Loyalty reward programmes: Which are the best and why?
There are many, many customer loyalty reward schemes, but some stand out from the crowd. We take a look at the programmes that have proven most successful for companies and their customers, and examine what it is about those schemes that makes them so powerful.
My Starbucks Rewards
The My Starbucks Rewards programme has been a big success for the coffee company, capturing customer information and buying behaviour, as well as providing feedback about what its clientele would like it to offer. As part of the programme, customers can order drinks via a mobile app, as well as check their balance and loyalty points. This has resonated with the audience, with membership doubling from 4.5 million in mid-2012 to 9 million by the end of 2013.
In their report Making Loyalty Pay: Six Lessons From The Innovators, McKinsey’s Lowell Doppelt, Marie-Claude Nadeau and Marc Singer praised Starbucks for the way it has weaved the programmed into its various customer touchpoints to enhance the overall purchase and usage experience.
“Starbucks, the brand that created loyalty by differentiating the ordinary experience of drinking coffee, has managed to create a strongly differentiated loyalty programme,” they note. “To do this, the company integrated payments and mobile technology with the Starbucks shop experience to make the transaction more enjoyable.”
Launched in 1995 by Dunnhumby, Tesco’s Clubcard is one of the most celebrated loyalty schemes in the world, due to its data-centric approach to loyalty marketing. Clubcard holders are awarded one point for every £1 spent, with every point earned equating to 1p worth of vouchers and these can also be doubled up on special offers. These can either be used to get money off on your next Tesco shop or used in participating restaurants and attractions.
The retailers uses all the data collected from its loyalty programme to yield insights that can drive more targeted and tailored marketing messages, and has worked to refine and improve its approach.
Susan Binda, head of loyalty marketing at The Logic Group, explains: “Tesco has been recognised for its personalisation. One approach is to just send offers out to customers, the other is to tailor what offers you send to them. Tesco was finding that a lot of offers were going unused – it was seeing a decline in redemption. To address this it introduced an initiative called the Clubcard bonus coupon mailer that is based on previous purchases; customers all receive different offers with thousands of different permutations, and as a result Tesco is reporting likely increases in 2014 by nearly 1%, as well as seeing large increase in spending per member.”
Responding to the impact that the Clubcard had on Tesco’s sales, Sainsbury’s launched a similar loyalty scheme in 1996. The Nectar card gives two points for every £1 spent in store, with each point worth half a penny. These points can not only be redeemed in Sainsbury’s, but also other non-competing retailers that participate in the Nectar programme, including big brands such as Argos and Vue cinemas. While Tesco’s data-centric approach has been successful, Sainsbury’s strategy of creating a loyalty coalition has actually seen it surpass Tesco as the UK’s most popular loyalty programme, with the Nectar card presently used by some 19 million customers in the UK today.
As McKinsey notes in its report: “Through Nectar, Sainsbury offers a broader value proposition to its customers, and captures external data from coalition partners, which it can use to better understand full wallet and spend patterns, and more effectively target its customers.”
A particularly innovative – and award-winning – programme comes courtesy of frozen dessert brand Tasti D-Lite. The brand threw out its traditional points-based loyalty scheme in favour of a social network appreciation platform, rewarding consumers who link their Facebook, Twitter and/or Foursquare accounts to their loyalty card.
While customers continue to use their traditional loyalty card to gain points for each dollar spent, they are able to accrue additional points on each transaction if they have linked their social account, which automatically generates a message on their profile showing the customer’s location.
Richard Madden, chief strategy officer of Kitcatt Nohr, also lauds the way they have further used the programme to encourage a sense of community.
“Eating frozen yoghurts is a sociable experience where groups of friends go and very often the cheque/bill is shared between a group. Therefore, Tasti D-Lite has developed a social loyalty scheme that gives group rewards to groups rather than individuals. So if you’re going out with a bunch of mates to see a movie, and you want a frozen yoghurt afterwards you go to Tasti D-Lite because you all benefit collectively by going there, as you get more points by going together. And critically you can redeem the points not just against yoghurt but against things you can do as a group. So group discounts on group tickets for movies, exclusive group invitations to gigs that are sponsored by the brand.
“The dominant trope in loyalty programmes is selfishness and rewarding individuals but I love the way Tasti D-Lite has taken a different slant on it, by rewarding groups of people for doing things together. And that taps into not just social media, but also wisdom of the crowd.”
Starwood’s Preferred Guest Programme
“Starwood’s Preferred programme is widely seen as the current best in the business,” says Hannah Connor, a marketing strategist who works with Vouchercloud. “Their rewards allow guests to stay at some of the most elite hotels in the world. They offer late checkout, exclusive club services, room upgrades, but more importantly they offer special access to concerts, red carpet openings, and sporting events; a tailor made rewards program. Putting such an emphasis on personalised rewards is the way forward and keeps the hotel brand competitive. Starwood has inspired significant loyalty in recent years. As a partner with Delta, they also provide priority boarding and free checked bags. Plus, members can rack up additional points using the Starwood Preferred Guest American Express card.”
McKinsey also notes that Starwood is a great example of a brand maximising the difference between perceived value and real cost, offering a series of offerings such as upgrades, flexible check-ins and internet use that are highly valuable to their high-value customers, but have little marginal cost to the brand. Its report concludes: “Overall, Starwood’s loyalty program has improved its brand appeal and helped the chain achieve above market growth, despite relatively low overall guest satisfaction scores.”
The up-market British grocer, Waitrose has decided to adopt a different approach to the traditional loyalty card programmes. With its MD Mark Price stating that “loyalty cards are meaningless – consumers want immediate rewards”, the retailer launched myWaitrose.
While lacking the sophistication of Tesco’s Clubcard, it focuses on providing more near-term and tangible rewards to encourage customers to rapidly sign up.
Richard Madden explains: “It was developed collaboratively with customers, and Waitrose thought from the outset about what benefits they could deliver instead of just bribing them with points. Yes, everyone likes a saving, and the programme does incorporate savings, but also it has unique things like a free newspaper every now and again, as much free coffee as you can drink in a Waitrose store, the opportunity to go on visits to Waitrose’s organic farms, take cookery courses at the Waitrose cookery schools and so on. Customers pay a bit more to shop at Waitrose, but it gives people reasons to rationalise why they pay a little bit more.”
While most programmes treat all customers the same, Southwest Airlines has acknowledged that some customers are more profitable than others with its scheme. When it revamped its programme in 2010 it decided to attach rewards to ticket price, rather than miles flown, which is the basis for traditional frequent flyer schemes. This means that the programme now rewards more profitable customers, instead of those customers that may fly longer trips at discounted prices.
This model has subsequently been replicated at Delta and JetBlue Airways, with other US airlines expected to follow suit.
Charging customers a fee to join a loyalty programme might seem counter-intuitive, but Amazon Prime is a success because it enables its users to bypass common pain points that could impede future purchases. Shopping cart abandonment levels hitting a record high of 72% in 2011, thanks to the “sticker shock” that occurs once shipping prices are applied. Responding to this, the etail giant launched Prime that year to offer online shoppers the opportunity to resolve the issue of slow and unreliable delivery. For $79 annually, Prime users get free 2-day shipping with no minimum purchase, among other benefits such as free digital content.
Although the figures relating to profitability are under wraps, McKinsey reports that Prime members spend over four times more with Amazon than non-members, due to their increased transaction frequency that would not have otherwise happened without their benefits.
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Neil Davey is the managing editor of MyCustomer. An experienced business journalist and editor, Neil has worked on a variety of newspapers, magazines and websites over the past 15 years, including Internet Works, CXO magazine and Business Management. He joined Sift Media in 2007.