I’m regaining my faith in loyalty programmes
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Loyalty programmes have always seemed pointless to me - after all, football teams don’t need them. But ‘smart’ schemes could change that
Richard Madden
I have a bit of an embarrassing admission to make. I’ve never liked loyalty programmes. Not as a consumer. And not really as a planner either.
The truth is I find loyalty programmes tend to attract bores. By which I mean the kind of person who corners you at a party and delights in explaining in great detail how they got £750 off a new Vauxhall Astra by collecting tokens printed on the side of gravy browning packets.
My first planning director was a wonderful ad man of the old school who clearly shared my unreasoned prejudice. For him, loyalty was the result of brand affinity, pure and simple. Armies, countries and football teams don’t have loyalty schemes. Successful brands shouldn’t need them either.
Luckily for my career, I have never quite succumbed to this extreme position. I have always been surrounded by sensible people who argue a convincing case for well-constructed loyalty programmes.
They marshal a lot of compelling facts to support their argument. The incremental revenue and profits which loyalty programmes can deliver are clear to see from control studies. Furthermore, the actionable behavioural insights gleaned from 100% transactional visibility can be revelatory.
However, my instinctive prejudice remains. And it is bolstered by some very rational concerns. Loyalty programmes require a huge investment, both initial and ongoing. There is also a risk that you create loyalty not to the brand, but to the scheme itself.
Others clearly share these concerns. To the extent that the loyalty landscape appears to be changing of late. So much so that my natural prejudice against loyalty programmes is beginning to soften.
The change is a little like the transformation in strategic bombing brought about by stealthy aircraft and smart munitions. Years ago, vast fleets of bombers were required to destroy one target using “dumb” bombs. Now that target can be destroyed using just one smart bomb dropped by just one stealthy plane.
The large investment required is just one aspect of the “dumbness” of traditional large-scale loyalty programmes. Another is the points collection mechanic, which has a propensity to attract gift-chasing Astra-man rather than building and rewarding true brand affinity.
Other criticisms can be levelled at “dumb” loyalty schemes. They run the risk of being perceived as discrete bolt-ons rather than as integral parts of the total brand experience (I hasten to add that Tesco Clubcard is an honourable exception to this). Furthermore, they limit their ambition to a one-dimensional dialogue (often just monologue) between the brand and the customer. This appears almost quaintly old-fashioned in an age of peer-to-peer conversations and the social web.
Although the horizon is hazy, it’s just about possible to discern the outlines of the emergent “smart” loyalty phenomenon. What, then, might be the key characteristics of such a new model loyalty programme?
Traditionally, participation in a loyalty programme has been extended to the whole of a brand’s customer base. This allows the brand to influence the transactions of every customer segment. It also generates reams of behavioural insight. However, this global coverage is the principal driver of high costs in traditional loyalty programmes. By contrast “smart” loyalty initiatives – like “smart” munitions – target only those customers whose behaviour a brand really needs to influence.
Tight focus on a defined customer segment is therefore the first characteristic of “smart” loyalty programmes. A good example of this is the M&S Premium Club. In this case the audience is discrete and largely self-selecting: shopping enthusiasts. What’s more, customers actually pay a monthly fee to belong, which probably means the programme is effectively self-funding.
The second characteristic of “smart” loyalty programmes is that they eschew narrow reliance on “earn and burn” points schemes. Instead, they offer genuine preference drivers based on an insight into what customers really want from the category. For example, in female fashion (so I’m told) being on the inside of the latest trends is a matter of life and death for high value shoppers. So exclusive access to the latest collections is just one of the benefits offered by US department store Nordstrom’s Fashion Circle programme.
Back in a category where I feel much more comfortable (those heels are murder) the Starbucks loyalty card offers its users free Wi-Fi access together with extras like additional shots and toppings free with every transaction. While I have to say I prefer the coffee at Costa, the free Wi-Fi means that Starbucks gets my custom every time I need to rent desk space for ten minutes.
A few of the best traditional loyalty programmes occasionally manage to pass the Turing test. By which I mean that maybe once or twice a year, they succeed in creating the illusion that there is a controlling intelligence at work somewhere in the soul of the machine. An intelligence which observes your behaviour and reacts with triggered actions which are relevant and therefore genuinely welcome. (Of course, this may be blind luck. But let’s be generous. It’s nearly Christmas.)
A third characteristic of “smart” loyalty schemes is that they go beyond the usual one-dimensional dialogue. They effectively “triangulate” the customer relationship by facilitating conversations between their customers, and even between customers and prospects. A good example of this is Mothercare’s Gurgle.com, which is a little like Netmums but without the annoying biscuit references.
The fourth and final characteristic of “smart” loyalty programmes may be the most radical of all. What if your brand’s new loyalty programme wasn’t a programme at all, but rather a collection of diverse loyalty-inspiring brand behaviours linked together and driven by data? For someone who has the same feelings toward loyalty programmes that Groucho Marx had toward clubs, I say this can’t come a day too soon.
Richard Madden is planning director at Kitcatt Nohr Alexander Shaw
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Readers' comments (4)
Steve Brown | Sat, 12 Dec 2009 9:38 am
My initial thought having read this article was that it was astonishing to be debating the value of brand loyalty as a behaviour, and loyalty programmes as a medium to create this much cherished state of affairs.
The truth is that loyalty programmes do work and the more well-thought out they are, the better they work.
Tesco Clubcard is an excellent example of a basic tenet of a successful loyalty programme. Just take a look at the returns they have achieved. Returning customers, return on investment and a return to the philosophy of the good old days - treat your customers as individuals and they will become the best sales force you could imagine.
Smart" loyalty is no more than this. It is a good loyalty programme, where the use of data drives relevant offers to customers, which drives sales, and where customers climb up the loyalty ladder and assist prospects in getting on it.
Like Richard, I am wondering what might happen next but I also agree with Adrian that there is an awful lot of work to do right now on the plethora of existing loyalty programmes that really do seem to be unimaginative, bland, pointless, badly thought out.
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Stuart Evans - ICLP | Tue, 15 Dec 2009 4:16 pm
A loyalty programme that has a generic blanket approach to all customers is a loyalty programme that will fail to deliver an ROI. Businesses need to ensure they analyse and utilise customer data correctly to target the right customer segments; only by doing this will they be able to increase revenue.
ICLP recently carried out a survey among hotel and airline loyalty programme managers which showed that a staggering 52% are potentially targeting the wrong members i.e. those in the top-tier of their programme. They may have the most money to spend, but there is often also no opportunity for top-tier members to significantly improve their value. Therefore, it would be far more effective to target the members in the middle of the programme who can be incentivised to increase their share of wallet.
It is right that ‘smart’ loyalty schemes should be specific in which customers they target, but this should be the norm for all programmes. As Richard Madden says, not throwing money at targeting customers where there is no chance of gaining revenue can save costs. It will also make it easier to analyse the data which you actually need, without having to sift through the customers who, for whatever reason, are less relevant to your business. This efficiency will help drive a greater ROI.
However, that is all too logical for today’s interactive customers. They also want to research, touch, feel enjoy and benefit from their relationships with brands. This brings us back full circle to both engaging customers emotionally through a brand promise and bringing that promise to life with the engagement opportunities and benefits designed into a complementary relationship programme.
This means any programme must be part of a long-term customer centric strategy. Far too often we see businesses launching a loyalty programme in an attempt to make profit in the short term. Only through a long-term strategy which effectively utilises customer data to drive all marketing initiatives will any loyalty programme be successful.
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Anamaria Chizuan - The Logic Group | Wed, 16 Dec 2009 3:22 pm
Richard has clearly demonstrated from both a consumer and a business perspective that there is an immediate need for loyalty programmes to re-gain our faith.
Customers’ failure to participate in loyalty programmes and their fairly lukewarm feelings about the benefits they get as members, tell us there is much more that can be done to engage customers with brands via this channel. For example in a recent Ipsos MORI survey commissioned by the Logic Group, 46% of customers confirmed that they are not members of any loyalty programme.
We do need to adopt a smarter approach to loyalty and ensure that rewards are relevant and immediate – it is not about handing out loyalty points that take too long to transform into rewards and whose value customers don’t clearly understand. The currency of loyalty points has lost its value. What really matters to customers are the actual rewards: they need to have high-perceived value, as for example the exclusive access to the latest collection mentioned in Richard’s article or a special and personalised treat for loyal customers.
The customer experience is key. Our customers are asking for rewards that are relevant and the most successful loyalty programmes are those that combine relevancy and immediacy to make loyal customers feel they are being looked after. At the same time the concept of the personalised treat contradicts the “one-size fits all” reward programme approach.
In order to achieve this, data must be used to develop an understanding of your customer base. It’s important to focus on the customers exhibiting the right type of brand behaviour to sign up to the programme. Segmentation is at the core of your customer strategy in order to acquire, retain and grow their custom. The loyalty programme must sit as a complementary brand strategy providing relevant and immediate rewards which must recognise customers’ different brand behaviour and inspire loyalty alongside a consistent brand experience.
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Chris Barraclough | Wed, 16 Dec 2009 5:18 pm
Gosh. A lot of long words above from people who seem to know an awful lot about the subject.
Which makes a few of their comments a little baffling.
For instance, even big loyalty schemes can be segmented and tailored. Nectar personalises its offers and has a massive range of rewards - even curmudgeonly planners will find something that takes their fancy.
And despite Anamaria's comments, loyalty points have not lost their value. In fact some people love collecting them! Try taking them away.
Sometimes, 'mass bombing' works too - except it's usually called sales promotion.
But hey. No-one is more remote real, live consumers than marketing professionals. After all, in research people tell us they're never motivated by incentives. They're not, are they?
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