the value of loyalty schemes

Is your loyalty scheme a loyalty scheme?

Core Strategy Division

Introduction

Loyalty schemes can be incredibly powerful tools to attract and retain customers.

Done right, they can help build a brand and deepen customer relationships.

But many are used tactically, as short-term fixes that may only drive sales.

They may even undermine the very thing they’re designed to create.

In this report, we look at what defines a loyalty scheme and the different ways they can be used as marketing tools.

What is a loyalty scheme?

Loyalty schemes have evolved since the first supermarket stamps and air miles programmes.

In today’s data-driven world, loyalty programmes have become more sophisticated – for example, Tesco Clubcard pioneered the use of data analysis and personalised customer rewards to drive Tesco’s growth.

But despite their evolution, the basic formula for a real loyalty scheme has remained essentially the same over the decades …

I+D=LIncentive Data Loyalty

A loyalty scheme is a sales incentive plus data collection, applied. Otherwise, it is sales promotion or discounting scheme through ‘collectible rewards’.

What is a loyalty scheme?

A true loyalty scheme is one where the brand

• Has figured out what customers are being ‘loyal’ to, and then

• Uses data to learn from customers how to make them happier.

In essence, today, we need to be talking about ‘loyalty marketing’.

Loyalty for 21st century brands

The hard reality for brands in the 21st century is that consumers do not need brands anymore.Today, we are bombarded by choice and by marketing messages. Brands need to give consumers a real reason to care about them and to stick with them.

This is there loyalty schemes come in.

We took at look at some ways loyalty schemes are being used in this new 21st century brand reality.

1.

Loyalty is about creating great customer experience

Customer experience is key to loyalty

The real value of a loyalty scheme is in providing a business with rich customer data to help them continually deliver and improve on their product or customer experience. Sometimes coming from unexpected insights, these can have much longer-term effects than simple discount tactics, which can help get people through the door, but not support long-term brand growth.

Neiman Marcus, the US luxury department store, is using customer data to offer an improved customer experience.

It takes personalisation to new digital heights with the help of its branded app, which alerts the sales agent who last served each customer when that specific buyer is back in the store.

Shop assistants have instant access to customers' previous purchases on their tablets, enabling them to make relevant recommendations.

In its London Horsham store, Tesco’s Clubcard data revealed a high volume of customers in the early morning but sales figures seemed off.

Their customer data showed the store’s car park did not have enough capacity to meet peak demand, leading customers to shop elsewhere.

By expanding their car park capacity, they responded to a customer need which resulted in uplift in customer visits, satisfaction, and profits.

So what?Loyalty is really about customer experienceA loyalty scheme is not an end in itself – it is a tool to understand how to get closer to customers in order to meet and exceed their expectations.

This may be through finding opportunities to increase customer value, improving products and services, or by revealing unknown barriers to business growth.

Check out our Slideshare for more.

2.

Creating disproportionate added value for consumers

Creating disproportionate added value

Real loyalty schemes help make deeper connections with customers in ways that have a disproportionate relevance and meaning for them.

This is how loyalty schemes go beyond just discounts. For example, earlier frequent flyer programmes let people exchange miles flown for free flights which have extra significance, like reducing the cost of precious family holidays.

By 2010, the Boots Advantage Card was a well-established loyalty programme. In the post-recession climate, Boots needed to attract Christmas shoppers to spend more under one roof. They incentivised customers to treat themselves at Christmas by offering double-points on selected lines.

They harnessed their loyalty programme to roll out a highly personalised direct marketing campaign with ‘treat yourself’ coupons. The campaign boosted incremental profits by 60% compared to Christmas 2008.

Walgreens, one of the biggest US pharmacy retailers, had to chose whether to attract new customers or reward loyal ones. They saw that 15% of their customers drove two-thirds of their revenue. In 2012, they developed the ‘Balance Rewards’ programme which rewarded loyal customers for making positive health and lifestyle changes.

By tapping into customers’ own aspirations, Walgreens what products and services their customers wanted and linked their brand to something truly priceless – their customers’ health. By 2015, the programme had 80 million active users.

So what?Customer experience is the key to loyalty

Loyalty schemes can be powerful tools to make deeper consumer connections provided they offer customers benefits of real personal significance, beyond price.

This is especially powerful when loyalty schemes reflect a brand’s core values.


3.

A way to engage younger audiences

A way to engage younger audiences

One particular challenge for the future of marketing is the extent to which younger generations – particularly Generation-X – are disloyal to brands.

This digitally native generation is presented with an overabundance of choice, bombarded by more advertising. In today’s help-yourself culture, with shorter attention spans, they expect immediacy. Instant rewards and gamification are two ways to capture them.

Starbucks’ mobile wallet combines their loyalty scheme with mobile payment. Customers can use it to buy coffee and immediately earn, and redeem their loyalty points or gift them to others. The app is linked to a bank card, making transactions faster and more convenient - particularly attractive among Millennials and Gen-Z. By offering these immediate customer benefits, Starbucks has attracted 10.4 million active members who regularly visit Starbucks stores, becoming one of the most successful mobile wallets in the world.

McDonald’s in Denmark wanted to revitalise its loyalty scheme among price-sensitive teens. To drive engagement, they created an app and ‘virtual currency’ – McDonald’s ‘Coins’. To earn these Coins, friends had to play against each other through the app. Effectively discount tokens, Coins could be redeemed at McDonald’s restaurants. Use of this innovative loyalty scheme grew among their target audience significantly over a two year period with a 60% redemption rate and additional sales of €2 per coin redeemed.

So what?A way to engage younger audiencesInstant rewards and gamification are two innovative ways to engage younger generations in loyalty schemes. By adding value to their lives in ways that fit well into their digital native mindset, brands can also overcome their relative lack of attention given to brands.


4.

Loyalty schemes can incentivise disloyalty

Incentivising disloyalty?

A different outcome of so-called loyalty schemes is how some actually incentivise disloyalty.

Especially rife in insurance, mortgages, mobile phones, utilities where churn can be high, marketing efforts tend to be focused on acquiring new customers from competitors more than retaining long-standing customers.

Messages like “offer available to new customers only” send strong signals to loyal customers that they are less valued and this can increase their risk of churn.

Incentivising disloyalty?

Since another word for loyalty is inertia, some businesses have been smart in how they have used loyalty schemes to creatively encourage disloyalty or to fight against churn.

One group of independent US coffee shops in Washington DC developed a ‘disloyalty programme’ – customers of one shop would receive a free coffee after collecting six stamps, provided they collected those stamps at each one of the other five cafes. Similar experiments have taken place in Cincinnati among restaurants. But while called ‘disloyalty programmes’, they are, more accurately, a new breed of ‘coalition loyalty’ programmes, helping generate business within a wider community.

UK energy brand, Seeboard, were operating in a high churn market. Their choice was whether to feed into that by seeking new customers or to hold onto their existing customers. They chose to counter churn by introducing a new range of products to existing customers and harnessed their customer data identify who to offer their products to.

In this way, different from other brands, Seeboard found a way to deepen loyalty in a high-churn market and speak to their brand identity as a company ‘full of ideas’.

So what?Are loyalty schemes incentivising disloyalty?In high churn categories, loyal customers can feel left behind in the race to attract new customers with up-front offers.

Brands that utilise customer data to reward loyalty can create strong incentives for customers to stay, and to retain them in a way that also builds on their brand.


Interested in learning more?

Contact us.

Thomas Geoghegan

Shane Doyle

Andy Pierce

16 Sir John Rogerson's QuayDublin 2, Ireland

Tel : +353 1 649 6316

Email: [email protected]

the value of loyalty schemes

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