Loyalty: what's the point
The retail marketplace today has never been so crowded. An unprecedented number of retailers are making vastly more offers than ever before. More stores, more websites, more promotions than ever. More electronic junk mail, sent randomly just like its old paper equivalent but with usually the same outcome – in the electronic trash. So, more and more supply and demand more or less flat. Customers have never had so little reason to be loyal, and retailers have never before been so desperate to acquire and retain them. The most common loyalty schemes were born against a very different background. Tesco Clubcard was born in 1995 and the Sainsbury’s Rewards launched a year later (later replaced by Nectar in 2002) . Boots’ Advantage card followed in 1997. The philosophy was simply – earn points with each purchase and turn them into cash / discount for the next purchase.
Many similar schemes have followed but being the most popular solution does not necessarily make it right for your business or for your customers.
Points-based loyalty schemes have a number of challenges.
Points Schemes can be costly. For example, Dave McCarthy, an analyst from HSBC estimates that Clubcard currently costs Tesco around £500m a year to run. They can also provide a cash flow headache when it comes to customers redeeming points earned. Then there's the challenge of managing and protecting points accounts; something Tesco has faced recently.
Arguments against points schemes often focus on the sheer number of such schemes already around and the consequent lack of differentiation. The schemes are generally easy to copy, and they require significant upfront investment to implement.
What's in it for the customer
We are far from convinced points schemes are the best option for customers either. Points based schemes are often complex. Each loyalty card brings new rules often difficult for consumers to remember. This can result in low redemption rates which negate the value proposition for the customer. According to Internet Retailing there are estimated to be £150 million worth of points currently unclaimed.
Customers want simplicity and clarity around value exchange. Many points based scheme are too complex, and lack transparency around value and time.
Most points based schemes use a plastic card as a token. Cards fill up wallets and there is little room for more. Customers start to ditch cards they don’t use as often, a real issue for retailers selling less frequently moving goods.
According to WorldPay, 8M UK shoppers are using their loyalty cards less than they did last year. 1 in 3 consumers say that they don’t see value in loyalty cards.
Customer loyalty has never before been such a valuable prize, nor so elusive. The one thing that is certain is that there is no generic solution to the loyalty challenge. We believe that every business is unique and that it follows that to be successful, every scheme needs to be tailored accordingly. Points based schemes have worked very well for many years but in the vastly more crowded market of today, personalisation is the buzzword. Delivering a truly personalised scheme for customers must be similarly personalised for retailers.