Conventional loyalty schemes can work, there’s no doubt about that. Among consumers using loyalty programmes, almost half (47%) spend more with a brand whose scheme they are a member of (YouGov). But shoppers have long since become savvy about the true value of loyalty schemes for them.

According to TCC Global, UK shoppers carry an average of four or five loyalty cards and regularly use three of them. While a report by Bond Brand Loyalty estimated that people are enrolled in roughly 14 different loyalty programmes.

But, is it really worth walking past one coffee shop to collect points from their competitor if you have to spend £35 before you can get that ‘free’ drink?

Most points-based schemes don’t secure customer’s loyalty over a prolonged period of time, and arguably never did. They’ve been the price bricks-and-mortar retailers have paid to incentivise customers to self-identify, in order to build a data asset – where the real opportunity to build stronger customer relationships lies.

But in today’s world of disruption and digitalisation, this approach is costly and cumbersome. The data advantage comes at the cost of a contingent liability that the scheme generates on the brand’s balance sheet. There would arguably be fewer cards in customers’ wallets if schemes weren’t so hard to unwind.

I’m not the first person to talk about approaches to loyalty running out of steam, or about the need for achieving genuine customer loyalty to be a company-wide responsibility, from product to pricing to customer service. But let’s focus on what preoccupies marketers: how do you create a strategy and a proposition today that builds customer loyalty and collects data profitably?

Let’s consider three propositional elements in building a loyalty approach that can be combined to deliver a value exchange for consumers to keep them coming back, and data for the brand to continue building the relationship:

• Utility: participation makes it easier, quicker or more convenient for consumers to interact with the brand. For disruptive digital brands, this is baked in – it’s the very reason consumers use Uber or Deliveroo. For other brands it’s harder, but eminently possible. Starbucks is one of a number of brands in the Informal Eating Out sector which rewards known customers with a faster and enhanced service.
• Reward: give customers tangible incentives to participate. For traditional brands, this means moving past points-mean-prizes and finding a sustainable way to give something back. There’s no easy or universal answer here – beware over-complication (M&S Sparks) and over-generosity (My Waitrose). For digital brands though, where customer self-identification is inherently at 100%, the classic loyalty approach can enjoy a renaissance. Take Hotels.com, for example, whose beautifully simple Rewards programme gives it a brand advantage in a super-commoditised and competitive sector.
• Experience: the hardest to define, and closely related to reward; find ways to make the experience better. Traditionally well-trodden by premium service sectors like airlines and hotels, this is the territory where marketers for mass-market and retail brands will need to be creative to find bite-sized equivalents – service upgrades, entertaining content, altruistic pay-off by charity donation, and so on.

One brand above all uses its massive scale to deliver what’s probably the world’s best loyalty programme; Amazon Prime works across all three of these elements to deliver a proposition so good, customers are prepared to pay for it.

For the rest of us, the answer needn’t necessarily be a proposition that delivers across all three, but it needs to work across more than one. Traditional retailers need to look beyond buying (false) loyalty with discounts, and even utility champions, like Uber, are rolling out rewards strategies as new entrants are nipping at their heels.

Though loyalty cards may help entice customers to spend more in the short-term, as suggested by Forrester research which found that, over three months, a customer in a loyalty scheme spent an average of $42.33 more than a customer who wasn’t in one – they’re not always guaranteed to work for the long-term.

Loyalty can’t be bought, but it can be rewarded in an effective way. Rather than relying solely on discounts and freebies to keep customers coming back, it’s important to focus on the overall customer experience – letting the customer know that they’re a face and a name, not just another figure on a report with a card full of points.

 

Head over to my LinkedIn article and give me your thoughts on loyalty programmes, either as a consumer or working in the industry.

This article first appeared on Retail Sector.