The evolution of loyalty
As loyalty moves further towards the heart of the modern marketing strategy, brands are finding new ways to ensure their schemes deliver extra value.
Shoppers are increasingly demanding more for less and a new generation of loyalty schemes is answering those demands by growing new capability and adding extra value.
More established loyalty schemes are having to evolve fast in order to keep pace, and retailers from Harrods to The Perfume Store and Superdrug are launching schemes this year. While retailers such as Tesco and Boots already have established programmes, mobile operator O2 has recently moved into this territory. Its Priority Moments scheme, extended last month, has joined forces with stores such as WHSmith and French Connection to serve consumers with instant offers.
It isn’t just economic concerns that are prompting retailers to make loyalty promotions increasingly targeted. Brands are also finding that customers are becoming impatient with irrelevant marketing they know brands have their personal data and they want them to use it properly.
Nectar marketing director James Frost says: “I think people used to have far more tolerance they’d understand if they received something irrelevant to them as part of a mass mailing.
“But now people have lost patience, quite rightly, because they know what’s possible. They expect marketing to be much more relevant and targeted.”
Nectar, which launched nine years ago, has evolved from being effectively an in-house loyalty scheme for supermarket giant Sainsbury’s to a multi-sector customer relationship management partner to brands including airline easyJet and utility giant British Gas, which it signed up recently.
Frost claims the brand leads the market in making sure it keeps up with trends in customer demand, such as introducing paperless coupons, which he claims Nectar did two years ahead of Tesco’s Clubcard scheme.
“Nectar is very different from when it launched nine years ago as a piece of plastic, plus paper through your letterbox now it’s a multichannel interactive loyalty brand,” he says.
Alongside Sainsbury’s Nectar and Tesco’s Clubcard, Boots has become synonymous with loyalty as its popular Advantage card scheme which offers points that can be accrued towards discounts or treats enters its 14th year of circulation.
Now the health and beauty store’s high street competitors at both ends of the market are hoping to tap into the marketing rewards it has reaped from the scheme.
Budget health and beauty retailer Superdrug launched its Beautycard scheme in May, while sister company The Perfume Store is gearing-up to launch an online-based reward scheme in September.
Meanwhile, luxury beauty chain Space NK recently launched its N.dulge card in a bid to solidify its place in the high-end beauty market at a time when it risks losing customers to online-only stores offering premium goods at lower prices.
Superdrug claims it has amassed more than 4 million members since it launched its Beautycard pilot. The chain is hoping that the card, which follows the traditional formula of collecting points with purchases for later redemption, will drive extra purchases as it is allowing part-payment of transactions with points.
Superdrug’s parent company, AS Watson, is already familiar with operating loyalty schemes. It has more than 9,000 health and beauty stores around the globe, with 35 million people signed up worldwide to its other loyalty schemes.
Now The Perfume Store, also owned by AS Watson, aims to take advantage of market intelligence and supplier relationships to launch its own scheme.
The fragrance retailer is rolling out its ’Perfume Shop Rewards Club’ across all its branches from September. Unlike its main competitor, Boots, the scheme will reward customers with vouchers to spend in-store only after they have amassed 100 points. Customers earn a point for every £1 spent.
Marketing director Matt Walburn says the retailer decided to take this approach as an incentive to customers to make extra trips to the shop. “Our loyal customers spend money with us on average during two visits to the store, although they visit more often, so the scheme will hopefully encourage them to make a purchase on a third visit,” he says.
Walburn says that although he thinks it is unusual for a single category retailer with just one group of products to invest in a loyalty scheme, he feels this approach will work for the brand’s customer demographic and shopping behaviour.
The added bonus for Walburn’s chain from a marketing perspective, he adds, is that the data will not only be useful to build a picture of loyal customers and get them shopping more, but will also assist in creating new marketing materials to communicate with these people more effectively in future.
Space NK is also hoping to use rewards to maintain its market share. Space NK CRM manager Gemma Stevenson says: “Retail is increasingly competitive particularly with the popularity of online shopping. It is therefore necessary that we offer customers something extra, both in terms of the information about the products and the service they receive.
“Through N.dulge, we aim to hone our ability to source and offer these members a carefully edited selection of beauty products, which truly match their demands.”
These newer schemes may gain a head-start over established offers by emerging at a point when data collection and management technology is highly sophisticated. In addition, says former Sainsbury’s marketer Phil Szymala, internet access has reached critical mass, so brands can sign people up online and get access to their all-important email addresses.
“Tesco and Sainsbury’s are great at targeted communications, but they are not technology-proof. One key limitation is the lack of customer email addresses they hold from early scheme adopters who have never provided this information,” says Szymala, who is now insight director at International Customer Loyalty Programs (ICLP) after a long stint with Tesco’s Clubcard partner Dunnhumby. ICLP Loyalty creates loyalty programmes for retailers such as Harrods and Superdrug.
“Newer schemes, such as Superdrug’s, are likely to be in a stronger position to react more quickly to a higher percentage of customers without reliance on costly DM,” Szymala adds.
Petrol retailer Total’s marketing manager, Matt Willcocks, is clear about the data marketing benefit of its new Rewards scheme, which offers discount vouchers at partner golf courses, cinemas and restaurants to members.
“We can segment and track customers by both their collection and redemption behaviours. It helps us to understand the business, shape the scheme and adapt our messages,” says Willcocks.
He says its new scheme has boosted the brand’s image among all its customers too even the ones who haven’t become members. He claims that 69% of customers who didn’t join the programme nevertheless said they feel more favourably about the brand, which could influence their future spend intention.
Targeting loyalty schemes more efficiently by consumers’ location looks set to be the next route for most brands. Frost says Nectar is considering the potential of location-based software via smartphones, but remains tight-lipped on the details. He does mention, however, that he thinks Foursquare’s approach, which relies on people opting in to reveal their whereabouts, probably won’t be the right model.
But most agree that the traditional frameworks for collecting points in return for money-off vouchers or rewards will continue to form the backbone of loyalty in the UK. Loyalty programmes that are popular in Asia, for example, which involve buying a card to get a subsequent discount on every purchase, are not seen as likely to catch on with British shoppers.
As retailers use data on locations, preferences and buying habits in ever-more targeted ways, the combination of these areas looks set to provide a healthy future for loyalty schemes. When people can automatically log points through their mobile and receive instant offers as they enter a store restaurant, airport or cinema, who won’t want to take advantage?
Space NK Apothecary
High street luxury beauty retailer Space NK is hoping its N.dulge loyalty reward scheme will stave off the worst effects of consumers cutting spending and heavy price competition from online-only stores.
Space NK, which opened its first store in London’s Covent Garden 18 years ago, now operates 60 own-branded retail shops in the UK and 18 in the US. It launched its loyalty scheme last October with the aim of locking in new customers as repeat purchasers, in addition to retaining existing fans.
The launch of N.dulge comes after retailer Boots, which has its own highly successful reward scheme, began to make own-brand inroads into the higher priced end of the beauty market. L’Oréal-owned brand The Body Shop is also rumoured to be preparing a loyalty scheme launch next year.
At Space NK, once a customer joins the N.dulge programme, they receive a card that allows them to accumulate one point for every pound spent at Space NK, in store, online or via customer services.
When a customer gains 100 points, these are automatically turned into a £5 ’N.centive’ to spend in store and online.
Once they spend £1,000 or more within a 12-month period, they get upgraded to N.dulge deluxe membership, the top tier of the programme, which gives them a £10 ’N.centive’ for every 100 points earned.
The retailer uses the programme to invite customers to take part in new product previews, exclusive offers, private sales and events.