Rewarding Loyalty: Should I run a loyalty scheme?

According to a Nielsen survey [i], shoppers in the UK are the second most likely in the world to have a loyalty card in their purse or wallet.

However, the report also shows that loyalty cards are much less likely to influence purchasing decisions in Britain than around the world, which will come as a frustration to UK retailers who run a loyalty scheme.

So what’s the point of a loyalty scheme?

To answer the question, perhaps we need to look at question from two perspectives – that of the Retailer and that of the Customer.

The Retailer Perspective:

The probability of selling to a new customer is between 5% and 20%. The probability of selling to an existing customer is between 60% and 70%. It also costs 6 times more to attract a new customer than to retain an existing one, so retention is the best policy for most established retailers.

Clearly, existing customers are key to any retail business – if only you knew who your most loyal customers were…

Having a loyalty scheme in your outlet will reveal both who these customers are and how they shop your outlet. With this knowledge, you can take specific action designed to retain your best customers and this is the main retailer benefit of having a loyalty scheme.

But, if you think that having a card alone will make your customers more loyal, then think again – the research also shows that Loyalty cards are not at the forefront of customers reasons for choosing one retailer over another; assuming that all else is equal.

The Customer Perspective:

WIIFM – What’s in it for me? “I can get points wherever I shop”, so points alone are no longer a differential in a sea of reward schemes.

Photo credit: Jonathan Rolande

If you have a loyalty scheme and see cards in less than 40% transactions, then the majority of your customers are not seeing the benefit of having “another” card in their wallet, a clear indication that your offering is not compelling to your customers. The best schemes will reach around 70% card transaction penetration.

So a successful loyalty scheme should give your best customers even more reasons to visit you, by offering them the right rewards and encouraging them to use their card regularly. If they don’t use their card every time they visit you, or worse they choose a different retailer, then you are missing pieces of their shopping “data profile" and, more importantly, revenue.

What will make my loyalty scheme successful?

The Nielsen research also found that the most valued benefits of loyalty schemes in Britain are:

In fact, Britons are nearly twice as likely as the global average to value being seen as an important customer and this was one of the few elements of loyalty schemes that Britons over-indexed on.

So the art of making a loyalty scheme work for you is to make those customers who sign up to a loyalty card feel more special than those who haven’t – giving them points alone isn’t enough of a distinction.

Some retailers, such as Waitrose, see loyalty cards as pointless – in that they do not even offer points as part of their card-holder benefits package.

Instead, they have a range of both long term benefits (e.g free coffee) and then a variety of changing in-store special offers and pricing, but these are primarily available to Waitrose card-holders only – note they don’t even have the word “Loyalty” in their card name.

Customers respond best to personalised offers - “things I actually buy” and they tend to reject un-obtainable offers. This means that, more often than not, “one size fits all” offers actually only work for a small proportion of customers.

Targeting offers is crucial if you want to make sure that your promotional activity is successful and profitable.

A deeper analysis of the data you collect will direct you to offers that will appeal to your cardholders needs and will enable you to offer them individual offers that will develop their spend with you through targeted vouchers and mailings.

Some EPOS systems enable you to collect the data that you need to identify and deliver these extra benefits to cardholders, so they see that they are special to you.

Vouchers on their system can be targeted in the same way.

This is extremely powerful if you want to genuinely excite and impress your customers.

In Summary

Loyalty schemes managed correctly, are a key tool in unlocking the behaviours of your best customers and retaining them, but only if deployed using the retail intelligence of a good EPOS system.

Offers must be structured in a way which substantially differentiates card-holding customers from non-card-holding customers, using long term and short term benefits.

An important footnote is that not every regular customer you have, will sign up to a loyalty scheme, so there are times when you might choose to put in place activity that is open to all customers, to meet a different business objective.

The profitability of any promotional activity will be driven by the design of the activity and the measurement must be linked to specific objectives.

In a future blog article, we will look at using Retail Intelligence in the design of profitable promotional activity.

[i] Nielsen Global Loyalty-Sentiment Survey 2016