Loyalty programmes: Why it's time to change tact

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Comarch’s Mateusz Skowronek and Joanna Młynarska explain the customer behaviour traits forcing major loyalty programmes to change tact.  

To paraphrase Charles Darwin, “It is not the biggest of the companies that survives, nor the fastest growing one, but one that is the most adaptable to change”.

A major change in the retail sector is coming, and it has its crosshairs firmly locked on loyalty.

We saw the first glimpse of this change in recent years, across the retail sector in mature and emerging markets. It puts retailers, regardless of their size or growth rate, under mounting pressure, sending some loyalty programmes towards major shake-ups.

Consider, for example, recent controversies surrounding Tesco Clubcard – one of the most renowned loyalty programmes in Europe. Facing continuous market share decline in the UK (due to discounters’ aggressive strategy), Tesco has been for some time receiving signals from market experts to abandon the programme and invest money in price cuts instead. Retail analysts claim the programme is too costly and this money can be invested better.

Clouds are also hanging over one of Europe’s biggest coalition programmes. PAYBACK in Poland recently suffered from loss of big partners, like Allegro (the biggest ecommerce platform) or Empik (general merchandiser) and now BZ WBK (one of the biggest banks in Poland), considerably restricting its participation in the programme.

And Nectar, the biggest coalition programme in UK, although still standing strong, is experiencing departure of their first major partner, DIY retailer Homebase.

These are signs that the traditional approach to customer loyalty and old-school currency-based loyalty programmes are posed for gradual decline.

What’s changing and why?

Recent technological disruptions and ground-breaking changes in customer behaviour pose a serious challenge to the way companies interact and build long-lasting relations with their clients.  

We are all customers, and we all have experience of the nuances around transacting across different channels. Before we buy, we can reach out to multiple sources of information, read or listen to the feedback from happy and unhappy customers or current-users, watch expert reviews and tests on video channels, and finally quickly compare prices.

And when we finally make a decision, we can purchase our beloved product on our phones while riding a bus, and pick it up later in the store. If we decide to visit an old bricks-and-mortar shop we frequently don’t have time to hang around for too long, trying to squeeze too many things on our daily list, with shopping being lower and lower on the list.

We are all becoming too rushed to wait in queues, and become anxious if we cannot find what we are looking for fast enough, not to mention caring about calculating how many points we collect, how much they are worth and what we can get for them.

Since we now have various multi-channel opportunities and numerous brick-and-mortar and online outlets to fulfill our shopping missions, and as a Nielsen study recently highlighted, our “spend” is getting divided into more, but smaller parts, with each of them being allocated into different stores and channels.

Disloyalty rules

We are becoming far less loyal to our stores than ever before. We are entering the era of the disloyal customer. This phenomenon has a huge impact on retailers and the way they manage customer loyalty and experience.

Take one particular, unnamed European retail chain we’ve worked as an example: managing large networks of grocery stores of various formats, from convenience to big-box, they found it increasingly difficult to encourage customers visiting smaller, convenience-like stores to leverage the loyalty programme benefits and to use their loyalty ID cards.

Although having high overall programme penetration rates, the penetration among the customers visiting the smallest store segment was only a fraction of the bigger ones. And all this happens despite the numerous and costly projects aimed at increasing customer engagement. It is simply because the purchase behaviour and needs of the customer coming to the convenience store is drastically different and not necessary responsive to the incentives provided by the traditional loyalty framework.

Matching behavioural needs

There are no easy answers, but there are steps you can take to meet demand. First, recognise the change, and look through your customers’ eyes.

Seems easy, but the first step is always the hardest. Because our minds tend to focus on what has been already proven, we often fall into the trap of a “more-of-the-same” kind of solution. This would mean for example an attempt to apply the standard loyalty tactics to the non-standard problem, e.g. if loyalty penetration in the smaller format stores is low, we can try offering more attractive discounts for our members, hoping that it will lure them into frequent use of our card/app or increase enrollments.

It won’t work. Instead, try to look deep into customer behaviour and motivation, and admit which parts of your loyalty strategy are the biggest oddity with customer’s expectations and habits. For instance, ask instead, why are customers not willing to show their ID at the first place? Is our loyalty identification process too time-consuming for on-the-go shopping missions?

Second, be bold and differentiate. Break the routine and approach loyalty differently. In many instances this would involve including technological innovations that your company may have been avoiding or postponing (due to cost reasons, organisational inertia etc.).

We are all becoming too rushed to wait in queues, and become anxious if we cannot find what we are looking for fast enough

Think, for example of the Chinese retailer Chow Tai Fook, which partnered with social app WeChat and thanks to deployment of location-based discounts was able to generate additional sales of $16 million US dollars through in-app voucher-based promotion that showed redemption rates reaching 83%.

Or, fast gaining popularity, loyalty mobile app called Shopkick, that drives customers into the retailer stores, by offering them “kicks” (Shopkick version of “points”) for scanning their products’ bar codes.

Finding a way to differentiate your loyalty programme is not easy and straightforward, and often requires suitable expertise and additional resources. But without it, and with the growing pressure from newcomers, fast adopters and radical shifts in customer behaviour, you may fall into risks of losing your customer loyalty that is hard to reclaim.

Unless you are ok with the role of a secondary or complementary store, and comfortably leave the spot open for other retailers to be at the forefront of customer loyalty innovation and experience management. In other words, you set yourself apart or allow your programme to slowly lose its relevance for the customer and die out. The choice is yours.

Mateusz Skowronek is senior loyalty and customer experience consultant at Comarch, working with retailers to build winning customer strategies and loyalty programmes.

Joanna Młynarska is senior loyalty expert at Comarch, and the former Manager of Heathrow’s loyalty programme, helping various retail clients to bring their loyalty programme up-to-date with customer expectations.

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