Loyalty schemes vs price promotions - which work better?
A new study indicates that using price cuts to encourage brand switching is diminishing while the influence of incentives within loyalty schemes is growing.
Loyalty programmes have the biggest influence in encouraging customers to switch brands, according to exclusive research seen by Marketing Week. However, getting a good deal can often sway opinion, with price promotions and discounts also featuring heavily in customers’ brand choice.
In the latest Marketing-GAP study by fast.MAP, 71 per cent of respondents say they like to buy brands that are on promotion while 39 per cent buy at the lowest price regardless of brand. Thirty-three per cent would buy their usual brand even if there was a cheaper alternative while 30 per cent would continue to buy the same brands even if others were on promotion.
Promotions through reward or loyalty schemes (either coupons or offering bonus reward points) are the most successful in encouraging customers to switch, with 56 per cent of the 1,072 respondents stating they sometimes or often buy a different brand as a result. Pure price discounting attracts 48 per cent of respondents while 45 per cent sometimes or often switch if they have been mailed a printed coupon. Sampling incites 42 per cent of respondents to buy a different brand.
More than half of respondents say prize draws and competitions are unlikely or very unlikely to lead them to switch brands but discounts of 10 per cent or more are attractive to around three-quarters of those surveyed. Meanwhile, 85 per cent claim to be quite likely or very likely to switch brands if able to ‘buy one, get one free’ (Bogof).
Marketers currently engaged in incentivisation strategies bear out the research findings. BrandAlley’s marketing and PR director, Melissa Littler, says: “People prefer their spending to earn them points rather than ad hoc vouchers. They like the simplicity of it and they’re more in control. [Fashion] customers are looking for uniqueness and priority access to sales, for example. It’s not just about price but about letting the customer tell you what they get value from.”
BrandAlley uses various methods to incentivise customers to buy. It runs regular prize draws with awards including a £1,000 shopping spree, a pair of Ray Ban sunglasses, tickets to the Chelsea Flower Show or a dress from brand Damsel in a Dress. Another incentive scheme is “Invite a Friend and Earn £10 each.”
While discounts and Bogofs are clearly attractive to customers, marketers must ensure they attract potential long-term relationships rather than ‘voucher tourists’.
It’s not just about price, but about letting the customer tell you what they get value from
“It’s a fine line,” says Littler. “We look at the media sources that drive customers to us. We can see there are certain customers who will only shop with us if they have that voucher so we have to look at our margins and decide whether to keep trying to recruit that customer.”
Another bane of the marketer’s life is when voucher codes go viral. This can be a boon if wide exposure is required but brands seeking targeted customer recruitment have found they need an element of CRM to keep their spend in check.
“We have to keep our vouchers and reward levels discrete,” says Littler. “We can reward loyal customers and make that code unique to their account. It also affects loyalty if we send loyal customers a special offer and they discover that anyone can access it.”
Minicab price comparison and hire firm Kabbee is part of the Quidco incentive scheme where subscribers get 20 per cent cashback if they book with Kabbee. While this provides a low cost per acquisition of new customers, the company also offers 1 per cent cashback for every ongoing journey booked.
“There are bargain hunters out there and people will cycle from company to company, but you’ve got to offer them good service and experience, which means they should come back again,” says Laura Pryzbek, head of marketing at Kabbee.
As a new company in a fairly new sector – the app cab hire market – Kabbee is still trialling incentives to find the most effective types. “It’s a bit of a landgrab market but it’s not viable to spend £10 on marketing every time you want people to make a booking,” says Pryzbek.
To this end, Kabbee is analysing its customer base to discover whether a segment that has made two bookings to date is more receptive to prize draws that offer a holiday or to those offering £100 of Kabbee credit.
In conjunction with partnership agency Cherry London, O2 identified 13 characteristics that cemented the success of a customer reward; top of the list is matching experiences to customer passions.
Mark Stevenson, head of priority and sponsorship at O2, says: “The most important thing to get right on a loyalty platform is to understand what customers want and own it for them. We know that film is a very motivating passion so we give Priority customers the chance to see films such as Despicable Me 2 before anyone else.”
In the same vein, Small Luxury Hotels of the World (SLH) teamed with eReader manufacturer Kobo to offer a free eReader to customers who booked a four-night stay. SLH global marketing director Tim Davis says: “[The eReader] attracted customers with its high perceived value and also tied in two of our customers’ passions – travel and reading. It drove engagement, reach and acquisition all at the same time.”
Marketers have realised they can increase their promotional power by combining two or three incentive strategies. Rather than handing out vouchers until deep discounting erodes all future margin, this utilises each strategy to address individual consumer roadblocks. A standard approach is combining a sampling activity with an on-the-spot incentive, followed by a more strategic campaign aimed at increasing loyalty over the long term.
The most important thing to get right on a loyalty platform is to understand what customers want and own it for them
Boost Energy Drinks ran a sampling programme near university sites including Manchester, Oxford and Birmingham. Visitors to the stand were offered a choice of four flavours and a scratchcard that promised a chance of an instant win of either a £5 note or a £5 Restaurant Choice voucher. The giveaway was designed to generate consumer data as visitors were encouraged to enter an online prize draw for the bigger prize of £5,000.
“We don’t sell drinks direct to consumers but we supply 100 cash-and-carries in the UK. We wanted to create awareness and drive traffic to our Facebook page,” says Boost marketing executive Gabrielle Rosenstone. (For more on sampling and promotions, see Gallo Wines case study below.)
In the luxury segment, promotional packages are based around partnerships. The aim is to create a symbiotic relationship to boost customer numbers for both partners.
Premium retailer Liberty London celebrated the 15th anniversary of its loyalty card by promoting 15 SLH properties. Over 10 months, the retailer is offering a different reward every month, including three nights for two, access to the SLH Loved premium-level club or entry to a prize draw for a three-night stay in one of the hotels.
“By working in partnership with other luxury brands, we are also forming long-term strategic relationships with aligned brands, which means our reward activity is more credible and integrated,” says SLH’s Davis.
While competitions or free prize draws boost companies’ promotional reach, as a standalone concept they receive a mixed reception in fast.MAP’s study. Forty per cent of respondents say they would switch brands because of a competition and only a third say they actively enter draws or competitions.
Nevertheless, for some brands it is an effective strategy. “We’re in the process of running our second £1m prize draw,” says Confused.com’s marketing director, Joby Russell.
“The first time we did it was to raise awareness and launch price comparison as a sector. On this occasion, there has been a lull because of the World Cup, so car and home insurance are not front of mind. We wanted to put some news into the category – an opportunity to do something different with a big number attached.”
But the giveaway is about more than column inches. Russell says: “Our ambition is to grow sales. Last time, customers only had to register, not purchase, but this time they’ve got to commit to purchase and we’ll only give it to someone who buys from us. It refreshes the database, which degrades over time, so we can accurately find incremental growth.”
A £1m prize may seem a large promotional investment, but Russell says: “It’s all about ease of delivery. You avoid the storage of items, the administration of items and having extra people in customer services taking time dealing with the clerical side of the promotion.”
Case study: Gallo Wines – Moscato launch
Gallo Wines adheres to the marketing principles of the California wine industry and the Wine and Spirit Trade Association, with all materials promoting the ‘Drinking responsibly’ code. But Alexis Byron, EMEA marketing manager for E&J Gallo Winery, believes in thinking creatively to produce attractive promotions.
“The wine shelf can be intimidating, so we’re taking the risk factor away from trying something new through sampling. Our new varietal, Pink Moscato, is loved by customers in the US who aren’t engaged in the wine category, so we’re trying to give samples to 300,000 consumers across the UK to drive awareness,” she says.
Sited primarily around JCDecaux Live’s experiential sites at Waterloo, Victoria and Manchester Piccadilly stations, the sampling activity supplied by Ngage Marketing offered the new wine to age-verified commuters in small vials. This activity was boosted in malls where Gallo Wines involved fashion stylist Nicole Smallwood and model Amber le Bon to build a lifestyle element around the brand.
“As we positioned the wine as the summer’s ‘must have’ drink, we used Nicole and Amber to talk about fashion must-haves and then encouraged customers to continue the discussion on Facebook. This is a live competition that will result in the winner getting ASOS fashion vouchers and a bottle each of our white and pink Moscato wines,” says Byron.
Top three challenges
1. Manage margins
“When we do coupons, we have to make sure they don’t overlap with existing promotions so we don’t end up delivering deep discounts. It doesn’t make sense commercially or from a regulation standpoint,” says E&J Gallo Winery’s Alexis Byron. The increasing ability to automate data capture and manipulation is helping brands to hyper-personalise their promotions and limit the risk of ‘going viral’ and eroding margin.
2. Segment customers
Brands need to engage in extensive data mining to ensure they not only provide appropriate rewards for different customer segments but also do not over-incentivise. Understanding which customers would be likely to make a purchase without a promotion dictates the need for a subtle differentiation between a promotional incentive to encourage switching and a reward for ongoing loyalty. Loyal customers will feel undervalued if new customers and ‘voucher tourists’ are offered the same promotions and rewards.
3. Continue the relationship
Promotions and incentives can have a high cost per acquisition so it is vital to have an ongoing plan to continue engaging customers after the event. Confused.com’s marketing director Joby Russell says: “The moment someone becomes a customer, we have data and we feel in a better position to provide them with information on other programmes. It’s important to do smart stuff with your data. The customer might not have come to us for a home insurance quote but we can do it cheaper for them based on our data.”