What do customers really want?

The secret to a successful customer loyalty strategy is to awaken the imagination and deliver on the promise, writes Annich McIntosh

In the beginning there was American Airlines and shortly after that Tesco’s Reward card. Even earlier – BL (Before Loyalty) – you will come across Green Shield Stamps and the Co-op Divvie but, for our purposes, 20 years ago is a good enough place to start.

Despite being in Chapter 11 administration, there is no stealing from AA the title of loyalty pioneers. They introduced the concept of frequent flyers, of mileage rewards, upgrades and special benefits, such as airport lounges. They have been copied by the world’s airlines which have since formed coalition schemes and co-brands with card companies and retailers. Even the low-cost airlines are succumbing.

In retail, it is Tesco that still makes the headlines. Fifteen years ago it launched the Clubcard reward card and, while it was caustically described as plastic Green Shield Stamps by Sainsbury’s, Tesco management had intentions much more ambitious than just to get shoppers to return to spend their points. They were after their data.

With dunnhumby, the data analytics agency, Tesco worked out what customers actually spent their money on and how they shopped in the store. For the first time, as a company, Tesco communicated directly with customers, segmented them, sorted them and thanked them with special offers.

Social media and the smartphone arrived, and all the old rules were thrown out of the shopping trolley

There are plenty of other companies that transformed their business with loyalty reward programmes. Boots admitted that it completely restyled its stores using information it collected, hugely cutting the space given to baby merchandise and introducing new products, including financial services.

And it was the loyalty card that gave retailers the customer data they needed to launch into financial products. Dismissed by the banks, which could not conceive that customers would trust shopkeepers with their money, the supermarkets proved the bankers wrong. If the stores could look after their loyalty reward points safely, the customer seemed to conclude, then why not their savings? Soon, no retailer worth its salt was without a credit card, a savings account, insurance and other financial offerings.

Then came the doldrums. For years nothing in loyalty changed. The reward offering of one or two points per pound spent remained the same, with some companies doubling the offer for short periods. Nectar was created, with its multi-retailer proposition, but chose not to change the offer, which remained ‘save up your points, spend your reward later’. The airlines seemed similarly stuck in a rut.

And then social media and the smartphone arrived, and all the old rules were thrown out of the shopping trolley.

Now the customer could compare products and prices wherever they were. They could take a photo and ask friends what they thought. They could browse online and then shop on the high street or do it the other way round. They even, heaven forbid, started bargaining in the stores, asking for a lower price or they would shop elsewhere.

Facebook morphed into the demon Nemesis that was waiting to get at company executives in their sleep. Interns were now tasked with running chatrooms rather than doing the filing. Chief executives were desperately trying to find out how to tweet without appearing ignorant. Reputations were made and lost.

Inevitably, the regulators decided it was time they got involved and started looking at data privacy rules. This is already impacting on companies in terms of how they store and use data, and in the future it could significantly affect the ways in which data is collected.

And all the while the economy weakened, prices rose, and the consumer began to spend less and consider more.

Loyalty stopped being a nice to have add-on, used for information gathering. It instead became crucial for differentiation and even for survival.

Across all sectors, there was a growing need to interact with customers – and fast.

With one of those amusing ironies that happen in life, many retailers have returned to the Green Shield Stamp type of short-term offer popular several decades ago. Once again, retailers are offering coupons and vouchers, so that shoppers can save up for casseroles, soft toys and collectibles.

The loyalty scene today could not be more complex, more diverse or more exciting. The inaugural Loyalty Awards, to be held in June, have attracted 130 entries showing how many new programmes are being created and how, using social media, smart mobiles, the cloud and advanced data analytics, almost anything is possible.

But despite the widening loyalty offers, the secret to success remains the same – to awaken the customer’s imagination and then deliver on the promise.