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Loyalty schemes: Time to combine convenience and loyalty?

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20th Sep 2010
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Julian Reiter asks whether it's time we put our digital and technical capabilities to good use and introduce a 21st century version of a loyalty card.

There is currently an enormous amount of debate in the industry regarding the future of loyalty schemes, especially with increasingly digital-led approaches. However, questions remain not only around how to deliver and operate these practices, but also regarding the role they play in a modern marketing environment.

Loyalty between consumers and brands is forged by two things. One is simply the brand’s ability to consistently offer the best deals. The second is reliant on the customer feeling comfortable with the brand. This requires the brand to understand public perceptions of its services and products, and to correlate its priorities with those of the customer.

Digital schemes can be phenomenally effective in attracting new customers and spreading a brand’s message. However, despite the undeniable impact the digital age is continuing to have on how we collect, interpret and use data from loyalty initiatives, we need to keep the balance between what has worked traditionally and what we are now capable of delivering.

Traditional loyalty card schemes have many benefits, the most important of which is the human element. Face-to-face interaction allows the customer to see a global brand as more than just an anonymous money-making organisation. The communication between consumer and retailer required by the use of loyalty cards is a far more personal than a digitally channels such as email.

On the other hand, having a large number of loyalty cards in your wallet is also immensely impractical. Consumers are crying out for a more condensed method of collecting loyalty points. With this in mind, isn’t it time we put our digital and technical capabilities to good use and introduced a 21st century version of a loyalty card?

Convenience or loyalty?

The benefit of the digital age is that the collection and management of data at POS is now so much cheaper, and with one card or id number you can run multiple schemes. This means more retailers could afford to run schemes as they wouldn't have all the set up costs to contend with. The ability to compartmentalise one scheme from another is very easy to do now. And the ability to control how the schemes could be used is again fully manageable.

The issue companies such as Nectar face is that they are trying to run one scheme across multiple retailers. This causes all sorts of problems as everyone has different margins and therefore value of points they need to apply. The solution is to have a system which combines multiple schemes rather than having one which reaches across brands. It’s the processing and mechanics which need to be brought together, rather than the schemes themselves.

I realise the concept of a universal loyalty system is veering more in the direction of convenience than loyalty. However, aren’t we at a stage now where actually understanding customers through data and insight is far more valuable for brands than waging a loyalty war with other retailers? It’s about time we used the technology at our fingertips to combine digital capability with human interaction and come up with a solution that consolidates loyalty and convenience into a new solution for the modern shopper.

Julian Reiter is MD of Positive Thinking.

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By decisionlobe
21st Sep 2010 23:05

It's important to be able to measure/predict loyalty scheme payback as well as figure out who it is working for and how.  Not all schemes will be profitable for many years - if at all, so, some ongoing cultivation and financial alignment is required.  One clear challenge in designing loyalty schemes is to try to reduce/avoid ongoing incremental accounting liabilities that can hamper profitability.

The objective of some schemes is to maximise the perceived value to the consumer and minimise actual redemption rates, the drawback being significant accounting incremental liability.  Others try to encourage loyalty redemption to help minimise the liability, create a stronger more fluid customer relationship and win more through cost effective loyalty partnering deals.

Whichever is the preferred route, be sure to have a game plan for how to measure the effectiveness of the scheme down the line; when changes in customer behaviour, especially product holdings/service take-up, profitability and longevity come to the fore.

Alex Berry

www.decisionlobe.com

 

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