Gift cards or Cash back: Where's the Loyalty?

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By: Wise Marketer Staff |

Posted on August 20, 2015

The appeal of customer rewards schemes is flagging, and consumers are increasingly confused and put off by all the changes going on in major rewards schemes run by card issuers and retailers. Right across the industry, rewards are failing to maximise brand loyalty and personalisation is at the heart of the issue, according to a white paper from loyalty promotions specialist The Voucher Shop.

Marketers in many sectors are doing a good job of personalising communications with existing and potential customers. Yet they are failing to personalise rewards on offer for spending and loyalty. Too often these generic schemes are unappealing and customers are put off by unnecessary complexity or the difficulty of collecting enough points to get a reward of any value. A recent Voucher Shop 1 survey has revealed that most marketers are offering the wrong loyalty rewards. Discounts and gifts are increasingly becoming ineffective retention tools and customer loyalty cannot be bought with product discounts alone.

A number of factors are driving a seismic shift in rewards programmes. The price war in the retail sector has resulted in major players, such as supermarkets, re-evaluating their customer rewards schemes. The introduction of an EU cap on the transaction fees that credit card issuers charge retailers has led many card issuers to withdraw long-standing rewards programmes or cash-back offers that had been funded by these fees. For example, Avios and British Airways recently cut the numbers of points earned on economy flights, leaving some points collectors with rewards worth much less than they were previously. As a result, across all sectors, long-running reward schemes are under review and traditional methods face an overhaul.

While marketers have a good grasp of customer segmentation for most purposes, a lack of understanding of rewards schemes is negating all the top of funnel activity. Reward schemes are not something that marketers have focused on in the past and there has been a tendency to backstop all that marketing effort with a generic discount off an upgrade or similar product or perhaps a free gift.

B2C organisations have relied for too long on discounts and rewards linked to their own product set. This strategy to keep reward costs down is misguided - while the cost is low, the perceived value of the reward is equally low and this approach is broadly ineffective. When asked, 'Which loyalty reward would you rather receive from a company when you purchase one of their products?' only 4% of Voucher Shop survey respondents chose 'discount off another of their products'

Marketers are challenged to understand the lifetime values of different segments of customers, while maintaining the cost effectiveness of rewards programmes. A PwC report entitled 'Loyalty analytics exposed: What every programme manager needs to know' found that rewarding the top quartile of loyal customers may account for 60% of profits. Moving mid-range value customers into that top tier is a key aim and rewards programmes should contribute to that. Planning a rewards scheme is also complicated by the fact that it is difficult to estimate how widely rewards will be redeemed - not all customers will actually redeem the rewards they are offered.

And, according to research by Collinson Latitude, nearly two thirds of consumers (63%) are influenced by rewards when choosing a new bank and credit card, but 72% said the rewards they want are often not available and one in five would increase spend if they were offered more personalised and relevant rewards. When it comes to ease of access to the rewards programme, 72% would like better online access and the ability to redeem their rewards more easily - only 17% say they can currently access their rewards online.

Results from the Voucher Shop survey indicate strongly that many organisations are likely to be running rewards schemes that have very little impact on customer engagement or loyalty. When asked which loyalty reward would consumers rather receive, respondents showed an overwhelming preference for gift cards such as single store gift cards or multi-retailer cards. A massive 69% stated a preference for a gift card. This compares with only 1% opting for a free gift and just 4% choosing a discount off another of their products. Some 26% chose cash-back on purchases. Clearly consumers want choice when it comes to the rewards they are offered. A gift card is unlikely to be swallowed up by day-to-day expenses, enabling the consumer to treat him or herself and rendering the reward memorable and effective. However, the survey also indicates that demographic factors have a major impact, with gift cards more attractive to younger consumers and cash-back an enticing reward option for those over the age of 40.

The full white paper, entitled 'Personalising customer rewards and loyalty', has been made available for free download from The Voucher Shop's web site - click here (free registration required).

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