A new Datamonitor report looks in detail at the problems facing the operators of loyalty programmes, and what they can do to overcome them.
Some of the oil companies have allowed their loyalty programmes to become stuck in a time-warp; they are ten year old concepts with which customers have become bored. The companies have failed to react to changes in the marketplace; they have not adopted methods that have been tried and tested successfully in other retail sectors. Hard words - but, sadly, in some cases, true.
There are over 300 loyalty programmes in the UK alone. From the customer's point of view, the novelty has worn off. To be successful, a modern loyalty programme has to do far more than simply provide a small rebate that can be saved up and redeemed for a reward once or twice a year. To attract and hold the customer's attention has become increasingly difficult. The programme has to offer genuine benefits that remain interesting over time.
Clearly, the operator also has to benefit - significantly and over a long time. The programme must generate information that can be used to direct the marketing budget to the customers who are most likely to provide increased profits and most future growth. It should also modify customers' behaviour beneficially. Do many of the forecourt programmes in the UK today do that?
Datamonitor's new report, Best Practice in Customer Loyalty Schemes, identifies some key challenges to be overcome:
Low margin commodities
Operators of service station forecourts face the usual challenges of retail, plus some extra. The fuel and lubricants that they sell have become viewed as commodities - few motorists insist on using any particular brand - and the profit margins on them are exceedingly slim. Clearly, any good loyalty programme will collect information about the customers who buy these products, and then use that information to encourage them to buy other more profitable products. Few currently do this.
Many of the programmes are one-dimensional: they simply offer points for purchases and rewards for redemptions. The customers register for the card, produce it with each purchase, and redeem points at infrequent intervals. This is an outdated concept which involves minimal involvement (and therefore less commitment) from the customer.
"Bolt on" or strategic?
Many of the programmes are simply "bolt on" appendages. They are not part of overall strategy and policy; they don't even differentiate between customers. They can be viewed as little more than mailing lists. While the core proposition of awarding points that will later be redeemed for rewards must clearly remain, companies must learn that the most successful loyalty programmes are viewed as clubs, not as mailing lists, by their members.
The authors of the report also suggest that, while programme simplicity is desirable, this has often been overstated in practice. The core proposition must be simple at first sight, but building multiple additional features on top of it will not, as some companies fear, turn customers off. They point to the success of Tesco's Clubcard and Boots The Chemists' Advantage Card - both relatively complex programmes with simple core propositions.
Three key themes
Datamonitor identified three key themes that should run through the heart of future oil company programmes:
The loyalty programme must be an integral part of company strategy.
It should support the premium service proposition: for example, companies could negotiate special rates on car insurance or breakdown cover, and provide these to customers who exceed pre-defined thresholds. Points should not be awarded at a flat rate, but should be varied to encourage changes in customer behaviour. Examples would be giving bonus points to those who spend more in a single purchase, and giving points on shop purchases. The loyalty programme should communicate a consistent brand message - for example, supporting "green" charities and awarding extra points on low-sulphur fuel.
The loyalty programme must be more engaging, both on and off the forecourt.
This can be done by making the reward structures more dynamic and varied (tiered rewards, bonus points, and promotional points that change regularly). Customers should be encouraged to redeem more frequently - possibly by offering some lower value but interesting rewards. Soft rewards should be offered to better customers. Communication should be more frequent, possibly using targeted marketing and segmented newsletters.
Loyalty programmes should be the front line of forecourt CRM initiatives.
They should be designed to maximise understanding of the customer (this will require all transactions to be rewarded), and using that data to personalise and tailor services to them.
The full report is available from Datamonitor for US$4,995 at firstname.lastname@example.org