Last month it was announced that British Gas will be launching a £100m loyalty programme in April. Headline grabbing news indeed.
Competitive pressures can make investing in a customer loyalty programme feel like common sense. And there may be very good reasons why you should consider it: it may give you something to shout about and acquire new customers and it may give your business a customer focus to unite behind.
But for a brand like British Gas who already has rich customer data, it is pure folly: you know who your customers are, can contact them and know how they interact with your brand.
You don't need a loyalty programme to have loyal customers. And there are six very good reasons for British Gas to avoid investing in a customer loyalty scheme.
In fact we suspect that this may be actually be cost savings dressed up as a customer proposition.
The business challenge
Switching is the number one challenge for all energy companies. It's widely accepted that new customers get the best deal and both the government and OFGEM are pushing for it to become easier for customers to switch.
Couple this with a price sensitive category and ever-increasing prices and delivering superior customer experience, building the brand and engendering customer loyalty become necessities for brands like British Gas seeking to address switching.
British Gas claims to reward customer loyalty wants to develop a programme: "to encourage customers to engage more with us and with the market, and make an active informed choice over their energy. This programme began in Autumn 2016 and we will be rolling out further measures through 2017."
So a clear challenge and a sensible vision of high customer engagement.
But a programme is a blunt strategic option to deliver the vision, not least as British Gas already has rich customer data and is a Nectar partner.
The following advice applies to British Gas and any brand with existing customer data.
Customer data is any personal information that a customer has given you. Email address, postal address, data of birth, policy renewal date and so on.
You will normally have a customer identifier (reference number) associated with each customer and which links each piece of information to a customer.
And a set of permissions that the customer gave when they provided information - agreeing to you holding their data, using the data to communicate and perhaps to sharing it with third parties.
Why you could need a loyalty programme
If you have customer contact information (telephone number, email address, etc) then our argument is that you wouldn't normally need a loyalty scheme.
The loyalty scheme will just be an expensive mechanism for collecting the same information and explicit permission to use it.
If you have customer contact information then our argument is that you wouldn't normally need a loyalty scheme.
If you don't have data, and it fits with your strategic marketing objectives, then you could consider a loyalty scheme.
However, you should also consider more distinctive ways of adding value to your customers in order to encourage them to share their information and allow you to build a relationship.
Six reasons to avoid a loyalty programme
So if you have customer data, then the rule of thumb is to avoid a loyalty scheme for these reasons:
#1. THEY ARE EXPENSIVE
Set up costs are high, particularly if you have points as a currency (which will be a liability on your balance sheet). You need to be very confident that the cost:benefit is worth it.
You may be giving away value to customer segments that you don't need to (see #5 below).
This may already be part of British Gas' thinking as they have changed the terms of the Nectar partnership in the last 18 months.
#2. YOU ARE LOCKED IN
Once you have launched, it's very difficult to take away a programme away.
Consider the impact if your busines priorities or marketing objectives change.
#3. IT'S NOT RELEVANT TO YOUR CUSTOMERS
They have already shared their data with you so what else are you going to offer them?
If your customers have an infrequent relationship with you then finding a meaningful reason for them to engage with you.
Introducing a programme could damage your value proposition if it's based on more than giving incentives or discounts to customers.
#4. ME TOO
Competitive pressures are unlikely to be significant enough to justify a scheme for the reasons above.
Indeed, if competitor pressures are the main driver behind your interest in a programme then there are 2 scenarios:
- Your efforts will be considered as 'me too' and unlikely to have the expected return.
- Or, it will cost you even more to differentiate or get out if it doesn't work.
#5. IT'S A BLUNT INSTRUMENT
You have to give away value to all customers, regardless of their true loyalty, potential and whether they would have transacted with you anyway.
It's a battle for share of wallet. If you are in a mature category where there are very few 'new' customers entering the market, then the likelihood is that you have or have had a relationship with the vast majority of customers.
Share of Wallet is the name of the game. In such a category a loyalty scheme will be give away value to potentially deal hungry customers.
#6. THEY ARE DIFFICULT TO TEST
All of the reasons above point to needing to test thoroughly before rolling out.
But in this instance it's not so straightforward: many of the set up costs will have to be incurred, it's difficult to introduce the proposition you really want to test if you then have to take it away and it can be hard to contain who the programme is available to.
So what are the alternatives?
Well, if you fall into the 'have customer data' group then consider highly relevant and personal offers. They will be much more meaningful to you customers and you will have significantly more control.
A further option is to 'sell' loyalty. Brands like Amazon and Ocado are having tremendous success by asking customers to pay for additional services and privileges.
An approach offering British Gas customers a small subscription to secure guaranteed pricing, energy saving help and so on would likely counter switching more effectively than a blunt loyalty scheme.