pay a membership fee before they can shop at an outlet.

In a number of countries, consumption patterns have undergone dramatic changes in recent years. Disruptors such as discounters and online retailers have forced established retailers to invest more in understanding their customers’ needs. For these traditional retailers, loyalty programs can provide valuable customer data that they can use to personalize offers and ensure that their program perks are relevant to customers.

Perceptions of loyalty programs vary among consumers in different regions, and can be affected by a country’s economic situation or cultural preferences. In the UK, some experts argue that, in the grocery sector, price is becoming more important to consumers than the rewards offered by loyalty programs. In the US, the number of memberships continues to grow, but actual engagement with loyalty programs is declining. In other regions, such as Germany, consumers have long held concerns over data privacy, which can inhibit participation in loyalty programs.

In this report, we summarize some of the major loyalty programs offered in the UK, the US and elsewhere, and look at customer usage data and attitudes toward such programs by country. We also examine shopper demand for mobile-‐focused loyalty programs.

MEMBERSHIP PROGRAMS IN THE UK Fully 92% of adults in the UK are registered with at least one loyalty program, according to a research by Loyalive, a UK-‐based company that offers a free app to help consumers keep track of their loyalty points. The average adult in the UK is a member of three loyalty programs, Loyalive says. The three biggest loyalty programs in the UK, by number of cardholders, are Nectar, Boots Advantage Card and Tesco Clubcard.

Grocery retailer Tesco’s Clubcard program, which was launched in 1995, kicked off modern-‐day retail loyalty programs in the UK. Members receive personalized coupons based on their shopping history, and customers apparently welcomed the Clubcard perks, as Tesco overtook Sainsbury’s to become the leading supermarket chain in the UK a few years later, in fiscal year 1998.

One of the most recent loyalty program launches in the UK was Marks & Spencer’s (M&S’s) Sparks, which offers exclusivity and “money can’t buy” experiential offers to its loyal customers. M&S is a retailer of contrasting halves: outperforming food and underperforming general merchandise. We

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suspect the new Sparks loyalty program was designed to encourage some of its food customers to consider buying clothing and other general merchandise from M&S, too.

We review the major UK loyalty schemes below, in order of date launched.

Tesco Clubcard The Clubcard membership program is one of the key reasons Tesco overtook Sainsbury’s in the 1990s to become the largest supermarket chain in the UK, by revenue. With Clubcard, Tesco was able to analyze and predict its customers’ shopping habits like never before. Twelve months after the program launched, Clubcard holders were reported to be spending 28% more than they did before at Tesco, and 16% less at Sainsbury’s, according to multiple sources.

Launched 1995

No. of cardholders 43 million+ globally, 16 million+ in the UK

How does it work?

Shoppers using a Tesco Clubcard get one point for every £1 they spend in-‐store, and one point for every £2 spent on Tesco fuel.

How much has to be spent to receive a £5 voucher?

£500. The retailer runs occasional Clubcard Boost events, during which points earned can be multiplied.

Where can vouchers be used?

Customers can use the vouchers at Tesco, or exchange them for vouchers to be used at restaurants, or for tickets for attractions, airline miles or other items.

Source: Company reports

Boots Advantage Card Boots is the UK’s largest pharmacist and health and beauty chain. The company’s Advantage Card is one of the most generous loyalty cards in the UK, by ratio of points paid out for every pound spent. Boots is part of Walgreens Boots Alliance, which was formed in 2014. Walgreens is the largest drugstore chain in the US.

Launched 1999

No. of cardholders 17 million+ in the UK

How does it work?

Customers get 4 points (1 point = 1 penny) for every pound spent. Members who are over 60 receive 10 points per every £1 spent on Boots branded products.

How much has to be spent to receive a £5 voucher? £125

Where can vouchers be used? At Boots


Nectar In 2002, when Nectar was launched, Sainsbury’s was one of the four first partners in the program, and it remains the biggest. Other original partners were BP (formerly known as British Petroleum), which is still a partner, and Barclaycard and Debenhams, neither of which is still a partner.

Cardholders can currently collect Nectar points at Expedia and Hertz in addition to Sainsbury’s and BP, and at over 500 online retailers, including

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ASOS and eBay. In April 2015, Sainsbury’s halved the number of points customers receive, from two to one for every £1 spent. In the Nectar card program, the amount of points a customer receives varies depending on the partner company.

Launched 2002


How does it work? Depending on the partner company, customers can (in most cases) earn one or two points for every £1 spent.

How much has to be spent to receive a £5 voucher?

At Sainsbury’s: £1,000 At ASOS: £500 At Hertz: £500 At EasyJet: £1,000 At eBay: £1,000

Where can vouchers be used?

Similar to Clubcard, Nectar allows customers to use their collected points at participating retailers or exchange them for restaurant vouchers, tickets to attractions or other items.


myWaitrose Supermarket chain Waitrose launched its loyalty program in 2011, eschewing coupons for added extras. For members of the myWaitrose program, the core perk is free coffee (or another hot drink). The retailer claims that it is now the UK’s second-‐largest coffee provider, after McDonald’s, serving over 1 million cups of coffee a week. Such was the popularity of the scheme that Waitrose had to change the terms of the offer: it was attracting loyalty card members who were not actually shopping at Waitrose. Now, members who wish to enjoy a free hot beverage in a Waitrose café or bakery with a seating area must purchase another item from the café or bakery.

Launched 2011


How does it work?

Customers can enjoy a free coffee or other hot beverage at any Waitrose; one per day per member (with purchase). Customers who spend a minimum of £5 Monday to Friday in a single visit, or minimum of £10 Saturday and Sunday, can get a free newspaper. Customers can pick up to 10 products from which they get 20% off every time they shop.

Source: Company reports/The Guardian

M&S Sparks M&S launched its members club, Sparks, in October 2015. When members register for the program, they are asked to give details of their hobbies, interests and lifestyle. M&S Sparks is a move away from money-‐off and coupon loyalty programs. Like myWaitrose, M&S Sparks focuses on added extras rather than money-‐saving coupons; Sparks members are offered firsthand previews of upcoming clothing lines and invitations to exclusive events.

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Launched 2015


How does it work?

Members receive: 10 “sparks” (points) for every purchase 10 sparks for every £1 spent 25 sparks for a product review or 50 sparks for a Shwop, i.e., a donation of an unwanted item of clothing (to be donated to Oxfam) at the time of purchase of a new item

How can collected sparks be used?

Tailor-‐made offers: E.g., a 10% discount on a department or a free beauty product with a lingerie purchase. Priority access: Once customers collect 3,000 sparks, they can get a first preview of new season’s collection. At 7,000, customers have a chance to shop at M&S 24 hours in advance of the general public. Exclusive events: At 14,000 sparks, customers have access to invitation-‐only events such as food tastings. Customers who have collected 17,000 sparks are eligible to win “money can’t buy” experiences such as trips to vineyards.


MEMBERSHIP PROGRAMS IN THE US

An average US household holds memberships in 29 loyalty programs, and actively uses 12 of them, according to a biennial report from loyalty marketing company Colloquy. This total includes some nonretail loyalty programs, such as credit card and airline loyalty programs.

Specialty retailers, including Best Buy, Gap and GameStop, make up the largest retail subsector in terms of memberships, which totaled 433.5 million in 2014. Drugstores saw the biggest increase in number of loyalty program members in the two years to 2014, with growth of 88%. The launch of Walgreens’ Balance Rewards loyalty program in 2012 made a significant contribution to the growth in drugstore memberships. After department stores, grocery retailers were the fourth-‐largest retail subsector in terms of loyalty memberships, reflecting the substantial department-‐store sector in the US.

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Colloquy’s study also showed that the level of engagement in loyalty programs is declining in the US, despite the growing number of memberships. According to the report, 58% of loyalty program members were “inactive” in 2014, up from 54% in 2010.

Figure 1. Loyalty Memberships in the US, by Sector: 2012 and 2014 (Mil.)

Source: Colloquy/FBIC Global Retail & Technology

Walmart Savings Catcher In 2014, retail giant Walmart launched Savings Catcher, a loyalty program through which customers can automatically receive the difference in price on a product if it is cheaper elsewhere. For years, Walmart claimed that it preferred to offer savings to everyone, not to just certain people. Savings Catcher was developed for customers who were trying to find the best deals—with the Savings Catcher app, they do not have to go through the trouble of checking prices at different retailers, as the app does it for them. The system compares Walmart’s price with any local competitor’s price on a printed ad for an identical product. A year after its launch, Savings Catcher became the third-‐most-‐downloaded retail app in the US, behind Amazon’s and eBay’s, according to Business Insider.

Launched 2014

No. of members 22 million+

How does it work?

Customers can download the Savings Catcher app and scan their Walmart receipt. If the price of a product was advertised lower at another retailer, Walmart will credit the difference to a gift card. Customers can also type in the receipt number on their computer later at home, if they do not have a smartphone.

Source: Company reports/Forbes

361.3

142.3 194.6

173.2 140.4

25.3

433.5

267.6 229.6

169.7 164.3

24.5

0 50 100 150 200 250 300 350 400 450 500

Specialty

Stores

Drugstores

Departmen

t Stores

Groceries

Mass M

erchants

Fuel/Con

venien

ce

2012 2014

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CVS Pharmacy retailer CVS claims its Extra Care is the industry’s most successful loyalty program. As mentioned above, Colloquy found that, of all retail subsectors in the US, drugstores saw the biggest increase in the number of new members who joined loyalty programs between 2012 and 2014.

Launched The membership program went national in 2001

No. of cardholders 70 million+ households, 100 million+ individuals

How does it work?

Customers get 2% back on each purchase. Customers who fill 10 prescriptions earn $5 in rewards. Customers get a $5 voucher back for every $50 spent on beauty products.


Plenti American Express launched Plenti, a rewards program through which customers can earn rewards points from multiple companies, in May of 2015. American Express also offers a Plenti credit card, but members can participate in the Plenti rewards program without having a credit card. Macy’s, Rite Aid and Home Depot are some of the participating retailers, but customers can also collect points when they buy fuel or pay a phone or energy bill. Since launch, 30 million+ members have enrolled in the program.

Launched 2015

No. of members 30 million+

How does it work?

At 1,000 points, the customer gets at least $10 in savings to be used at participating partners. In most cases, the customer gets 1 or 2 points for every $1 spent. However, the amount of points received changes constantly, depending on promotions and “boost” events, during which points can be multiplied.

How can points be collected at different places?

At Macy’s, the customer gets 1 point for every $1 spent on all products and 2 points for beauty and fragrance purchases bought using a Macy’s credit card. Hulu offers 1,650 points for new subscriptions six months after the customer subscribes. At Exxon, the customer earns 1 point for every gallon of fuel bought and 2 points for every $1 spent on nonfuel purchases. AT&T’s customers earn 1 point for every $1 spent on eligible products and services.

Source: Company reports/Colloquy

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Target REDcard Target offers 5% off nearly all of its products to customers who use its REDcard debit or credit card. The retailer is also tapping into the retail app market following a launch of a beta version of REDperks in early 2015. REDperks allows members to earn 10 points for every $1 spent, and at 5,000 points, they get 5% off their total purchase at Target. The app also reminds users how many points they have and how many they need to collect in order to get discounts and special offers.

Launched 2010

Loyalty card penetration Over 20%

How does it work? Customers get 5% off their bill at checkout, excluding some items such as prescriptions and gift cards.


My Best Buy Best Buy’s loyalty program was called Reward Zone until 2013, after which it became My Best Buy. Anyone can enroll in the program to receive instant benefits and to qualify for the Elite or Elite Plus program. To receive the better levels of benefits, customers have to spend a minimum of $1,500 or $3,500 per calendar year. The consumer electronics retailer offers also banking services, in partnership with Citibank.

Launched 2013 No. of cardholders 40 million+

My Best Buy

1 point per $1 spent; 250 points equals $5 in rewards. Free shipping with minimum $35 purchase. Returns and exchanges allowed within 15 days.

Elite

10% point bonus (1.1 points) for each $1 spent. Returns and exchanges allowed within 30 days. Dedicated customer service line for Elite members.

Elite Plus

25% point bonus (1.25 points) for each $1 spent. Returns and exchanges allowed within 45 days. Dedicated customer service line for Elite Plus members.


GameStop PowerUp Rewards GameStop is the world’s largest multi-‐channel video game retailer. According to loyalty marketers’ association Loyalty360, a significant portion of GameStop’s high brand loyalty is attributable to its successful PowerUp Rewards loyalty program. The retailer offers a basic membership, which is free to join, and a PowerUp Rewards Pro membership for annual cost of $14.99.

Launched 2010 No. of cardholders 32 million+ in the US, 40 million+ worldwide

How does it work?

Customers collect points for nearly every dollar spent and for playing games on Kongregate.com; points can be used to buy products. PowerUp Rewards Pro members’ exclusive rewards include 10% more points, multibuy discounts and a subscription to Game Informer magazine.

Source: Company reports/Loyalty360

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7Rewards 7‑Eleven is the world’s largest convenience store chain, operating in 18 countries. In March 2015, the convenience retailer launched 7Rewards, an app that enables customers to get every seventh beverage free, in the US.

Launched 2015 Share of customers buying a beverage with each purchase Over 60%

How does it work?

The customer downloads the 7Rewards app first and then scans the barcode on the app at checkout when buying a beverage in order to receive every seventh beverage free.

Source: Company reports/PYMNTS.com

MAJOR MEMBERSHIP PROGRAMS ELSEWHERE

Payback (Germany, Italy, Poland, India and Mexico) The Payback coalition loyalty program was launched in Germany in 2000 by a German customer relationship management company called Loyalty Partner. In 2011, American Express acquired Loyalty Partner. However, cardholders are not required to link their Payback loyalty card to a credit card.

According to Loyalty Magazine, Payback played an instrumental role in changing loyalty laws in Germany, where incentive and reward programs previously faced legal challenges. The loyalty program operates in five countries (Germany, Italy, Poland, India and Mexico) and in 2015, American Express launched a similar coalition program, Plenti, in the US.

Launched 2000

No. of cardholders 27 million+ in total

How does it work?

Once customers collect a minimum of 200 points at participating partners, they can redeem their points by exchanging them for coupons or use them to pay for products.

How are points collected at different retailers in Germany?

At Rewe, the customer gets 1 point for every €2 spent. On eBay, the customer gets 1 point for every €2 spent. On Zalando.com, the customer gets 2 points for every €1 spent. At Galeria Kaufhof, the customer gets 1 point for every €1 spent.


Esselunga (Italy) Esselunga is a family-‐owned grocery retailer in Italy that launched a loyalty program in 1994. With Esselunga’s Fìdaty Card, members can exchange collected points for products from the Fìdaty product catalog or for cinema tickets.

Launched 1994

No. of cardholders 4 million+

How does it work? Customers get 2 points for every €1 spent above the minimum spend of €5.

How can points be used?

Points can be used to buy items from the Fìdaty catalog or for discount movie tickets at participating cinemas on Tuesdays.

Source: Company reports/Reuters

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Woolworths Rewards (Australia) The largest retailer in Australia and New Zealand changed the name of its loyalty program from Woolworths Everyday Rewards to Woolworths Rewards in 2015. The revamped program allows customers to receive money off their grocery bills, partly to allow Woolworths to compete with low-‐price rivals such as Coles and Aldi. Previously, members were able to collect Qantas frequent-‐flier points when shopping at Woolworths, but the current partnership with Qantas will end at the end of 2015. According to The Sydney Morning Herald, the partnership has cost the retailer about A$80 million (US$70 million) a year. Discontinuing the frequent-‐flier points offering could boost Woolworths’ margins, but could also drive customers to rivals.

Launched 2015

No. of cardholders Approximately 8 million

How does it work?

A typical customer earns about 1.25 Woolworths Dollars (worth A$1.25) for every A$100 spent. Customers can save 4 cents per liter of fuel when they spend more than A$30. Until December 31, 2015, customers can earn 1 Qantas frequent-‐flier point for every A$1 spent over A$30 in one transaction at Woolworths supermarkets.

Source: Company reports/The Sydney Morning Herald

Octopus Rewards (Hong Kong) The Octopus card was launched in 1997 as a contactless payment option that commuters could use to pay for fares on Hong Kong’s transport system. Octopus Rewards was launched in 2005, allowing registered Octopus customers to earn and redeem rewards at retail and other companies.

Launched 2005

No. of cardholders 3.4 million+ members registered with Octopus Rewards. 20 million+ Octopus cards in circulation.

How does it work?

Customers earn a minimum of a 0.5% rewards rate on their purchases at participating partners. Occasionally, partners run promotions where rewards can be multiplied. Partners include HSBC, Market Place, Q-‐Pets and Wellcome.


MEMBERSHIP-‐ONLY RETAILER PROGRAMS While membership programs are an added perk offered by some retailers, for others, such as warehouse clubs, membership is the lifeblood of their business. Traditional retailers generate the majority of their earnings from actual sales, whereas warehouse clubs generate most of their earnings from membership fees, and then sell their goods at near-‐cost prices. Costco and Sam’s Club are the major US-‐based warehouse clubs. They both rely on warehouse-‐style/no-‐frills business models where customers pay a membership fee to shop for cheaper-‐priced products, often in larger quantities than they could get at traditional retail outlets. This retail format can be hugely successful, as customers tend to buy products in bulk, and many of the warehouse clubs enjoy high membership retention rates.

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Costco

• As of November 18, 2015, Costco had a total of 81.3 million cardholders.

• The retailer operated in 686 locations in nine countries as of August 30, 2015.

• In 2014, Costco was the second-‐largest retailer in the US and the fourth-‐largest retailer globally.

• Annual standard membership costs $55 for an individual.

Sam’s Club

• Sam’s Club is owned and operated by Walmart.

• The retailer serves over 47 million cardholders in over 750 clubs.

• A basic individual membership costs $45 annually.

• Brick-‐and-‐mortar retailers are not the only ones offering membership-‐only programs; online retailers are offering them, too. One of the most well-‐known disrupters in retail across the globe is Amazon, an online retailer that offers a service with many perks—Amazon Prime—for which customers pay an annual membership fee.

Amazon Prime

• Amazon Prime was launched in 2005 in the US to provide members-‐only offers and services.

• At first, Amazon offered free two-‐day shipping to its paying members in the US. Today, the service has expanded into different categories, such as movie and TV show streaming, and to same-‐day (and in some places, even one-‐hour) delivery, including of fresh food.

• Amazon Prime is currently available in nine countries.

• An annual individual membership in the US costs $99.

COMPANIES PROVIDING LOYALTY PROGRAMS

Loyalty programs deliver benefits for both customers and retailers. Customers are often rewarded with discounts, vouchers and exclusivity when they join these programs. Retailers, however, get access to valuable shopping data and analytics.

Aimia

• Canadian marketing and loyalty analytics company Aimia was founded in 1984. Originally, the company was called Aeroplan, and it managed a frequent-‐flier loyalty program for Air Canada.

• In 2007, the company acquired Nectar, the largest coalition loyalty program in the UK.

• Aimia operates globally in frequent-‐flier programs, retail loyalty schemes and data analytics.

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Brierley+Partners

• Brierley+Partners was founded in 1985 in Dallas by Hal Brierley.

• GameStop launched its hugely successful loyalty program in 2010 with Brierley+Partners.

• The company’s clients also include American Eagle Outfitters, 7-‐Eleven and Hilton Worldwide.

Dunnhumby

• Customer science company dunnhumby was founded in 1989 in the UK by Edwina Dunn and Clive Humby.

• In 1995, dunnhumby established Tesco’s Clubcard loyalty program, which specializes in predicting buying habits.

• dunnhumby is wholly owned by Tesco. In 2015, the retailer revealed its intention to sell the data analytics unit to reduce its debt; however, for the time being, dunnhumby remains under Tesco’s ownership.

• In April 2015, US supermarket chain Kroger acquired dunnhumby USA’s data-‐mining technology. The new company is called 84.51°.

Epsilon

• Epsilon was founded in 1969 in Irving, Texas. • The company’s clients include Walgreens, Staples, Dell and GMC.

REGIONAL DIFFERENCES AFFECTING PERCEPTIONS OF LOYALTY PROGRAMS Consumer perceptions of loyalty programs differ by region. Loyalty card penetration can vary depending on issues such as data privacy concerns and economic factors.

Aimia reports that consumers in Germany tend to be reluctant to join loyalty programs, compared to consumers in other countries. According to Aimia, 31% of Germans refuse to participate in any loyalty programs, compared to 10%–16% of respondents in other regions. Germans are also highly price sensitive and easily switch brands and retailers. Therefore, loyalty programs add little of value to them. Consumers in Germany also highly value their personal information and often are skeptical about joining programs that would require them to share details about their private lives or shopping habits.

In Spain, on the other hand, high loyalty program engagement could be linked to economic instability. According to Aimia, Spanish consumers are exceptionally influenced by rewards, and to increase their incomes, they are willing to share their personal information.

In Japan, consumers have particularly strong loyalty to brands, but not necessarily to retailers. According to Epsilon’s research, quality and products that fit Japanese consumers’ lifestyles are the highest loyalty motivators. Nearly two-‐thirds of Japanese consumers are members of at least one grocery loyalty program, and coalition loyalty programs, such as T

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Card and Ponta, are popular. However, one-‐to-‐one and personal engagement at the brand level, rather than at the retailer level, are expected to remain strong in Japan.

USING APPS TO ENHANCE LOYALTY PROGRAMS There can be little doubt that smartphone apps are set to become more prominent in loyalty programs, with many members likely to use their smartphones in place of plastic membership cards in the years ahead. Mobile apps allow retailers to engage and communicate with customers easily. Apps can be used to notify customers about their unclaimed loyalty points or to push personalized, geotargeted offers to customers based on their previous purchase history.

In the US, Walmart has succeeded with its Savings Catcher app by combining price and loyalty factors without requiring customers to visit multiple stores in order to find the best deals. Walmart has also successfully tackled the issue of making it easy to claim points without hassle: customers simply scan their receipt, and if any product is being sold cheaper elsewhere, the system will automatically refund the difference on a gift card.

Over 40% of smartphone users in Asia say they use their phones to find or redeem coupons more often than they use them to engage with loyalty programs. Mobile coupons are frequently offered by popular Asian mobile payment apps, such as Alipay Wallet and WeChat Wallet. In the US, smartphones are more often used for loyalty cards, such as with 7-‐Eleven’s 7Rewards, than for coupons. Europeans, on the other hand, show low levels of smartphone activity for both coupons and loyalty programs. However, as e-‐commerce and mobile payments continue to grow globally, retailers are likely to invest in app functions that could generate sales and loyalty.

Figure 2. Mobile Wallet Activities of Smartphone Users Worldwide, by Region: as of October 2014

Source: Statista

42%

19%

33% 34%

29% 29%

16%

33%

28% 30%

Asia Europe Brazil Mexico US

Finding or Redeeming Coupons Loyalty Cards

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For nearly half of the loyalty program members in the US and Canada, the option to use a smartphone app is a determining factor for continued membership in a program, according to Colloquy. The smartphone option remains less important than more fundamental factors such as the program being easy to understand and providing relevant rewards—but it highlights the fact that a sizeable proportion of loyalty program members are driven by mobile.

Figure 3. Reasons Members Continue to Participate in a Loyalty Program, US and Canada: 2015

Source: Colloquy

LOYALTY PROGRAMS VS. LOYALTY Loyalty programs continue to flourish, even in markets such as the US and the UK, where price sensitivity and heightened competition have tended to push more retailers away from fripperies and toward everyday-‐low-‐price propositions. Perhaps the reason retailers continue to invest in loyalty programs is that the perks they offer to shoppers serve as one more weapon in the battle against the more functional experience offered by no-‐frills discount stores and online-‐only retailers.

And most programs deliver potentially valuable customer insight to retailers—the kind of purchasing-‐habit data that is routinely available to Internet retailers. So, sustained interest in loyalty programs may be about bringing online-‐type insights into the offline retail world.

But do these programs cultivate loyalty? Probably not, we think. Genuine shopper loyalty is built on a number of factors that differ from customer to customer, retailer to retailer and sector to sector. For grocery shoppers, availability and price may drive loyalty. For apparel stores, quality and fit may turn a customer into a loyal shopper. Quality of service, consistency of product and value for money are other factors that can generate loyalty among customers.

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In this context, the perks offered by loyalty programs are relatively peripheral. For a retailer with a poor offering, these programs will function like a tiny bandage on a major wound. For a retailer with an already excellent offering, the perks of a loyalty program will simply offer a final gloss on the shopping experience—a further, minor reason to use that retailer again. Loyalty programs are certainly no panacea; building genuine loyalty through the quality of their core offering should be the aim of every retailer.

Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: 852 6119 1779 China: 86 186 1420 3016 [email protected] Filippo Battaini [email protected]

Marie Driscoll, CFA [email protected]

John Harmon, CFA [email protected]

Aragorn Ho [email protected]

John Mercer [email protected]

Shoshana Pollack [email protected]

Kiril Popov [email protected]

Jing Wang [email protected]

Steven Winnick [email protected]

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