Loyalty remains a key factor in the fight for customer spend, particularly among grocers, with Sainsbury’s chief executive Justin King recently commenting that loyalty schemes were dividing retailers into successful “haves” and challenged “have-nots”. David Adams reports

People can be loyal, but tend to save it for the really important things in life: friends, family and football teams. When it comes to shopping we’re a bit more promiscuous, like bees flitting from one flower to the next. Success in retail depends upon how effectively companies make like a flower and devise bribes that keep us coming back. Loyalty schemes help. Not only do they reward loyalty; they also enable retailers to learn more about customers’ shopping preferences. That’s absolutely vital today, says Charlotte Kula-Przezwanski, senior product director at Torex: “Customer centricity is absolutely key, especially in economically challenging times. You’ve got to keep your customer base.”

She believes a simple enrolment process is a must and cites Costa Coffee, which offers free points to people joining its scheme, and asks only for an email address in return. “That’s all they get from you at first, but then they start giving you offers and incentives. Slowly you tell them more: where you live, your earning potential, something about your shopping preferences. But enrolling has to be very simple. People don’t have much time.”

For Simon Helliwell, retail consultant at Clarity Commerce, successful loyalty schemes have two elements: making incentives more relevant to target customers and the technology behind the scheme. “We’re helping some of our customers look at ways of targeting different consumers,” he says. Clarity Commerce has been working with the Co-op in Denmark to develop targeted offers along these lines. “So they can make their scheme more compelling and cheaper to run, because they’re actually giving away less.”

If a retailer finds the perfect offer a scheme can really take off. That’s what HMV claims has happened with its purehmv membership scheme, which launched in May 2009 and now has more than a million members - despite the fact it costs £3 to join. It presents the scheme as a sort of members’ club, offering exclusive rewards relating to music and films including musical instruments signed by artists and VIP tickets to gigs, music festivals and film premieres.

“In our first year we had a specific target around the number of members and we managed that in half the time we expected,” says Matt Button, head of CRM at HMV. “We doubled the target in a year. That shows the proposition is attractive. It’s enabled us to understand more about our best customers, how much value they represent and how we can get the business in tune with what customers want.”

Button says the £3 fee is designed to identify and focus on genuinely or potentially loyal, regular customers, rather than people who only pop in a couple of times a year: “Having that £3 barrier has proved pretty successful.” The scheme has also given HMV insights into how customers interact with them online as well as in the store and it is also using social media to interact with club members, through Facebook and Twitter.

The loyalty scheme run by stablemate Waterstones seems at first glance somewhat less sophisticated. Annie Gallimore, CRM and customer insight manager at Waterstones, calls it a “very rudimentary” scheme, in which customers collect points for pounds spent, each worth a penny to be redeemed from future purchases.

But like HMV, the retailer is trying to create a club and like HMV it has been pretty successful, thanks in part to some interesting rewards, including reading and reviewing unpublished books, meeting authors and tickets to cultural attractions. The scheme launched at the end of 2007 and now has 3.5 million cardholders.

There are various plans in the pipeline, but for the moment Waterstones is still using the data mainly to enhance the scheme itself. Within larger loyalty schemes, data can be used in more sophisticated ways. LMG, part of Groupe Aeroplan, which owns loyalty schemes around the world, including Nectar in the UK, has a division dedicated to analysing SKU level data gathered through Nectar members’ visits to Sainsbury’s, using Kognito technology. “This is about improving the Sainsbury’s store experience,” says Dave Hamilton, solutions delivery director at LMG. “Sainsbury’s stocks 100,000 items, so it’s no small task. It all really stems from understanding customers in a holistic way. We segment according to when and how often customers shop, or whether they prefer organic, or are price sensitive, say. We talk about using different lenses over the database to view the customers in different lights. Once we understand how different customers shop we can tailor the store experience.”

The data also informs supply chain decisions, optimising stock selection for the store. The technology can also help analyse the processes consumers use to decide what to buy if their preferred item is not in stock, exploiting the speed of Kognito’s analytical tools which, Hamilton claims, produce in a few minutes results it might take a competitor’s system two to three hours to achieve.

Nectar

Not that the advantages of the technology need only be expressed in the back office. Sainsbury’s now also offers vouchers at the till, with printers churning out relevant offers to shoppers as they finish a transaction. “Offers are for all customers, whether they’re in Nectar or not, but they do become more relevant the more that is known about the customer,” says Hamilton.

Nectar was launched in 2002 and now has more than 17 million cardholders, 14 major partners (including the likes of Homebase and Vision Express) and about 450 online partners. Data is not shared between them, but LMG, as owner of the programme, can make targeted offers to scheme members on behalf of retailers within the scheme.

In 2010 Nectar overtook the Boots Advantage card, first launched in 1997, in terms of membership numbers. But Alliance Boots is fighting back. It has withdrawn Dolland & Aitchison from Nectar, following its merger with Boots Opticians and is in discussion with other retailers about new partnerships. A spokesperson for the company will only confirm that a significant announcement concerning the Advantage card will take place in the autumn.

The other loyalty card most likely to be in your wallet is Tesco’s Clubcard, launched in 1995, with more than 15 million members in the UK (among 32 million active Clubcard holders in nine markets globally) and 400 Clubcard partners. It has also been battling hard, with a relaunch in 2009, including a double points offer, that helped pull in a million new members.

“Over the years, the more data we have gained, the stronger the picture we get of our customers, which means we get better at personalising offers,” says Claire Roshanzamir, senior marketing manager at Tesco. “We send out nine million variations of the Clubcard to ensure customers get rewards relevant to them. No three customers get the same statement. The response rate on Clubcard vouchers and rewards is higher than any other direct mailer which shows how carefully personalised they are.”

It has contributed to the business’s success in other areas too. “Our dot.com offering could not have been created without knowledge gained from it,” says Roshanzamir. “Similarly, it fuelled the growth of our non-food sector by identifying possible customers and communicating the new medium through the Clubcard mailing.”

This year Tesco became the first of the big schemes to launch a smartphone app for the Clubcard, now available on iPhone, Blackberry and Nokia Smartphone. “Customers have responded really well,” says Roshanzamir. “Over 500,000 people have downloaded our app since it launched in February.”

Megan Ratcliffe, head of PR at LMG, is guarded about the chances of Nectar following suit. But Torex’s Kula-Przezwanski doesn’t think it will be going mobile just yet. She points to Sainsbury’s significant investment in the voucher at the till receipt printers. “I think they don’t totally believe in the mobile route,” she concludes. “We had a customer advisory board recently and (our customers) said they could really see a future for that - but they didn’t see it as a ‘this year’ thing.”

There may also be technical problems. “Once you put the card on the mobile device you’ve got to think about the type of scanner,” Kula-Przezwanski continues. “One of our customers said: ‘You’ve got to point the scanners outwards, because people won’t want to let go of their phone’.”

But she does think loyalty programmes and mobile have a future together, perhaps also if Bluetooth or another wireless technology were harnessed to recognise customers coming into the store and send offers to their phones.
Meanwhile, the idea that RFID or other contactless payment technologies could become intimately connected to loyalty schemes has taken a bit of a back seat.

“Things are moving in that direction slowly,” says Helliwell. “Barclays’ contactless card hasn’t taken off because the readers are quite expensive.”
Clarity Commerce’s Helliwell wonders if loyalty could be where biometrics finally make their long-awaited breakthrough into the mainstream. “The problem with biometrics is that they’re not reliable and they’re not quick enough,” he begins.

“A lot of retailers don’t want people swiping their fingerprints at the till or the door, because it just holds people up. But my personal bet for the future - and I don’t mean the near future - is facial recognition technology. If that sort of technology were sufficiently quick and you have a known database of people there will come a time when you scan a loyalty card by smiling at a camera.”

But for the time being, most retailers and consumers seem happy to stick with plastic cards, while the conditions for an increase in ‘mobilised’ loyalty begin to crystallise. And in the background, the data gathered through all that swiping and scanning continues to help retailers do everything they do just a little bit better, which is good news for all of us.

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