Loyalty programmes do work, says UK expert

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By: Wise Marketer Staff |

Posted on January 26, 2004

Loyalty programmes do work, says UK expert

Several articles have appeared in the British press lately following some research that highlighted consumer complacency toward UK retailers' loyalty programmes. Johnny Morris, managing director for loyalty programme operator Visible Results UK, gave The Wise Marketer his response...

Morris feels that loyalty programme providers need to respond to this adverse publicity: the strategies of customer reward and recognition have clearly proven their value to retailers and to consumers alike. Loyalty programmes do work.

While consumers and retailers alike are generally aware of the principles of loyalty, they are often unaware of many of the benefits that a loyalty programme brings. The success brought by a loyalty programme is often not shared with other retailers. Some of Visible Results' clients have seen sales increase by a third and average spend per customer increase by up to 15%.

There are several myths, often repeated in the media but seldom challenged, that are simply not true. Now is the time to address the concerns that some organisations have.

Myth #1

"Loyalty schemes are an intrusive way of gathering customer information"

One of the fundamental criticisms from the recent research was the claim that consumer groups state that loyalty cards are an intrusive way of gaining information about consumer spending habits. However, time and again it has been demonstrated that the more you know about someone, the better the relationship you can have with them.

When it come to collecting and analysing data, there is a fine line between it being a useful process or simply a waste of time. The key to running a loyalty programme successfully is to look critically at what data is being gathered and what use is being made of it.

According to Morris, real consumer value comes from building a single view of a customer; a view that fully takes into account the whole history of the relationship between supplier and customer. For example, the traditional analysis of customers' shopping baskets reveals what they have bought over the period analysed. However this transactional data is only a snapshot of activity at a single point in time.

Retailers can, and should, look beyond this and ask other questions too: Are there any patterns between what and when the customer buys? Is the customer shopping at her local store? On what days? At what time? And so on.

When information like this is available, Morris says, marketing messages that relate directly to each customer's lifestyle, habits and preferences can be delivered to them - and they will make sense to them and be appreciated. Gathering this data will no longer seem intrusive. Rather, it will be seen as practical and helpful. But the customer must be able to see the benefit in order to appreciate this. And of course the business's better understanding of the customer's habits and needs, and the customer's better understanding of what use is made of this knowledge will build a stronger relationship and will drive profitability.

Myth #2

"Loyalty programmes are a business expense and a sales gimmick"

Nothing could be further from the truth. Targeted marketing reduces costs and avoids wastage - it is mass marketing that is wasteful. A properly run loyalty programme enables a business to move its marketing budget away from mass marketing and into targeted marketing, where the money is spent on messages and benefits that are both relevant and useful to the customers who receive them. And, according to Morris, it needn't be expensive.

Many companies regard marketing as a cost centre; as an expensive process the cost and benefits of which are difficult to measure. The data collected by a loyalty programme delivers greater consumer insight, enabling the retailer to avoid waste and become far more cost effective. "The more you learn about your consumers, the better your pitch to them will be, and the more they will buy from you," says Morris.

Card-based loyalty programmes enable retailers to match products to people, and to deliver an improved in-store personal shopping experience. In fact, says Morris, this is exactly what Amazon has managed to do online, through a smart combination of data gathering and product matching, all under-pinned by powerful technology which supports the customer experience.

Myth #3

"Loyalty programmes have no value"

Everybody loves to win; to get something for nothing. But "something for nothing" means exactly that: as soon as the customer has to work hard or be inconvenienced in order to earn a reward, or to wait for an unreasonably long time to earn it, discouragement sets in. According to Morris, some £400m of loyalty rewards goes unclaimed, according to one industry source. "I am not at all surprised by this, and by the claim from some consumers that card-based schemes are an inconvenience. The harder you have to work at something, the less effort you make," says Morris.

Consumers need to see a balance between recognition for the purchases they have made, and be incentivised to come back into a store through a collection mechanic. Visible Results advocates a mixture of instant win rewards to please on the day, combined with compelling marketing messages and incentives, that can grow and mean something, and which will drive consumers back into the store. For this reason, the company's thermo-chromic GraphiCard enables retailers to deliver tactical promotions, third party advertising and points collection systems - all from one card. The card is the central repository of all the marketing information, and stores all the points and customer information on it. It has the ability to recognise different customer profiles, and promote different marketing messages according to when it is used.

Morris also advocates getting suppliers to contribute toward the rewards: one client has given away £1.5m of prizes to customers over the past few years - all of which have been donated by suppliers.

What's the future of loyalty?

Morris feels that the market for loyalty schemes is maturing, but along with this maturity comes a massive opportunity for growth amongst retailers and programme providers. When consumers sign up to a loyalty programme, they change the nature of the relationship between the retailer and themselves, and move from being a purchaser to becoming a real customer. This will always be the case. Those players who can be versatile and sophisticated in their approach will be successful.

And as for the future of consortium schemes? "Who knows?" asks Morris. "Perhaps the answer lies in being able to build more flexibility into the rewards mechanics they offer, or they might face losing out to smaller players."

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