Finding their soft spot
Major established brands to smaller start-ups are taking a long hard look at their customer data to understand people’s motivations for joining loyalty schemes and make their services stand out from the crowd.
Understanding why shoppers join particular loyalty schemes can give marketers the inspiration to evolve theirs beyond merely a means to collect customer data and send out offers.
According to an exclusive study of over 1,000 consumers by consultancies Promise and Lightspeed commissioned by Marketing Week, building up rewards and saving money are the most universal motivations for joining a loyalty scheme. And of those in the survey, 100% say they are part of such a scheme.
However, the study shows more complex motivation drivers emerging for independent and local store schemes. These include feeling part of a community (29%), getting gratification for helping that company (24%), access to exclusive information (22%) and the fact that it “says something about me” (16%).
This is reflected in start-up loyalty schemes with an ethical core, such as Blue Dot World, which rewards charity donations, and Ice, which encourages people to shop at green, local businesses.
Blue Dot World users collect dots by a combination of donating to and volunteering for charities and engaging with them on social media. Users can redeem their dots for exclusive deals and content such as music, product samples, experiences and memorabilia.
All actions prompt Facebook and Twitter updates such as “I downloaded a Coldplay track with five blue dots” or “I helped Children in Need with five blue dots”. This social publicity is also the platform’s main marketing tool.
Founder Chris Ward - a former creative director at Comic Relief - says 80 charities have been involved so far, as well as bands including Coldplay, Snow Patrol, JLS and One Direction and brands such as Grazia magazine and Yahoo!. He says the model is also a marketing platform for these names rather than making yet another donation request.
Ward is not only working to establish more agreements with major brands, products and charities, but is also aiming to get businesses on board to recognise employees’ involvement with Blue Dot.
The points-based loyalty model is crucial, he says, which is confirmed in the Promise/Lightspeed research.
“We live in a world where everything is rewarded, which it wasn’t when volunteering was first designed,” he says. This gives volunteering an opportunity to get noticed alongside many advertising messages.”
Ice, meanwhile, enables points to be accrued and spent on well-known brands, such as Green & Black’s and Eurostar, as well as at smaller, independent businesses, such as organic grocers and sustainable fashion labels. Its offering will soon include holidays abroad.
Ice chief executive Jude Thorne says a key differentiator is that points can be spent as soon as they are earned, without a minimum threshold for redemption. She says people tend to rationalise the amount of loyalty schemes they participate in, sticking with those that offer fast, high-value rewards.
“We found in our own research that if people have to save up for too long they resent it,” she says. “A lot of people have come from conventional loyalty schemes where you earn, save and redeem points. We wanted to launch something to help people make more sustainable lifestyle choices. We knew that we would have to make the loyalty scheme structure much better than those we have been involved in previously.”
While access to special offers and priority events emerged from Promise and Lightspeed’s study as an important trend in loyalty, this is more prominently noted in mobile schemes (45% and 34%). Vodafone UK brand director Danielle Crook says these features have helped elevate the brand’s net promoter score - one of her key measures for a loyalty scheme’s worth.
Most people - 66% - say there’s nothing to stop them using their loyalty schemes at any opportunity. However, barriers to use are noted as being convenience and availability, according to 11% of those in the study. Also, 9% say they don’t spend enough in stores that have loyalty schemes to warrant joining.
The points-based schemes come out on top for frequency of use, with 52% using them more than once a week and 35% every one to three weeks. This is perhaps a challenge for airline schemes, with 30% saying they only use them once a year and 21% less than that, compared to just 9% who use them once a week or more.
Educating members about how they can spend their points is part of the aim of the newly launched digital magazine The Club for the British Airways (BA) Executive Club, produced by Cedar Communications. The Executive Club was revamped late last year to incorporate new tiers, more points outlets and integration with the rebranded Air Miles scheme, Avios.
52% of people use a points-based loyalty scheme more than once a week
The Club’s editor, Charlotte Swift, says the purpose of the magazine’s content is largely to point out the scheme’s lesser known benefits: “We’re reminding people of Executive Club benefits and helping them get the most from it, because some don’t use it to the fullest.
“By providing readers with inspiring content, such as stories on restaurant openings, we want to encourage people to make the most of their membership.”
There is a common misconception that BA points can only be redeemed on flight tickets after a lengthy saving process, but Swift says the airline has an e-store and wine club that members can also spend points in. And, of course, Executive Club members can collect and spend their points within the Avios scheme, which includes high street partners such as John Lewis, Shell and HMV.
“We have 7 million people in the Executive Club and a lot of them don’t know about all these things. We’re raising awareness of how much they can get out of the programme,” says Swift.
BA also has a co-branded credit card with American Express - yet another way of increasing usage and membership. Indeed, the Promise and Lightspeed study shows that credit card schemes are the second most frequently used behind points-based programmes, with 40% using them more than once a week.
Richard Harris, vice-president of acquisition at American Express, says the BA card also links to Avios points, and educating consumers on the benefits of loyalty-based credit cards over the pitfalls will be high on his agenda this year.
“People can sometimes be intimidated by credit cards for the wrong reasons,” he says. “There are still connotations of being penalised and paying interest when, in fact, a lot of cards incentivise spend and provide a level of control.
“Credit cards offer legal protection for purchasing. This is a benefit that is underplayed, but if you’ve experienced faulty products, the level of protection can never be underestimated. Given the shift in consumer behaviour to buy more online, that protection can only be a good thing. Next year will see a growing awareness of it.”
He adds that communicating straightforward processes and the benefits of loyalty schemes will cater for more demanding consumers: “Transparency and what points are really worth is going to be an increasing challenge. Consumers will want to know if earning two points on one scheme is better than earning one point on another, as that might not always be the case.”
66% of people say they can use loyalty points at any opportunity
Increasingly, consumers are using loyalty schemes to differentiate between brands, contends Promise managing director Clare Fuller. Promise has used focus groups to identify loyalty shopper personalities, such as the discount obsessed ‘hunter’ and income-supplementing ‘survivor’ that marketers can use as a guide for working with different consumers.
Companies used to talk about their brand encouraging consumers to choose them over competitors, says Fuller. Now they are talking about the loyalty scheme doing all those things.
Despite her warning of the danger of consumers developing a greater affinity for the loyalty scheme brand than its individual participating brands, Fuller argues that loyalty will remain a key brand strategy in 2012. She cites the theory of loyalty strategist Frederick Reichheld, whose research showed a 60-70% chance of selling to an existing customer over a 5-20% chance of selling to a new prospect.
Such statistics present a strong case for loyalty schemes. It’s up to marketers to make theirs more innovative and efficient by understanding consumer motivations and how to play to these in a saturated market.
- Most respondents belong to just one of each kind of loyalty scheme, with 30% belonging to three, 13% to four and 7% to five programmes.
- Men are more likely to belong to two or more credit card schemes than women.
- Women are more likely to belong to four or more points-based schemes.
- Women are more likely to belong to two or more coffee shop schemes and are more likely to belong to two or more independent/local schemes.
- 62% of 18to 34-year-olds say they would like to see more loyalty schemes being offered by brands, compared with 37% of 55to 64-year-olds.
- The younger the respondent, the more likely they are to say that loyalty schemes make them feel closer to the brand.
Danielle Crook, UK brand director, Vodafone
There has been a growing trend for loyalty programmes to offer money-can’t buy-experiences as rewards. As such, we launched our Vodafone VIP programme just over a year ago, which is open to pay-as-you-go, pay monthly and enterprise customers. They can enter prize draws for VIP access to fashion, festivals and Formula 1.
In the past, we might not have been as generous with pay-as-you-go customers and we felt there was a need to give them something extra. We started by offering more credit value every time people top up. But after talking to them, we realised they wanted extra value that was more than just functional. This is why we launched Freebeez this year.
All pay-as-you-go customers are opted into Freebeez automatically, unlike Vodafone VIP, where they have to sign up. With pay as you go, we want to make it as easy as possible. People have the option to ‘grab’ or ‘grow’ their points. On the grab side, it is something such as a free gym class or coffee. With grow, they can redeem them for a larger treat, like going bungee jumping.
Two-thirds of our customers have asked for grow rewards and the rest for grab. There are people in it for instant rewards but others like accumulating points for something bigger.
We’re still figuring out in this industry what people want, whereas many other typical points schemes have been around a while. There is a lot to be learned from other industries.
Loyalty schemes are becoming a badge, so we look at Vodafone VIP as a club that opens doors to things. It’s either about straight value or access. We offer both because people want different things at different times.
My biggest key performance indicator is net promoter scores. Going by this metric, it’s definitely working.
Two years ago, it was about awareness and now it is more about affinity. I want people to love being part of the Vodafone club.
Actively seeks out the best deals and works hard to maximise the benefits. An early adopter of new schemes such as Quidco. Deal-loyal rather than brand-loyal. More likely to be male and technology-savvy. Prefer schemes that translate directly to cash.
Conscientiously collects and spends points in the schemes they belong to but likely to stick to favoured brands, such as Nectar. Rather than make purchase decisions driven exclusively by the scheme, they will make rational decisions based on their needs. They like flexibility.
More likely to be older women with families. May influence partners’ behaviour by persuading them to choose one brand over another to collect further points.
Enjoys banking their points. Less concerned with spending them. For example, a BA miles collector who will purchase a Ryanair flight rather than use their points.
Saves points for treats or necessities if finances get tough. More common among young women, who may club together and save in groups.
The treat seeker/ occasion saver
Uses loyalty schemes to buy treats for a specific occasion, such as Christmas. Tends to pick a particular brand and saves all year to spend at the end, often on friends or family.