Why It’s Time To Rethink Customer Loyalty

by Floris Oranje Dept

In today’s digital age, consumers have access to an unprecedented level of information. Never before has it been so easy to find information that can potentially make or break a purchase decision. Social proofing, user reviews, and price comparison sites can all form part of the buyer journey, which impacts more than just the digital sphere.

In August 2018, Retail Week reported that 76 per cent of consumers research online before making a purchase, either online or in-store. This has resulted in significant challenges for brands to maintain relationships and achieve loyalty.

Brands have traditionally tackled customer loyalty with financial reward systems, and many still do.

In their research of 1000 UK consumers, ‘How Brand Loyal are UK Customers?‘, Dept concluded that it is time to leave traditional loyalty schemes behind and adopt a new approach to loyalty.

State Of The Market: The Need To Re-think Loyalty

The majority of loyalty programmes (including the three most renowned: Tesco Clubcard, Boots Advantage Card, and Nectar), are still structured on traditional ‘points based’ mechanisms, offering a monetary reward once a given number of points are collated. However, from the eyes of the consumer, these schemes have become somewhat monotonous.

With the average consumer carrying five loyalty cards and 10 million customers hoarding unused points, it seems clear that traditional loyalty schemes are no longer fulfilling their intended purpose of encouraging customer loyalty.

Instead, many customers now view traditional loyalty schemes as simply part of their spending routine, with 20 per cent of consumers stating that they only subscribe to loyalty programmes out of habit.

Interestingly, none of the consumers we surveyed stated that they subscribe because of personalisation, or a better experience with brands.

However, with 53 per cent percent of consumers surveyed stating that they join loyalty schemes for points and rewards, it can be argued that rewards mechanisms certainly still hold appeal. But is this actually drawing focus away from real loyalty?

With over 67 per cent of our consumer panel stating they would change brands if it meant getting more rewards, and one third reporting that they would buy something new that wasn’t needed to earn more points or increase their membership status, it’s becoming clear that there is now a disconnect in place between rewards and loyalty.

It’s time to re-think loyalty and invest in the experience you offer to your loyal audiences. We’re already beginning to see a few brands take action in this regard. In October 2018, online fashion brand ASOS announced that it was stopping its ‘A-List’ loyalty scheme altogether.

The retailer stated that it was culling its loyalty programme in order to “get to work on even better ways to reward loyal customers,” on a global scale. Although it didn’t explicitly state its plans, the fashion giant hinted it wanted to focus its efforts on creating a better experience for the customer, and it would appear that an array of other brands are following suit.

‘In-The-Box’ Innovation

For some brands, a reward-style mechanism prevails, but a shift is being made in the way that their traditional loyalty schemes are delivered.

In August this year, supermarket chain Tesco announced that it was launching a new ‘Fast Vouchers’ scheme, giving its Clubcard members the chance to download vouchers via a mobile app, without having to wait for their next quarterly statement to come through.

The new scheme makes the Clubcard loyalty program more accessible and convenient to consumers – a positive step towards building trust, but perhaps not innovative enough to pull the scheme out of ‘habitual’ consumer spending routines.

Sainsbury’s has recently overhauled its Nectar card proposition in a bid to “genuinely reward loyalty.”

After purchasing Nectar from parent company Aimia earlier this year, Sainsburys is making changes to the scheme to give Nectar card members the ability to earn points based on the length of time they’ve been shopping with the retailer and how frequently they shop there, instead of just based on how much they spend.

The changes are smart-phone based in order to help the supermarket chain offer a more accessible, personalised and digital-led loyalty programme.

Other brands that still utilise a rewards-based loyalty scheme are shifting their focus on ways to make the programme more personal, for a better customer experience.

Retail giant Marks and Spencer has partnered with Starcount, a data science company, in order to better understand their customers and gain insight by personalising their loyalty and customer relationship management initiatives, including its points-based Sparks Card scheme.

In shifting its focus to create more personalised incentives and better customer experiences, these brands are certainly taking positive steps. However, given the current consumer outlook of ‘money can’t buy love’, perhaps it’s relevant to re-think the old reward style mechanism completely. And some brands are already starting to implement these changes in their reward schemes.

Examples Of Re-thinking Loyalty

Whilst many brands still offer a traditional points-based loyalty scheme, others are completely redefining their incentives to encourage customers to stay loyal.

In the entertainment sector, Sky has introduced the Sky VIP loyalty programme, which gives its existing customers a number of tiered benefits based on the length of time that they’ve been a customer. Commenting on the tenure-based framework of the programme, Rob Chandler, Sky’s head of customer loyalty, said:

Right now, we don’t need those mechanics where you’re going to get points and you’ve got to get to this. We don’t need any of that bribery action of traditional loyalty programmes; we can do it through making people feel valued.”

Shoe retailer TOMS has given its strategy a different spin in order to connect with its customers on an emotional level. Their Passport loyalty scheme gives members the option to redeem points towards a donation to a charitable cause or initiative.

In utilising goodwill within its loyalty scheme, TOMS is able to encourage loyalty through a deeper emotive connection between the brand and its customers.

UK-skincare brand Bulldog is aiming to enhance customer experience and drive loyalty via a subscription service.

The scheme offers customers a discount based on the frequency of delivery in a bid to incentivise repeat purchases from its customers.

This is an effective way of building trust; as skincare is a fast-moving consumer product, it’ll need to be replaced at pace, so a discounted subscription service creates a convenient, quality and price-competitive experience for the customer which is likely to evoke a strong brand-consumer relationship.

Finally, there’s health and beauty retailer Superdrug who have recently announced a venture into the mobile phone network business by offering a contract-free, SIM-only deal to its loyalty card members. The scheme, which aims to give customers “something different, useful and great value,” is certainly something we’ve not seen in loyalty before.

It poses an interesting question surrounding the creation of loyalty approaches and how close or far away this should sit from a core offering. Will it raise questions from consumers in regards to trust if brands start to engage with them on services without a direct connection to the key health and beauty products they are offering?

Perhaps this is one example of innovation in customer loyalty that may be pushing the boundary too far. Only time will tell!

Consumer loyalty is changing and it’s encouraging to see brands starting to reconsider their loyalty offering. Schemes must mature from being a point incentive system, to becoming a pillar of customer experience and, indeed, the business.

Loyalty is based on trust, quality, and values; only when this is reflected in a loyalty programme will brands and consumers get the most value out of their relationship.

You can download your free copy of ‘How Brand Loyal are UK Consumers?’ on the Dept website and see Floris Oranje speak at the Digital Marketing Conference on 6 December.