Studies claim that loyalty schemes are powerful business drivers.
In a nutshell
- Our research has shown that loyalty programmes hold less importance for people than studies claim.
- Loyalty schemes have two key functions: finding out what your customers do and encouraging an emotional connection with your brand.
- Loyalty programmes provide access to customer data that can be used to provide a better experience.
But it’s worth looking a bit deeper and noting these surveys are (in very basic terms) based on what people say in answer to this question: ‘Do you like companies to give you free stuff when you buy from them?’. Well who would say no to that?
But what if the question was: ‘If they didn’t give you free stuff would you still buy your favourite brand of coffee?’. That’s also going to be a yes.
Given that analysis, in many cases the financial benefits of these schemes just don’t add up. A McKinsey study of 55 companies across North America and Europe showed over the past 10 years, those with more prominent loyalty programmes grew at the same rate, or slower, than those with no or low investment in them. Even worse, companies with high-profile programmes had earnings margins 10% lower than comparable companies.
So why do so many people claim that the presence of a loyalty scheme is a factor influencing them when they are deciding whether they choose a brand or select a particular retailer. Could this be because they don’t like to be seen as profligate, or as someone not smart enough to take advantage of a good deal – so they answer in a way that makes them seem sensible. Our society doesn’t revere people who make emotionally-based decisions. Instead it values canny shoppers, so that’s how we like to see ourselves.
People tell us a somewhat different story about loyalty programmes. People have literally opened their wallets for us. What it showed is a small number of regularly-used cards, which are readily accessible – and a deck of cards tucked at the back, which are periodically culled.
I’m certainly not saying there are no benefits in a loyalty programme, but in my opinion the most important is probably one many companies don’t think about – the ability to find out what their customers actually do.
Smart analytics can use behavioural data from purchases to tell companies exactly what behaviour is changing or being reinforced by a programme. Analytics can identify the type of customers a company has and how they are engaging with the loyalty scheme.
For example, are they price sensitive and do they respond to direct price communications. Behavioural data can help optimise and attach a dollar value against the not insignificant cost of the scheme.
But before you press pause on your loyalty scheme, there is one other way to get value from a loyalty programme over and above the data from behavioural analysis. But that is only when a scheme is a fully-embedded part of the brand experience. If all it is doing is offering customers discounted prices, it will neither drive goodwill nor discharge the glue that attracts loyalty.
So how do you embed your loyalty scheme into the brand experience? One way is by offering rewards for things other than purchases – for example for being a brand advocate, like Powershop rewards people for introducing friends.
Another way is by recognising members as a whole person, not just a buyer of your product. For example, Christchurch hairdresser True Grit rewards customers with a pamper pack, instead of just a reduced price or free haircut, so the reward adds value in terms of a pampering experience. The salon also offers a reward for introducing a friend – and both the introducer and the friend get a $25 reward.
It’s widely accepted that the power of brands lies in the emotional associations they create – and the same is true of a brand’s loyalty scheme. Air New Zealand's Airpoints for Business programme is an example of a loyalty scheme that triggers an emotional response. SMEs feel undervalued and want to be recognised and acknowledged as proper businesses with needs that are different from domestic customers.
So when Airpoints for Business launched it offered having one of New Zealand’s leading entrepreneurs as a mentor – instead of the usual sign-up prize of an iPad or a weekend for two in Rotorua. At a stroke, the Airpoints for Business scheme became part of the total brand experience.
Five tips for a successful loyalty programme:
- Launch a scheme which will give you access to customer data you can use to make better and more tailored decisions. Set up the scheme single-mindedly with that intent.
- If you are not going to be able to use the data from the scheme then aim for an enhanced brand experience and assess success against that criteria i.e. positive emotional associations with your brand.
- If you are entering the market just because your direct competitor has a scheme, then set very tight limits around the extent to which you will use the card for price discounting.
- Think carefully about an exit strategy if your scheme doesn’t meet your objectives. You need to have a plan in place so you can don’t get caught in a cost increase spiral.
- Above all, make it easy. Whether or not you have made brand experience a goal, people’s interaction with your scheme will be experienced that way. People want it to be quick and simple and they will assess how much thought you have put into what the experience is like for them.