What Price Loyalty

January 13, 2016

Advanced Retail Update    

What price loyalty?

Shoppers are increasingly savvy when it comes to retailer loyalty schemes. Research found that 92% of UK customers use such schemes at least once a month – which should be good news for the retailers. But at first sight, schemes don’t always appear aimed at increasing the customer’s in-store or online spend.

From the MyWaitrose card holders who availed themselves of the free coffee but bought nothing (something the supermarket soon put a stop to), to the Tesco Clubcard customer who hoards all their all their vouchers for a family weekend at Legoland, the lure of the loyalty scheme for customers often lies not in spending more money with the retailer, but getting hold of freebies they otherwise wouldn’t have had.

So what’s the appeal for the retailer? What is the real value of loyalty schemes and how can smaller retailers make sure they work for them – and their customers?

Encouraging a change in behaviour

Making a repeat purchase isn’t the real purpose of loyalty schemes. For example, many cafes offer customers a stamp for every coffee they buy, with the 10th one being free. It could be argued that this just discounts the coffee, rather than encouraging the customer to buy more – they would probably have come along for the 10th regardless of the freebie. It encourages a warm fuzzy feeling, but does it have an impact on increasing the customer’s spend with the business? Does it prompt them to buy something they wouldn’t otherwise have bought?

A piece in US magazine Forbes makes the point that if all retailers in a certain market offer the same rewards, the value of each to encourage customer loyalty is cancelled out – there is no point being loyal to one store if you can get the same discounts or offers at a competitor. Achieving convexity – changing behaviour by increasing the amount of award the more is spent – helps ensure that customer interest is maintained and loyalty earned.

‘Treats’ not available to ordinary customers generate a feeling of exclusivity and deepen the relationship with the customer, making repeat business more likely. British Airways does this very well with its Executive Club, which promises goodies such as access to airport lounges,  faster check-in and members-only holiday deals. 

Retailers can adopt the same tiered approach with bronze, silver and gold levels where different benefits kick in at different levels. These could include anything from free delivery on online orders after a certain level of spend, moving on to free 24 hour despatch and VIP priority on sale offers, for example. Cafes could offer members-only taster evenings, and bookshops invite loyalty customers to author readings. 

Building useful customer data

With a tiered reward programme, you are collecting valuable data every time a customer interacts with the scheme. This can give you greater insight into the customer’s preferred choices, and allow you to tailor rewards accordingly – i.e. a bookshop customer who buys an author’s novels as soon as they come out could be offered 2 for 1 tickets to the ‘film of the book’.  

The more data the retailer generates and records from each interaction with the customer, the more tailored the reward programme can become, and thus the more perceived value it offers the customer.

Dovetailing that data with Customer Relationship Management (CRM) or follow-up systems mean you can more easily anticipate a customer’s future spend, sometimes even before they do. For example, a garden centre sells patio furniture to a customer and the resultant data triggers an email offering a discount on a barbecue, or outdoor dining products.

Smaller retailers need to ensure that any loyalty scheme they run is not only attractive to the customer and encourages then to come back and spend more, but that it changes their behaviour. And of course, what’s equally important is that it’s cost-effective for the retailer to operate

Advanced Retail works with retailers and third-party systems across the UK to implement effective Point-of-Sale and back office functions including Loyalty Scheme and Promotional Activity integration. Ask us for more details.
Photo credit: Nick Webb.
Advanced Retail is an innovative UK-based company providing EPoS & supply chain software and services. We offer technical excellence and deliver outstanding customer support.
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