By Steve Hoban, CEO, Suresite Group
Loyalty schemes are not a new concept, but they have certainly evolved through the years. It’s no longer a case of collecting stamps to put towards a home appliance. However, that core principle of incentivising and rewarding your customers to spend money with you is the same. But there needs to be more to your loyalty proposition than the reward, otherwise, you are simply running a discount scheme for your products & services with risk of not changing your customers behaviour or learning more about them to drive incremental sales & profit.
Why introduce a loyalty scheme
Often we think of the reward first but the driver for many loyalty schemes is the collection of data in order to understand, and influence, customer behaviour. By analysing this data, it’s possible to build a rich picture of your customer base and determine how to increase their frequency of shop and basket spend. This can involve looking at your promotions, ranging, pricing, merchandising, partnerships, store locations and much more! It is also beneficial in predicting when there may be increased demand for certain products, when customers are more likely to visit the store, and allows an effective way to meet your customers’ needs. Enabling you to offer a more personalised experience.
When setting up a loyalty scheme you need a clear business objective as to who you are targeting as you will never be able to create a scheme that works for all. It’s important to identify a target group who will be your main focus, whilst ensuring that your other customers are not forgotten about.
From a customer point of view, there needs to be a reason for them to sign up to your loyalty scheme, and ultimately share their data with you. Therefore, the process needs to be made as simple as possible, with a strong incentive to do so. Having launched two loyalty schemes myself, I know the importance of the hook – your reward has got to offer value to keep encouraging your customers to swipe their card or tap their phone so that you learn more about them.
Invest proper time and energy in marketing your new offer across your business to get them excited then go hard at signing customers up using all channels and tools available to you.
Points, prizes or coupons?
When considering introducing a loyalty scheme, one of the most important questions you need to ask is how are you going to motivate and reward your customers for signing up to it? In the retail sector, there is massive points fatigue – unless of course, you’re in the primary spend category where your customers can accumulate points at a fast rate. But for low frequency spend, money-off coupons can work as a good motivator with customers who can benefit from instant gratification.
It also comes down to the perceived value of the reward. Pre-Covid, Waitrose offered a complimentary hot drink to all myWaitrose customers when visiting their stores. A free coffee might only cost a few pence to produce, but the perceived value to the customer is high!
Shell’s GO+ reward scheme, which replaced its popular Drivers’ Club programme, rewards customers for visit frequency across fuel and retail spend – a new concept in the forecourt sector – with discounts every visit, plus a bonus fuel reward for every 10th visit. Rewards are also personalised, based on data insights that show how customers use their services, and include fuel, bonus and partner rewards.
It is the use of data to create personalised rewards that has become such a successful feature of any loyalty scheme. Pets at Home, for example, offers customers signed up to their loyalty programme money off coupons tailored specifically to their needs – so a dog owner will not be offered money off cat food!
Rewards can go beyond the individual, which is something the Co-op does brilliantly. Not only do their loyalty members receive 2p for every £1 spent on selected Co-op products and services, but the Co-op matches that same amount donating it to support community organisations and local causes chosen by the member from a range of choices. This creates an emotional engagement with their customers, coupled with a ‘local community’ feel that drives a real sense of belonging and loyalty to the brand.
From Green Shield stamps to Air Miles, being rewarded for spending is one that has proved to be immensely popular. Coalitions take this to the next level, allowing multiple brands to partner together and offer a joint loyalty programme, normally as a points-based reward system. This can help drive shopping behaviours – with customers focused on accumulating points so altering shopping habits to make purchases with brands in the same partnership scheme. They can also build customer loyalty through cross-promotion and incentives, with the ability to earn rewards faster than through a single loyalty operator.
For the companies involved, there can be benefits in terms of sharing of costs to implement and run the loyalty scheme. In the past, loyalty technology and its operational costs were not always affordable, so sharing the costs between brands was an attractive proposition.
Cooperation with other brands can also help build brand awareness across multiple sectors by introducing your customers to new partners who they may have been aware of previously – and vice versa.
Perhaps the biggest incentive for joint forces is being able to improve the customer experience through the sharing of enriched data. This provides insight into transactional data including preferences and purchases across multiple brands, not just your own.
But there are also challenges – can you communicate as effectively with your customers and maintain the same engagement? Do your products complement each other so you can work hand-in-hand rather than competing for customers? That’s why choosing partners in respective verticals is also beneficial when it comes to accessing and using consumer insight.
Nectar is probably one of the most successful loyalty partners in the UK. Launched in 2002, and merging the existing loyalty programmes of Sainsbury’s, BP and Barclaycard, it was acquired by Sainsbury’s in 2017. In 2018 BP dropped Nectar, introducing their own loyalty scheme BPme, with Nectar teaming up with Esso in 2019 who ended their seven year partnership with Tesco. Now Nectar boasts more than 300 big brand partners including Avios who were dropped by Shell on the launch of their ShellGo+ loyalty scheme after more than 30 years of partnering together.
How tech is transforming loyalty
Where we once used to have a wallet full of plastic and paper loyalty cards, advancements in technology means the drive is to go digital. But that doesn’t mean having a physical card is a bad thing – in fact, a lot of customers prefer it – but a digital scheme certainly offers more opportunities.
Whilst technology cannot compete with human interaction when it comes to that personal touch, access to data can certainly make it easier to help personalise your digital channels of communication, such as through an app or via email. This allows for personalised and tailored offers based on the data you hold on your customers’ transactional spend. Digital communications can also be used to publicise promotions before shoppers have even set foot in the store, through their mobile phone meaning you can target them anytime and anywhere and influence them to shop with you rather than a competitor. I often get told “customers would have bought that anyway” – my answer is “yes but maybe not with you and they might not have bought as much!”
Most importantly, it’s about the customer experience. Technology simplifies the customer journey. It takes away the need for the double swipe – loyalty card and payment card – which can be replaced through a single tap of the mobile phone. Combining loyalty and payments together transforms the whole customer experience – making it easier, quicker and frictionless.
So what will the new age of loyalty look like?
With the continued evolution of technology, it’s likely that more loyalty schemes will move to in-house, strengthening customer communications and engagement. This may lead to a reduction in merchant partnerships and coalitions with companies having the freedom to connect with customers without having to go through third parties.
Digital will push to offer a true omnichannel experience, opening up more opportunities to offer additional useful features for customers, such as payment directly through an app – automatically applying discounts or adding loyalty points.
Whilst discounts and offers remain important to customers expectations are evolving to wanting relevant communication, experiences and exclusive access to products & events.
With the continued drive towards sustainability, loyalty propositions will need to show corporate social responsibility, particularly when it comes to demonstrating awareness of the impact of business practices on the environment and showing commitment to carbon neutrality and sustainability.
With advancements in payment technology now providing an accurate measure of spend, and more customers choosing to pay by card, payment service providers can now offer detailed insight into transactional data. Technology allows for SKU-level data – breaking down shopping baskets item-by-item. This along with customer data takes the guesswork out of measuring what impact a reward has on customer behaviour.