Reward points alone are not enough to win over today's customers

The loyalty scheme has become an essential tool in the UK marketplace, with the vast majority of consumers belonging to at least one such programme and many having multiple memberships. Cards and reward points have come to be seen as the hallmarks of a loyalty scheme. But are points enough to win over consumers in today’s competitive marketplace?

The value of loyalty programmes as tools for retaining customers and attracting new ones – if the benefits are right – cannot be overestimated. Research commissioned by GI insight last year showed that 94% of UK consumers are members of schemes. Increasingly, a sophisticated loyalty scheme is perceived as a must-have for retailers and other businesses in competitive, consumer-oriented markets and so the field is becoming more crowded.

In the last two years, the UK has seen long-established companies that previously seemed to feel little need to join the loyalty fray launching their own schemes, including department store John Lewis and supermarket Morrisons, while relatively newer UK brands such as retailer Pets at Home, pizza chain Papa John’s and online fashion seller ASOS have also launched programmes.

With the loyalty cards piling up in consumers’ wallets, loyalty schemes have to offer meaningful benefits to stand out and become entrenched with consumers. Loyalty scheme members expect a return for their loyalty and will not just sign up and use a scheme simply because it is available. Indeed, research conducted by Nielsen shows that 50% of the UK consumers are willing to quit a scheme or not join at all if the benefits are not strong enough.

What’s more, our research revealed that only 50% of people who have registered in loyalty schemes actively participate in them, leaving ample opportunity for companies to further leverage their programmes in order to foster stronger relationships with customers.

Motivating customers

For companies, loyalty programmes should be used as a platform for understanding and interacting with their customers – providing fundamental personal details and unique data on preferences, personal circumstances, buying habits, transactions and interests. If used correctly, this data enables them to form a bond and an on-going relationship with their customers, targeting them precisely, personalising communications and fostering loyalty, while encouraging more and more frequent spending.

But this only works if customers see value in joining and continually participating in a scheme. In the age of Big Data and multiple digital touch points, consumers expect more than just reward points from loyalty programmes – although points remain a principal driver for many consumers.  

The latest GI Insight research shows that, although collecting reward points ranks highest among the aspects of a loyalty programme that motivate consumers to join, there is a wider range of factors that attract them to sign up and remain active participants in a scheme. So, while 74% of the 1,000-plus consumers surveyed said that earning redeemable points is an incentive, 60% say they are excited by vouchers and coupons giving cash of or a percentage discount and 53% point to special offers being a major motivator for scheme membership and use.

This reflects the fact that, in general, cost savings remains the key driver for consumers when it comes to loyalty schemes. This is especially true for women, who are more likely to be excited by redeemable points, with 78% of female consumers citing these as a key factor when deciding to enter and remain in a loyalty scheme compared to 70% of men.  More women are persuaded by special offers (55% versus 50% of men) and want to receive savings from vouchers and coupons (65% versus 56% of male respondents).

In terms of age demographics, the older the consumer the more important redeemable points are, with 80% of people over the age of 65 saying redeemable points are an important factor when it comes to a loyalty programme. However, fewer younger consumers see points as critical with only 64% of 18-24 year olds listing redeemable points as a key motivator.

Simplicity of use is also an important motivating factor for a significant minority of consumers, with roughly a quarter of respondents favouring schemes that are easy to both sign up to and use. Overall, factors related to regular habit, fit with lifestyle and convenience of use seem more important to older consumers than their younger counterparts.

Other additional, more controllable scheme benefits such as free drinks and snacks, and special deals linked to events such as birthdays are less crucial to the majority of consumers but still listed as a key factor for joining and staying active by a significant minority: 17% named additional benefits as a factor, 12% cited event-linked deals and 12% listed exclusive/first access to new products.

Women are more drawn than men by free treats such as coffee or cake (19% versus 15% of men) and women are also more impressed by special deals tied to birthdays and other events, as well as exclusive/first access to products and deals (13% compared 10% of men in both cases).

While some companies appear to think that mobile technology should be a driving force for a loyalty scheme, it in fact has proven not to be. Despite the ongoing growth of the use of smartphones, the accessibility of loyalty schemes through an app proved to be the least motivating factor for participation with only 6% of consumers saying this was important. 

Cementing bonds

Nonetheless, as one might expect, the youngest age groups are most excited by mobile loyalty scheme apps, although again the percentages are relatively small – though not insignificant – at this point in time: 10% of 18-24-year-olds and 14% of 25-34s say they are positively influenced by the offer of mobile access, compared to just 2% of consumers in the 55-64 age group and 1% of those aged 65-plus. Some brands – particularly those aimed at youth and those using mobile technology as a springboard – may see potential in promoting and developing a loyalty app as a differentiating feature going forward.

Once a loyalty scheme is firmly established in the minds and habits of customers, it is up to the business to use it effectively. Successfully using the data which is gained from a loyalty scheme will nurture the relationship and expand the business with the consumer.

Our research showed, however, that far too few businesses are effectively using their loyalty scheme data to build bonds with their customers as the findings revealed that the companies offering loyalty programmes are only effectively analysing the needs and sending relevant offers to 27% of their members. There is little point gathering data from customers if a business is not going to analyse it and use it to ensure that communications and offers are precisely targeted and that other interactions are informed.

A well-established, structured and managed loyalty scheme provides a full kit of tools for make sure customers remain loyal and expanding a brands relationship with them.  Loyalty programmes also ensure companies have permission to use the data to communicate with their customers, to tailor offers aimed at them and to retain and use to improve service and product offerings.

The key to continued success, however, is to be sure the keep up with customer expectations, fine-tuning loyalty schemes as they go forward to ensure that they continue to be used and enjoyed by customers while cementing bonds with the brand.

Andy Wood is managing director of GI Insight.