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Why direct marketers need to rethink loyalty schemes

Customer loyalty is not a new idea, long before card programmes and sophisticated databases; retailers would extend different credit terms to their best customers and provide extra items of food to regular shoppers at their grocery stores.

As early as 1896 Sperry & Hutchison began providing trading stamps to American retailers who gave them to their customers who then collected the stamps and redeemed them through a catalogue.

This was the scheme that was copied in the UK by the Green Shield Trading Company which was founded in the late 1950’s and was incredibly successful in the 1960s and 1970s in driving customer loyalty.

In terms of what we now see as modern loyalty card schemes American Airlines was the 1st with its launch of AAdvantage, the world’s first mileage-based frequent flyer programme in the 70’s.

Over 100 million people now belong to at least one such scheme and interestingly well over 50% of the miles are now earned on the ground on such things as credit card spending and telephone calls

The growth of loyalty card schemes in the UK has been enormous, millions of consumers already belong to and are committed to 'their' loyalty scheme but inevitably there have been difficulties.

What should a good loyalty scheme do?

Highly targeted campaigns
- it is simply a waste to send the same message to everyone

Special Offers to distinct segments
- data allows you to know what customers need

Keep valuable customers
- the 1st step it to identify them correctly particularly in a multi-channel world

Develop better relationships with infrequent buyers
- this is where development funds should be aimed

Not over service poor customers
- the toughest decision is often to ignore certain segments of the database

Ensure people spend their points
- the more they do the more they will want to collect

Provide valuable, motivating rewards
- to ensure that you always gain more data

Why loyalty card schemes don’t work

25% of all loyalty card holders do not use the points they have earned

People acquire cards but don’t carry them in their wallets

Difficult to maximise the benefits of the data gained

Difficult to differentiate
- everyone has similar rewards and programmes

Some programmes loosing their way
- but company is scared to close them down

When partners fall out
- customers can be very badly served

Fears about who owns the customer
e.g. when Air Miles swapped Sainsbury’s for Tesco’s

Loyalty schemes are not cheap to run often costing 1 to 2% of the cost of the product

Why some companies don’t want their own scheme and prefer coalition programmes like AIR MILES & Nectar

High original set up costs if you go it alone

Benefits of increased / shared communication channels
- your offers can go in other partner’s communications

Need to share marketing and promotional costs given pressures on budgets

Requirement for fast redemption which a single scheme often fails to provide

Need for a wide range of rewards

Having said all of that Loyalty card schemes are very much alive and well in the UK and are still producing spectacular results for people who know how to maximize their power. For me Tesco’s and Boot’s are still leading the way.

The Tesco scheme was launched in 1995 and is still one of the UK’s most popular loyalty card schemes with well over 12 million active cardholders. They learnt the lessons of targeted offers with over 6 million unique coupon variations in each mailing.

However as Clive Humby says, 'Probably the main factor in Tesco’s success has been the commitment to use the data gained to drive the business. The real benefit of a loyalty scheme is the very rich data obtained on customer behaviour. This use of data has been the major difference between the Tesco scheme and other initiatives that were less successful.'

Boots has also really learnt to focus on the knowledge it has gained on its customers with some 15 million card holders and with over 50% of UK women holding a card.

Cardholders in their scheme on average spend double perhaps because they have also learnt another lesson of success which is to always ask the customer for the card when shopping.

Despite these obvious successes some commentators have been predicting the end to card based loyalty schemes.

I think the future is much more complex, undoubtedly some major programmes will close, saying that customers are no longer interested in loyalty, but others will change the nature of their schemes and others will introduce new ones.

So my predictions would be:

More companies will take the option that the airline Virgin has done and stop sending paper statements.

There will be even greater use of technology
- retailers will know when you are in store
- already there are small schemes like Stampfeet doing the whole thing on mobile phones.

Those who analyse and use the date will thrive and gain ever more advantage over those that do not

Physical cards will become less and less important

Smart companies will allow you to customise the forms of communication you receive, how often, by what method and covering what topics.

True North is the Human Capital Management Consultancy founded by Norman Burden, Jo Dalton and Non Exec Chair Wanda Goldwag. The company lives and breathes the people challenges that most companies, no matter what their size, face as they go to great lengths and expense to ensure they attract, retain and develop the best staff

Mail Media Centre February 2011
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Wanda Goldwag consulting picture
Wanda Goldwag consulting picture
Wanda Goldwag consulting picture
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