Loyalty schemes are fast becoming the new currency in retail. Securing repeat purchase, higher transaction values and greater visit frequencies should wholesalers emulate this strategy, asks David Gilroy.
Dear Deidre. I’m in a loveless marriage with my bank. We coexist in the same space, but the passion has gone. We had a significant anniversary recently. No acknowledgement. Not so much as a card. My personal bank manager says she wants a “relationship” with me, but I only hear from her every March when it’s time to invest in ISAs. I have been loyal to my bank ever since getting my first pay cheque. I now bank online and with the app. No need to step foot into a branch anymore. I am the perfect hands off, arm’s length customer. The bank where I first opened my first account is now a pizza restaurant. Loyalty is a multi-layered beast. At first glance I am loyal but look more closely and you will see that I am playing the field. All the juicy profitable add-on activities such as: savings, pensions, and insurances reside with other financial service providers. My bank operates my current account only – efficient, enduring, cold and clinical.
In 2020 during the pandemic, probably like many of you, I took to subscribing to various goods and services. Subscriptions are a brilliant business model. They lock in customers, deliver a reliable income stream and most importantly build databases. Pret a Manger were in deep trouble when consumers stopped commuting to the major cities in 2020. From being expansionist with strong growth, they suddenly had a tranche of empty restaurants and a fight to survive. They responded with a subscription scheme offering five coffees every day per month plus 20% off all food. This has proved to be a massive success.
I have a subscription with a national newspaper. I value the experience and the flexibility of the printed or the digital versions. Our relationship is solid, but I can tell that they’re nervous. They keep sending me “rewards” to lock me in. A VIP weekend camping pass, a three-night stay at a Mayfair luxury apartment, a half price deal on 12 bottles of wine and a spa and beauty retreat in the Cotswolds. Eclectic and disparate, they obviously think that these deals will further cement my loyalty, but they are having the opposite effect. None of these offers appeals to me. How could they know? They have no data about me or my interests.
At their core loyalty schemes are constructs designed to incentivise repeat purchases and foster customer loyalty. These programmes typically reward customers for their ongoing support through various mechanisms such as points, discounts, exclusive offers, and personalised gifts. By encouraging customers to return to their stores time and again, retailers increase customer retention and gain valuable insights into consumer behaviour and preferences. The efficacy of retail loyalty schemes lies in their ability to tap into fundamental principles of human psychology. According to behavioural economists, humans are inherently predisposed to seek out rewards and derive satisfaction from feeling appreciated and valued. Loyalty schemes leverage this innate desire for recognition and reward, enticing customers with tangible benefits that reinforce their loyalty to a particular brand or retailer. There are wins both ways for participants. For retailers they serve as a powerful tool for customer retention and lifetime value. They provide data insights into spending patterns and preferences which can inform ranges, services and marketing. And they can help with differentiation in a competitive market. From the consumer perspective they can offer access to exclusive deals, recognition, added value, a sense of achievement, and progression of investment in their patronage which further reinforces their loyalty to the brand. Numerous case studies and academic research have shed light on the effectiveness of retail loyalty schemes in boosting business performance. For example, research conducted by McKinsey & Company revealed that businesses with robust loyalty programmes experienced higher customer transaction values, higher satisfaction levels and higher visit frequencies than non-member customers. Overarching this they enjoyed a higher return on investment and were better equipped to withstand competitive pressures. There are several best practices associated with loyalty schemes. Programmes should be easy to understand, with clear guidelines and reward structures. The customer data should be used to personalise rewards and offers, ensuring that members feel valued and appreciated. And ongoing engagement and communications are crucial for maintaining interest and participation. Some of the best examples are operated in the vaping and coffee industry. They tend to be app-based and simple.
Loyalty schemes have really come to the fore this year. Lidl’s industry market share growth is being attributed to its Lidl Plus loyalty app which has been recently overhauled with the addition of new discounts for members on a weekly rotating selection of products. This has helped drive their sales – particularly in bakery. Deliveroo has launched an invitation-only service targeted to top users that offers members priority delivery, dedicated customer care teams and access to restaurants unavailable to other users. The premium service extends to exclusive evenings with renowned chefs and dining experiences.
The multiple grocers are really driving down hard on the loyalty route. Research by Toluna & Harris Interactive into customer loyalty schemes found that the instant discounts available with some loyalty card membership schemes are now more than twice as popular as the nearest loyalty card benefit with 54% of shoppers saying it was the most important quality they looked for in a loyalty card. Discounts are increasingly enabling retailers to undercut rivals – Tesco was first to move with Clubcard prices during the pandemic. Their scheme has since grown to include some 8,000 lines and attract a membership of around 21 million. It was extended to their Express convenience format last year and is the biggest in the industry by some distance. Others have followed. Notably Sainsbury’s with Nectar pricing offering 6,000 lines. Asda, Co-op, and Morrison’s also offer various schemes.
In a world where customer retention is far more cost effective than searching for and securing new business could loyalty programmes be the way forward for wholesalers?
David Gilroy, Store Excel
Comments are closed.