Like-minded businesses are coming together to offer wider benefits in combined customer loyalty schemes which also scale up rich consumer data, writes James Dean
In the spare room of a West London flat, the Tesco Clubcard was born. Clive Humby, a mathematician, had just given up his job at CACI, a firm of market analysts, where his wife Edwina Dunn worked. She was fired on the very same day.
As dunnhumby, the company they created as ambitious twenty-somethings, they began to tinker with data mining and loyalty schemes. Tesco became interested and had them undertake a trial, the results of which were presented to the company board. Lord MacLaurin, then chairman of Tesco, said after the presentation: “What scares me about this is that you know more about my customers after three months than I know after 30 years.” That was in 1994.
The next year, the Tesco Clubcard was launched with its simple premise of one point for every one penny spent. Today, dunnhumby – now majority-owned by Tesco – houses terabyte upon terabyte of customer data from which Tesco can target consumers with offers and, perhaps more importantly, draw upon to chart its marketing strategy.
The scheme has been lauded the world over for its effectiveness at retaining customers in a highly competitive market where loyalty means much less than it used to. The success of the Tesco Clubcard has spawned many a challenger, most notably the Nectar card, which now claims 19 million members, more than Tesco’s scheme.
Nectar marked a departure from the typical loyalty programme. Rather than limit customers to collecting and redeeming points with a single retailer, Nectar, which launched in 2002, opened the door to many. So, for example, customers could collect 1,000 points buying fuel at BP garages and redeem them for groceries at Sainsbury’s. This type of cross-company loyalty scheme is gaining more and more traction.
Partnerships between fuel and grocery companies or airlines and hotels appear to be logical – but some brands have begun to think laterally
Research by consultants Finaccord shows that the banking and retail sectors have become far bigger players in cross-company loyalty programmes since the mid-1990s. The programmes are attractive because they tend to have more members, are growing faster and have a membership made up of consumers with specific characteristics. And, like the Tesco Clubcard, members of these schemes part with a wealth of data that can be shared by all the companies participating in the programme.
When it comes to choosing who to partner with, “it’s a question of how you want to support your brand”, says David Parry, a managing consultant at Finaccord. Virgin Atlantic’s rewards programme, for example, offers members a “more adventurous” means of spending their points with partner organisations – a reflection of the Virgin ethos. Other airlines, he says, might target the typical traveller with a hotel partnership that suits a particular demographic.
One such partnership was agreed earlier this year between Delta, the American airline, and Starwood, the upmarket American hotelier. But unlike many airline-led rewards schemes, the Delta-Starwood partnership pools rewards points from both companies, to be spent on flights or hotels as each member wishes.
Dubbed Crossover Rewards, the scheme targets the elite, predominantly business-traveller customers from each company. It combines two brands with a strong affinity for one another and adds a touch of exclusivity as members of the Crossover Rewards scheme benefit from a raft of airline and hotel upgrades.
Partnerships between fuel and grocery companies or airlines and hotels appear to be logical. The net can easily be cast wide: people need to eat and they generally need petrol for their car; people who fly a lot, like business travellers, probably stay in a lot of hotels. But some brands have begun to think laterally.
Qantas, the Australian airline, recently teamed up with Spotify, the digital music streaming service. Qantas has long had a frequent flyer scheme and from September allowed its members to buy Spotify subscriptions with their accumulated points.
This might not seem like a huge leap, but there is a hook: customers who buy a Spotify subscription are able to access their playlists on Qantas flights without the need to be connected to the internet. The deal gave Spotify rapid access to nine million Qantas customers in one of its key growth markets, while also making a useful – and modern – addition to Qantas’ existing loyalty scheme.
These sorts of innovative cross-company loyalty schemes are being hailed by many in the marketing industry as game-changing and a sign of things to come.