UK: A BRAND OF BRIBERY - DO LOYALTY SCHEMES REALLY WORK OUTSIDE THE FOODS SECTOR?

UK: A BRAND OF BRIBERY - DO LOYALTY SCHEMES REALLY WORK OUTSIDE THE FOODS SECTOR? - Having once dismissed loyalty schemes as 'electronic Green Shield stamps', David Sainsbury had to eat his words. With the launch of Sainsbury's Reward Card, the triumph o

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Last Updated: 31 Aug 2010

Having once dismissed loyalty schemes as 'electronic Green Shield stamps', David Sainsbury had to eat his words. With the launch of Sainsbury's Reward Card, the triumph of the loyalty card looks complete. Its double whammy, of bribing customers to keep buying while simultaneously providing vast amounts of potentially useful information, has swept all before it. But that's in the foods sector. What about non-foods?

In non-foods the debate still rages. There are too many loyalty cards about to fit into a wallet, and they are costly to run, say the critics.

They strengthen customers' 'loyalty' to inflated incentives, not to the brands; the me-too versions have little influence on purchasing behaviour; and the information they generate is often of doubtful value. If a scheme covers infrequently purchased goods, and just a single company, the data it generates is so partial as to be useless for marketing purposes, maintains Barry Hill, former database marketing guru at American Express and co-founder of Relationship Technologies. Direct marketing spawned by such schemes is 'incredibly wasteful', he warns.

Marketers kid themselves when they say customers want to be 'loyal' to their brands, believes Bob Tyrrell, chairman of Henley Centre for Forecasting.

And they often end up 'massively misallocating their resources'. They would do better to accept that the world is full of hard-nosed 'users' seeking the most appropriate 'facilities' - and act accordingly.

When somebody tells CEOs about the way things are, Hill predicts, a shakeout will take place. To remain viable, schemes will need to make customers' lives easier by combining a number of offers. So while a department store, for example, might have a workable scheme, scores of different niche retailers will not; a travel agent, perhaps, but not separate airlines, hotel or car hire companies.

It may be noted that Shell has been negotiating with the likes of Sainsbury, NatWest and John Menzies for its Smart card to be used in cross-promoting to their various customers. For example, the card could give holders an incentive to shop at Sainsbury's rather than say, Tesco: and each participating company would be able to access and use the Smart database.

Companies such as these swear by loyalty schemes. By offering Air Miles and other benefits along with petrol sales, Shell aims to capture expense account users who normally don't care which brand of fuel they buy. When Amex introduced Membership Rewards, scheme members increased their card spend by 40%. With 500 staff serving two million Executive Club members in 100 countries, British Airways' scheme costs £50 million a year to run and is 'easily the most expensive part of our marketing programme', says senior relationship marketing manager Chris Pilling. On the plus side, Pilling estimates that it generates incremental revenue of £300 million per annum, and protects another £2 billion worth of revenues - more then a quarter of the total - from rivals' incursions.

The best loyalty schemes certainly have something to do with loyalty, but they have a lot more to do with pricing tactics and with paying customers to hand over information about themselves. Companies that recognise these characteristics could transform their prospects.

Those that don't may be in the process of discovering that David Sainsbury was right first time.

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