In the modern retail environment, the power lies in the hands of the consumer and with more choice and competition than ever before an era of disloyalty is upon us. Consumers experiment with new brands and reject long-term buying patterns. But for traditional loyalty programmes, once so dramatically effective in the 1990s grocery industry, what does the future hold?
In a recent article, Nielsen stated that “as consumers become more brand disloyal, marketers can no longer expect 20 percent of their portfolio to drive 80 percent of their sales because only 8 percent of global consumers are loyal to the brands and products they’ve always bought.”
Starcount CEO Edwina Dunn OBE (previously founder of dunnhumby) explains “In truth, this vision of loyalty – that customers should be loyal – is wrong. It is businesses who should be loyal to their customers – to ensure that high value, long term customers always get better offers than new ones. If you give the same offer to all customers, you erode any reason to be part of the club.”
“In truth, this vision of loyalty – that customers should be loyal – is wrong. It is businesses who should be loyal to their customers.”
So, what are the differentiators between a good loyalty scheme and a bad one? Of the many variations of loyalty schemes, the most effective are those that build upon traditional acquisition endeavours to recognize and engage consumers in unique ways. Currently, many loyalty schemes offer all customers the same discounts, regardless of whether or not they are a loyal customer.
Some examples of effective loyalty schemes:
- Pampers Rewards – Customers can earn points by scanning in-pack codes, members gain points for each scanned Pampers product they purchase, no matter where they bought it.
- Net-A-Porter – Members receive a highly-personalized set of fashion consultations (not online, but one-on-one home sessions) after which they can choose which products to keep. The service is available to customers in London, New York, Hong Kong and Los Angeles. Members also receive exclusive season previews in the EIP Lookbook.
- IKEA FAMILY – Members do not receive points. All privileges for members of the loyalty program are available immediately after signing up for the program. Ikea uses the loyalty program as the main marketing medium.
- SHELL GO+ – Shell’s customers can earn visits instead of points – customers will get 10% off every Costa Express or Shell hot drink, discounts on snacks from the deli2go or Jamie Oliver deli by Shell ranges, and 10% off all Helix Motor Oils.
Good loyalty programs with a strong value proposition continue to be effective and provide value. A good loyalty scheme should be the cornerstone of a CRM strategy – a way to improve performance at every point of contact with customers, making them happier and the company richer. Loyalty and CRM allows a retailer to have an adult to adult conversation with customers rather than a paternal style of ‘we know best what you want’.
The mentality behind loyalty schemes must encompass the offer of real rewards to returning customers. The business has to love its loyalty scheme – it should always be a major commitment to customers.
“Any organisation that thinks customers will be loyal to them has fundamentally misunderstood the retailer-customer relationship.”
Clive Humby OBE, Starcount’s Chief Data Scientist (also previously cofounder of dunnhumby), expands by saying “Most importantly, it is the whole retail offer that creates loyalty, not a card or a scheme; getting the right products in the right stores, relevant offers for consumers and exciting new products that matter to your core customer base is essential. Any organisation that thinks customers will be loyal to them has fundamentally misunderstood the retailer-customer relationship. Are you trying harder than your competitors to be really special?”
Customer loyalty will always be successful when driven by core brand values and insights – technology is only the facilitator of engagement and measurement. There must be enhanced understanding and accommodation towards loyalty program members, they must know and feel the effects of being a member as businesses align towards their needs.
Loyalty schemes are the starting point for deepening the customer relationship. This relationship flourishes in many ways, through many types of innovation – provided the managers of the programme can turn the data into insight and the insight into business decisions. Ultimately though, it is also essential to turn the business decisions into profit.