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Risks and rewards: What does mobile mean for loyalty programmes?

15th May 2014
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While the plastic card has long been the epitome of the customer loyalty programme, research suggests that in a growing number of countries consumers now have access to more loyalty schemes on mobile devices than they do in their physical wallets.

A recent poll of 2,000 British consumers by CloudZync, for instance, found that while the average citizen has four traditional loyalty cards in their wallets, on average that person will have access to six loyalty schemes on their phone.

And this is a trend that is being driven by the customer, rather than the retailers.

“The customers are setting the pace,” says Susan Binda, head of loyalty marketing at The Logic Group. “We are using our devices for so many things now, so naturally customers want to be able to pay for things on their mobile, and they want to have their loyalty attached to their mobile too.”

Richard Madden, chief strategy officer of Kitcatt Nohr, adds: “It’s almost like phones are an extension of people’s bodies these days. When you see people in the street, their wallet is in their handbag, but their mobile is actually out being used. So if you can just use the thing that’s already in your hand rather than digging around in your purse, then it’s that bit of friction taken out of the process.”

Retailer rewards

And the technology is gathering pace. Mobile apps are becoming a readily available alternative that removes the need for cards altogether. Stocard is just one on offer that allows users to scan all reward cards and store them on a smartphone. Once shoppers reach the check-out they can let the cashier scan a barcode on their mobile.

But it’s not just the customer that benefits. Cloudzync’s survey found that the biggest barrier preventing people from signing up to loyalty schemes is their already bulging wallets, with a third (33%) of consumers reporting that the main reason why they don’t register is because they already have too many cards in their wallets.

Andrew Smith, co-founder and CTO of CloudZync, notes: “Whereas we have previously been limited by the number of cards we can fit into our wallets, the boom in mobile devices means that we can now access even more loyalty programmes via our phones.

“While it’s clear that traditional cards are still doing well in many sectors, retailers that don’t embrace smartphones and tablets as part of their loyalty schemes risk being left behind by those businesses that see the opportunity these devices offer to engage consumers in new ways. Mobile gives retailers a platform through which they can build more personal relationships with customers while providing them with access to offers and promotions in a more convenient way, so they never miss out.”

Kroger is just one of the many retailers that are already exploring this avenue. The US retailer has been working with Dunnhumby, the brains behind the development of the Tesco Clubcard in the UK, to overhaul the way it analyses and uses customer shopping data to improve loyalty. The extension of this into the mobile realm has helped the grocer to improve one-on-one interaction with its customers, utilising personalised mobile couponing to help win new business and retain loyal ones.

Location, location, location

And the potential for even more tailored offerings via mobile is on the horizon.

“The way that the mobile piece is going to play out in the longer term is the combination of the loyalty card programme and the opt-in for geo-fencing offers,” suggests Tim Keiningham, global chief strategy officer and EVP at Ipsos Loyalty, and author of Why Loyalty Matters. “The retailer can know a customer is in the store right now, and it can make an offer to you right now, appearing on the phone. And this is already starting to happen. Esso, for instance, had a nice programme that was based on its smartphone interactive app, where it delivered these benefits.”

By capitalising on in-store Wi-Fi, Bluetooth, iBeacon and NFC, retailers are potentially able to offer more targeted, relevant offers and coupons in real-time based on the customer’s movements – something that can support the loyalty proposition.

“Customers can now receive personalised real-time offers based on location, are able to research and compare products on the go, and can instantly communicate with customer services,” explains Chris Gonyea, product manager, traffic management at Dyn. “Some of the larger UK retailers, like Waitrose, are already using geolocation in their quest to foster customer loyalty. The supermarket’s new transactional mobile app synchs with the desktop site, allowing consumers to start shopping on one platform and then carry on using another. Customers can also use the app to find out store locations and research recipes on the go.”

But he also says: “While the retail sector has been spearheading these new ways of re-establishing closer relationships with customers, most other sectors are still lagging behind – largely due to lack of awareness and expertise.”

Madden adds: “The geo-locational data you get with a mobile phone is phenomenal. Should you choose to do it – there’s a big ‘if’ around whether you should – then you can obviously use geo-locational push messages to remind people that the store exists as you’re walking past it. And with the appropriate permissions you can see when they’re walking past a competitor as well. So the potential is limitless. Although actually there is a limit to it – and that is customer invasiveness and the extent to which customers wish to share all their data with you and also wish to be interrupted.”

The wild west?

This brings us on to the warnings and potential dangers of mobile in the loyalty space. Because with location-based marketing still in its early stages, a lack of regulation and customer understanding could mean that mobile causes more harm than good in the short-term. In the US, for instance, where location marketing is more evolved, reports have highlighted incidents in which customers were not being wholly informed when their phones were being tracked, as well as other breaches of privacy.

“We’re on the cusp of a period of exceptional activity in the location marketing space, and the great unknown is really how much a part the customer wants to play in the game,” warns Martin Hayward, CP of global digital strategy at Aimia, which provides the Nectar loyalty card scheme for Sainsbury’s, BP and a host of retail chains. “Right now it really is very early days in terms of people responding to location data via offers and messages, and being asked to interact with their devices in-store as well as out.”

He adds: “I fear that we may go through a wild west with location-based marketing for a while,” he suggests. “There’s so much interest from retailers, I fear the customer is going to become overwhelmed by the sheer volume of messaging and requests they are going to receive once this gets going, leading to possible questions around intrusion.”

Binda agrees: “If you already have emotional connections with customers and you think you know them well enough already, firing off SMS and going fully mobile can be a really efficient way of alienating your customers. You have to make sure you have the data that says your customers are genuinely open to new mobile offerings.”

Hayward’s other concern is that an over-proliferation will occur, as a result of shops experimenting too freely with location marketing. Could this lead to customers refusing all location-based advances though, even when offers are being thrown at them as they walk down the High Street?  

“The problem could end up being that customers end up in a situation where they’re turning different systems on and off in different stores,” Hayward says. “That’s going to be very confusing and they just won’t buy it. It will need to be a more explicit opt-in process where the customer has said ‘yes, I’m happy with this’ in advance. It will have to be a more formal communication before the customer gets to the store. No one is going to be interested in managing their preferences as they walk down the High Street. If we end up with that, everyone will be constantly walking into lampposts.”

Don't spook the customers

So mobile functionality in loyalty programmes may be customer-driven at present, but there is the danger that over-enthusiasm from brands could just as quickly turn consumers against it. In that case, how can organisations ensure that they proceed with enough urgency to capture a competitive advantage, but steadily enough to ensure they don’t spook the customers?

“Mobile can be a great way for brands to build loyalty, but only if the business has a presence on this platform,” notes Barry Nielsen, client services director at Eclipse Marketing. “There’s no point forcing anything just to keep up with the trends. This will ultimately end in failure.

“Important points to consider when adopting mobile loyalty schemes are whether it supports the overall strategy of the business and if the capacity exists to track customers’ usage and interactions. There is simply nothing for the business to gain if it’s not possible to generate actionable customer insight that can be used to target communications and foster advocacy.

“Mobile platforms offer the opportunity to capture data, provide direct feedback and track in real-time. This is only set to increase as more channels become available to businesses. Yet the use of new technology should always be rooted in the customers’ needs, if it’s to provide real value that improves the bottom line.”

What is clear, however, is that we increasingly live in a mobile world. And failing to incorporate this into future plans could also be costly. 

“If someone who wanted to do a loyalty programme walked into the agency tomorrow, our advice to them would probably be don’t bother with card, go straight to phone – provided they had the infrastructure to be able to cope with it,” says Madden. “Starbucks migrated from card to their mobile phone app, that that made them the largest mobile payment processor in the UK last year.”

Binda concludes: “Allowing customers to access all of these brands on one device and receiving targeted offers via the mobile medium is really compelling. Do I think mobile will replace loyalty cards entirely? Probably not. But I think mobile will certainly overtake cards in the grander scheme of loyalty.”

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