Can the mobile cuckoo rejuvenate loyalty programmes?

Has the time come for the mobile phone to replace the loyalty card? A new report from the business technology consultancy Impaq Group reveals some convincing reasons that indicate it might have.

The 34-page report, entitled 'Mobile Life 1', challenges the rules of loyalty and asks whether mobile technology can play a role in re-invigorating the loyalty market.

Few would disagree with the authors when they say that the use of most loyalty cards has become almost automatic and mundane, and that there is little engagement with most offers. Over 30% of consumers never remember to carry their loyalty cards or have lost them and almost 20% of reward point collectors never spend the points they have collected.

The authors also point out that there is an urgent need to differentiate loyalty programmes. For the consumer with a wallet full of loyalty cards, few really stand out as being different in any significant way from the others.

Elements not medium-dependent
According to the authors, the customer-facing elements of a good loyalty programme are:

• Clear rules
• An acceptable currency
• Simple redemption
• Relevant rewards
• Achievable results
• Flexibility

They note that none of these elements is bound to any medium or channel: paper, plastic or digital.

Novel segmentation
For the purpose of the report, Impaq used a novel method of segmenting consumers:

1. Low card usage & high affinity with supplier
2. Low card usage & low affinity with supplier
3. High card usage & low affinity with supplier
4. High card usage & high affinity with supplier

 
Drivers of loyalty segmentation:
card usage and supplier affinity
Source: Impaq Group - Mobile Life 1

This method cuts across the more usual methods and demographics used and is useful when one considers that membership of most loyalty programmes is not niche behaviour - the membership itself also cuts across all demographics. Collectively, the findings show that membership of reward programmes is not overwhelmingly strong in any one demographic compared to another. Whether by age, education, household size, marital status or employment, there are no distinct trends as to who will take part in a loyalty programme, nor indeed to who will demonstrate strong ties of loyalty.

Findings by segment:

1. Low card usage/ high affinity with supplier
   These consumers (14% of the total) are loyal to the brand; they feel an affinity to it, but do not necessarily feel comfortable with a loyalty card - they prefer soft benefits. They are happy to show loyalty - a card programme seems to cheapen their experience. Some 13% of this group would join a standard loyalty programme. However, 19% of them would join a mobile phone-based loyalty programme.
    
2. Low card usage/low affinity with supplier
   A significant one in five consumers (20%) fall into this group. They don't feel any affinity to brand and don't want a loyalty card. They choose brands and make purchases according to their own parameters and don't like the invasion of privacy that might accompany a loyalty card.
    
3. High card usage/low affinity with supplier
   Almost half of consumers (41%) fall into this group. They don't feel affinity to any brand, but like using loyalty cards. They take advantage of the perks that loyalty programmes bring. Their general attitude is "points mean prizes" - they judge the programme by what it gives them. The programme does not add delight to their experience or secure their loyalty. Typically, they might say: "I get points for what I would have bought anyway."
    
4. High card usage/high affinity with supplier
   One in four consumers (25%) feel strong loyalty and actively takes part in loyalty programmes. They are the ideal customers for most businesses. To them, the act of earning points is fun and entertaining - they will actively seek out offers to boost their potential earning.

Loyalty mechanics
The four mechanics of a loyalty programme are:

1. Earning points
   This is practically a universal activity: something done by all members. It is often automatic and done without thinking. The customer feels little involvement at this stage. They will become more interested in earning if it is ultimately directed towards spending.
    
2. Tracking points
   Many members of loyalty programmes have no idea how many points they have collected. They don't bother to read their statements and, even if they do, they aren't interested enough to remember the total. This is the factor that separates those in Segment 4 from the others: they track their points regularly.
    
3. Spending points
   This is done by few consumers. This step requires more engagement and thought. If customers can be persuaded to become interested in redemption, they become better collectors and much more involved with the programme.
    
4. Receiving information
   If information is delivered in a way and at a time that is divorced from the actual act of shopping, it is often forgotten or ignored. Significantly, the Segment 4 group is more interested in hearing about promotions and discounts.

But how to find a method of delivery that meets these requirements, avoid the pitfalls, and doesn't cost the earth?

The mobile cuckoo
According to the authors of the report, the solution is already in the pockets of more than four out of five people: their mobile phones.

In 2004 mobile phone penetration in the UK stood at 83%; the European average was 81%. In some age groups it is even higher: in the 16-24 and 35-44 year old groups it was over 90%. Over 70% of consumers are never without their mobile phones. And research from Nokia shows that some 65% have their phones switched on constantly.

The authors describe the mobile phone as a "mobile cuckoo": it seems particularly adept at taking the place of the existing tools that people carry about with them in their wallets or handbags. Could it replace the loyalty card?

In practical terms it would be a relatively simple matter for almost any modern mobile phone handset to display the customer's identifying bar code (or other machine readable image) on-screen, either as wallpaper or as a saved image or MMS message. The consumer then only needs to show their phone at the check-out to identify themselves.

More interactive
And it certainly would encourage interactivity, leading to additional engagement in the programme. Members could be reminded before Happy Hour promotions or other member events. They could have their points balance available at all times, encouraging them to redeem them more regularly. Already mobile-based promotions from brands such as Heineken have shown that voucher redemption is dramatically different to paper-based promotions: with one, Heineken achieved a redemption rate of eighty to ninety percent.

The report looks in depth at putting the mobile into context, at mobile usage, user confidence, addressing uncertainties, and suggests a way forward. A copy can be obtained from Impaq by emailing Sue Wiltshire at sue.wiltshire@impaqgroup.com. It is well worth reading - it could well change your view of the future of loyalty.