UK: Selling Points - Loyal, but reservedly.

UK: Selling Points - Loyal, but reservedly. - It sounds like a great idea to have a piece of plastic in your wallet that saves you money when you use it. So why are we such reluctant users of loyalty cards?

by Tim Phillips.
Last Updated: 31 Aug 2010

It sounds like a great idea to have a piece of plastic in your wallet that saves you money when you use it. So why are we such reluctant users of loyalty cards?

'It's fairly obvious that many loyalty schemes offer the customer nothing more than a warm glow,' says Oliver White, Barclays Bank customer strategy director. Yet Barclays, like many other retail organisations, is offering a loyalty scheme to its customers: and that's 42 million cards in the UK alone.

According to market research by NOP, 59% of us now hold at least one loyalty card. And if you use a loyalty card, it is overwhelmingly likely that you use two, three, or even four, according to the survey. But retailers are becoming acutely aware that unless they can offer more than a warm glow, customers will soon tire of carrying a wallet full of loyalty plastic.

Already, only one in four loyalty card users say it makes them visit the store in question more often. And only one in eight users ever bother to redeem their points.

For retailers, the penalties for running a flawed loyalty scheme are far worse than wasted start-up costs. If loyalty card users are not loyal, then the marketing data that the retailer can collect about that customer will be incomplete - and basing your future marketing plans on incomplete data is a risky business. 'A loyalty card then becomes just a discount scheme. It's electronic Green Shield stamps,' says White, 'and we know what happened to them.'

Today, retailers are clubbing together in what the jargon calls 'affinity groups' to encourage customers not to leave home without their card. Tesco lets 1.9 Norweb customers collect Clubcard points from their spending on fuel bills, for example. In some areas, it even lets shoppers pick up points by buying a pint of bitter in a Scottish & Newcastle pub on the way home. The idea is to encourage users to collect all their points on one card, picking a favoured retailer in each market. So Shell customers can also pick up points at UCI Cinemas and John Menzies. J Sainsbury will reward you for choosing its pumps instead of Shell's on the way to the supermarket. The alternative is to offer discounts on your affinity partner's products. So Barclays offers you a free McDonald's if you are a loyal customer, while J Sainsbury will buy you a cinema ticket.

But affinity groups are costly to set up and hard to manage. Retailers have to install non-standard point-of-sale technology and users have to remember the right card. Alun Roberts, ICL's director of precision retailing, says that the UK can learn from mature loyalty cards markets in Europe, which are integrating financial services and loyalty schemes on the same piece of plastic. 'The real gain,' he says, 'will be putting loyalty on already-issued smart cards.'

Roberts cites the Netherlands as Europe's most forward-looking loyalty environment. Last November, a consortium of Dutch banks launched the 'Easychip' loyalty scheme for seven million users. Easychip is an electronic purse, storing 'electronic cash', which users load on to the card from an ATM.

But it also holds up to 46 simultaneous loyalty schemes that are credited automatically when the card is used. If users want to cash their points, a central processing company (in this case ICL) can track the points earned, converting them between members of affinity groups.

'Smart' cards such as Easychip and MasterCard-owned Mondex (also touting a hybrid payment and loyalty card) are effectively tiny computers. While the magnetic strip on today's plastic cards hold only a couple of pages of data, they can hold hundreds of times that amount. Boots has even speculated on storing patient medical data on its Advantage smart card to prompt customers about relevant special offers when they pick up prescriptions.

The evidence from Easychip's trials is that they also encourage smaller companies to join affinity groups. As Roberts says: 'If a small butcher's shop offers 1% off the price of meat, then its scheme isn't going to be very successful. But if all the shops in a town centre clubbed together and automatically credited people for shopping locally, that's important.' Because the Easychip payment terminals already exist in most retail outlets, set-up costs are minimal.

In the UK, there are few smart loyalty cards in circulation. Yet, as the banks begin to issue smart cards to replace our traditional magnetic strip credit and ATM cards (a process that should make the magnetic strip obsolete before 2005), retailers will acquire smart card readers to handle credit and debit card transactions. Those card readers may be just what the loyalty schemes need to stave off loyalty fatigue.

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