UK grocery retailer Waitrose recently made some unexpected changes to its much-loved 'free hot drink' loyalty scheme, creating a great deal of discussion in the industry, according to Ian Horsham, divisional director of promotions and incentives for the Grass Roots Group, who here examines what brands could learn from the controversial programme.
This is an example of a loyalty scheme that has attracted a lot of attention - especially around its level of success, impact on profits and customer satisfaction. Some have argued the supermarket chain failed to incorporate any mechanisms in the planning stage, to prevent the programme being abused by newly acquired customers, while others claimed the values and culture of its current customer base have been neglected.
The Grass Roots Group recently conducted research which revealed that more than half of consumers (55%) cited loyalty rewards as an important factor when staying with a provider, and 23% have even switched to a new provider because of its customer loyalty scheme. This highlights the importance of getting it right. The role played by good insight, planning and strategy before implementing a customer loyalty or retention scheme should not be underestimated in order to avoid fire-fighting when a programme becomes too big or opposes the aim of business growth - evidenced by Waitrose giving away one million cups to its 5.6m customers a week, at its peak.
With figures suggesting that the cost of customer acquisition is five times greater than keeping an existing customer happy, it is imperative that brands do not avoid putting in the effort and deploying tactics to ensure customers don't stray and that brand loyalty isn't compromised. It is therefore important to get the balance right between rewarding loyal customers and serving free coffee to the masses.
Utilise customer research
Focus on your existing customer research. These are the customers you want to reward for their loyalty after all. Consider the relevance of the scheme in mind to determine whether the angle is the most beneficial for your current consumers. You should consider whether the customer needs or wants something for free; the attraction of the scheme doesn't have to be reliant on financial savings for the customer. It can be viewed more as a gift for a customer's loyalty, and should not result in handing out freebies to everyone who walks through the door. Essentially is this reward really relevant for your customers, or is it tailored for everyone?
Consider a risk management plan
First, communicate schemes to your customers clearly, simply and upfront; consumers should know why it is that they are being rewarded and how they can obtain their prize - they shouldn't have to search through an extensive 'Terms and Conditions apply' blurb that's set to catch them out.
Install promotional risk management mechanics that will help stop the entire world catching onto the scheme straight away and then take advantage of the company's generosity. This can be achieved by limiting the advertising of the promotion, or tailoring it so only your current customer base can view the reward scheme in place, such as through a consumer mailing list.
Brands can also look into building in a redemption stage that relies on purchase, or simply only doing the promotions on specific days at specific times.
Ensure programmes are carefully targeted
Both new and existing customer bases should be taken into account when considering a reward scheme. Some programmes suffer in the basic 'compensation' approach to loyalty, which may be with good intentions motivated by a pure desire to say thank you, but every promotion or programme has the potential to alienate the most loyal customer if their needs and values aren't targeted and carefully considered.
When it comes to which industry does it best, supermarkets are leading the way in rewarding customer loyalty, with our research revealing more than half of us are part of these types of schemes and are reaping the benefits.
However, insurance companies are missing a trick by failing to capitalise on loyalty schemes to retain customers, with the vast majority of consumers (90%) unaware of whether their supplier even offers an incentive scheme.
"The loyalty scheme in place should satisfy the customers that regularly flock to your doors, before reaching out to entice a whole new wave of potential consumers that may or may not stick around," concluded Horsham. "By carefully targeting a scheme at the planning stages brands can ensure that they won't be left firefighting as a result of creating a programme which may not meet the original objective."