In a fast-changing retail world, Liam McLoughlin asks whether there is still a place for loyalty reward points
The concept of a reward for doing business is a well-accepted facet of today’s retail world. Since the Co-op Divvy and Green Shield Stamps, we have come to expect something extra in recognition of our custom. But customer behaviour is changing.
Is it time the business model changed? Are experiential considerations more important than the reward bribe and has social media moved the goal posts? If we have a variety of loyalty cards in our wallets and an increasing number on our phones, is the currency now devalued?
Nectar celebrated its tenth anniversary recently with an expanded partnership with eBay and the claim that its offer of points for retail spending is proving more successful than ever with customers. According to Nectar marketing director James Frost: “We have seen our membership grow by three million over the last three years to18.5 million. The customer satisfaction levels that we track every month have never been higher.”
Mr Frost anticipates points collection and redemption will move on to the mobile phone rather than being handled via a plastic card, but the concept will remain the same. “Changes to the whole payment system will be something that affects all of retail, but it won’t change things dramatically for us. The offering of earning points for loyalty when you shop will still be there.”
Sir Terry Leahy was appointed the first Tesco marketing director two years before the Clubcard launched 17 years ago. The country was struggling with a recession and Tesco was having a hard time. He instigated a great deal of research into different ways to improve the experience for customers, which resulted in the “one in front” policy at the till and value-priced products. But what he wanted was insight into customers and the Clubcard was launched as a route to get it.
“A loyalty programme gives a business a second chance if you get something wrong. Nobody gets it right all the time,” says Sir Terry, who is insistent there is still a place for loyalty reward points.
Differences of opinion
Director of loyalty marketing
Swisshôtel has shunned points-based schemes in favour of experiential rewards, which it says are especially suited for the hotel industry. Stephan Dupré, director of loyalty marketing, explains: “We try to see loyalty not in terms of rewards. Hospitality is a very emotional business. We have contact with people at the reception desk, in the restaurant and you cannot quantify this in points or miles. It is trust, emotions and a need for status.” Swisshôtel has created an Elite Member tier for its 350 strongest advocates, who receive special benefits and recognition, including communications from the company president and testing new products.
“Rewards can be good value for money if they are simple, well thought-out and easy to understand,” says Tesco Clubcard director Janet Smith. Tesco is currently testing plans to expand the “experiential” side of rewards alongside its hard points offering, by recognising and rewarding its most loyal customers. Ms Smith says the UK supermarket has identified its 500,000 most loyal customers and has worked out they are 20 times more valuable to the company than normal customers. She is at pains to point out, though, that developing more experiential loyalty would not impact its established points and rewards offering.
Virgin Atlantic Airways
Head of loyalty and ancillary revenue development
“Virgin Atlantic scores highly on emotional loyalty,” says Alan Lias, Virgin Atlantic Airways head of loyalty and ancillary revenue development. “We were the first airline to have in-flight TV. Our Upper Class Experience lounges have a spa and Jacuzzi, and there is a DJ from 6pm. “The programme gives our customers access to our product. You are saving points and miles for a lovely experience. The Flying Club scheme keeps us top-of-mind and gives us a relationship so we can remind our members about why they fly with us. It gives our customers a vested interest in coming back to us.”
Susana Miranda Hansford
“Providing points and miles for rewards is worth it for us,” says Susana Miranda Hansford, of Melia Hotels group marketing. “If you handle the programme properly you get the results and the loyalty is there. We provide both points and rewards, and our hoteliers know the client and the things they want, such as a particular room. Our scheme has three tiers – basic, gold and the platinum – for people who stay for more than 50 nights a year. There are 2,500 platinum members and, if they get downgraded, we contact them to check if this was due to reasons such as illness.”
Saatchi & Saatchi
“Real loyalty schemes are not really about loyalty,” says Richard Hytner, deputy chairman of Saatchi & Saatchi. “I give you my data, you give me your points. When else in life would that be called loyalty? Loyalty as a concept is under serious threat and we need to rethink it. Consumers, according to our research, are very suspicious of loyalty and loyalty programmes, so we have to find a new way to engage with people around this whole very important concept, and to use it to create sustained and profitable growth for a business.”
Vice president knowledge development
“When people hear the word ‘loyalty’, they immediately think of rewards, but a rewards strategy has both the hard rewards side, which is points, miles and vouchers, and the soft side, which is experiential and providing elite status, so it is a combination of rewards and recognition,” says Rick Ferguson, vice president, knowledge development, at Aimia. “Ray Kroc, the founder of McDonald’s, told us what the basics were over 50 years ago: quality, service, cleanliness and value. If you do these things better than your competitors, then you will build loyalty among your consumers.”
Head of client services
“I have lots of loyalty cards in my wallet, so am I loyal to five coffee companies and two supermarkets?” asks Mike McMaster, head of client services at Rapide. “These companies all offer discounts and rewards, but are not getting to the heart of loyalty, which is driven by people’s emotions. Some 85 per cent of decisions are emotional. You can have all the data you like, but emotion trumps data every time. Real customer loyalty drives business value. It is about customers who spend more money and who get other people to do that. And they do all that because they want to.”
Loyalty Consulting UK
“The strongest loyal behaviours are seen with sports teams,” says Mark Bergdahl, director at Loyalty Consulting UK. “The dedicated Manchester United fan refers to the team as ‘we’ and the performance of the team affects mood, behaviour and attitude. This concept of loyalty is unlikely to be demonstrated for banks or supermarkets or airlines. However, Applemania is perhaps the strongest example of there being no need to overtly reward consumers; the reward is in the enjoyment of the brand and quality of products and services purchased. So there is proof – loyalty can be created without the need for points or rewards.”
European sales director
“Instantly rewarding customers for changing their behaviour is an effective tool but, as with any ‘loyalty’ scheme, the key to a good instant win is a quality reward that will inspire a long-term perception change in the customer,” says Mark Featherstone, European sales director for TCC, which manages short-term loyalty programmes for retailers. “We have run programmes worldwide and our research has shown that the simple act of collecting is enjoyable, with children that’s especially true. Ultimately, we have found that a ‘surprise’ reward – something people didn’t realise they would receive – can be one of the most effective ways of inspiring loyalty.”
Customer relationship management (CRM) and loyalty consulting director
“Is it possible to have strong customer loyalty without rewards?” asks Bartosz Demczuk, CRM and loyalty consulting director at Comarch. “Of course it is, but the product itself must be seen as a reward, like an iPhone or a Harley Davidson motorcycle or a Prada handbag or anything else from your ‘dream list’. If you’re not on that list, then boost customer loyalty by offering rewards. Sometimes points and promotions can damage margins, with retailers an easy target for cherry-pickers. Return-on-investment (ROI) analysis shows that many companies can earn much more, both on margins and customer loyalty, when loyalty programmes are better managed.”