The future of loyalty

As the digital world evolves, brands will gain more in-depth customer data from their loyalty schemes. Using that information wisely will build strong relationships between brand and consumer.

Loyalty schemes, in one form or another, have been around for 30 years, and the UK’s big hitters, Nectar and Tesco Clubcard, have been firmly established for around 10 and 20 years respectively.

Through frequent consumer use, these schemes have built up a wealth of data that can be used to segment and target people on a highly granular level, while at the same time using rewards to create goodwill, increased consideration and, ultimately, loyalty. However, the latest research from Nectar owner Aimia suggests that brands are not capitalising on the data available and in some cases may be actively damaging burgeoning relationships.

The Four Futures: The Digital Loyalty Survey, questioned 6,000 respondents across the UK, US and Canada and finds that consumers are willing to engage with brands online but that the messages they receive often fall short of expectations. Furthermore, consumers are concerned about the rising volume of marketing messages, and also feel they are not receiving the rewards they expect for the data they provide.

The survey concludes that marketing success in the digital future will depend upon how well marketers use data to build relationships. Will Shuckburgh, managing director of Nectar, says: “The important point about relationships is connecting on a number of different levels. It’s a move from rewarding just the transaction to rewarding the behaviours.”

However, for many consumers the use of loyalty schemes revolves around the ability to save money. Andrew Warner, senior director of marketing EMEA at Expedia notes: “In all categories you’re going to have deal seekers. Travel is one of the biggest purchases you’re going to make in a year. Using a loyalty scheme such as Nectar to acquire points when you pay for a holiday and then redeeming them at a later date, it’s a great way to save money.”

Some loyalty schemes are at a crossroads because of economic pressures. Money-off schemes continue to attract consumers because their financial benefits are immediate. But for other loyalty schemes, such as for East Coast Main Line business travellers, were initially rooted in added services for high-value customers.

“The loyalty scheme that rewarded the high-spending segment in business travel became less viable as the economy changed,” explains Jim Muir, retention and insight manager at East Coast Main Line. “Corporate travel policy took hold and business travellers reined in their spend. Membership automatically dwindled because fewer people qualified.”

As a result, the scheme became more deal-based, where 70 per cent of participants choose to redeem reward points for free travel. It’s a strong indicator that, in the right context, deals are still a significant driver of loyalty. East Coast is also migrating its loyalty activity to become more digital-based, with the help of Havas Media.

However, the ability to go beyond ‘earn and burn’, by using the data acquired through scheme membership to create targeted marketing communications and more relevant customer experiences, is critical in turning deal seekers into long-term customers. It is the use of these targeted communications that Aimia’s research identifies as a risk point for marketers.

Expedia’s Warner says: “Beyond immediate rewards you have different streams of data that help you to deliver more targeted and relevant offers to customers. This can go wrong if you don’t do it properly. The risk is in looking at the last touchpoint and inferring something [inaccurate] from that, when the same consumer could be buying budget travel for work and luxury for leisure.”

The participation of third parties in company loyalty schemes has both increased the amount of data available for brands to use in targeting and the volume of communications customers receive. Managing the relevancy of these third-party communications is critical to avoid over-messaging.
Muir at East Coast Main Line says: “We have a narrow range of third-party redemption options – things that interest and suit our travellers. Consumers become disengaged if they are bombarded by irrelevant third-party offers.” He even balks at allowing consumers to redeem points with train station partners such as the ubiquitous WHSmith or Upper Crust concessions. “If you put too many third parties in there, you end up devaluing your own product.”

But some consumers like to access partner deals and value participation in loyalty schemes that provide value across all their interests, instead of focusing on a single brand. Car hire company Hertz acknowledges that customers do not just want money off transport but like to benefit from package-type benefits.

Tesco Clubcard, arguably the most successful single-brand loyalty scheme in the world, has also acknowledged that customers today want such programmes to deliver rewards in the ways most relevant to them, even as it has simplified its Exchange and Reward elements under the single brand Boost. At the World Retail Congress (WRC) last September, Tesco chief executive Philip Clarke said: “We’re going to personalise Clubcard, making customers feel they are truly part of a club. Some want vouchers they can spend in store as a reward, others want car insurance, meals out, or trips to leisure parks. This tailored approach is proving popular – on some days over 50 per cent of covers in popular restaurants and around 10 per cent of trips to popular UK theme parks such as Legoland and Alton Towers are made with Tesco rewards.”

Given the amount of data that will be available to brands as the future of loyalty marketing unfolds, the temptation to send too many direct messages will be present even when managing a single brand interaction. Sarah Farquhar, head of retail at Oxfam, says that not-for-profit organisations have to tread even more carefully than consumer brands. That is something that has been at the front of her mind since Oxfam agreed a partnership with Nectar.

“You don’t want to alienate customers by getting it wrong. By being smarter and using deeper segmentation, we learn a lot and see the opportunity for more targeted messaging. We wouldn’t want a transactional or incentivised promotion to jeopardise the relationships we already have.”

Farquhar reveals: “I’m nervous about saying that we’ve cracked it in less than six months but we did a lot of testing both with our and Nectar’s audience. We’re already halfway through our target and at every stage we have given people the opportunity to have a conversation with us.”

Loyalty data remains a central pillar for brands to begin conversations with customers where there is ultimately no other useful means of gathering information. “We have a central database of supporters who campaign or give us donations, but we have millions of people who come into the shop and are largely unknown to us,” Farquhar explains.

Similarly, for car manufacturers the relationship often ends once the car leaves the forecourt. This is particularly true when warranty periods end and links with dealerships are severed, either because the car has passed to a new owner or drivers opt for other garages for parts and servicing. A partnership with Nectar has allowed Ford UK to learn more about such customers.

Jon Wellsman, customer service director at Ford UK, says: “Nectar customers typically have older vehicles, 75 per cent of which are out of warranty. Motivated to earn points, they come to the Ford dealership and we can see that customers acquired from the Nectar base are more likely to be ’sticky’ and increase retention. Once the car is in the hands of a second owner, loyalty schemes give us the opportunity to talk to people we might not have been able to find.”

Loyalty scheme data can identify wants and needs down to an individual consumer level, and using this information accurately to shape each one’s experiences of a brand is likely to be a key influence in how schemes develop in future. However, the wider trend data they offer is also becoming richer.
“Scale delivers its own benefits. There is such a wealth of information that it doesn’t have to be personally identifiable. You can use data analysis to segment, and use test-and-learn algorithmically,” says Expedia’s Warner.

Ford’s Wellsman adds: “The amount of data available means we can use propensity modelling to work out who is most attracted by offers and then we can target them cost effectively.”

For Expedia, data from sources such as loyalty schemes has allowed it to profile distinct customer travel behaviours. “Data has allowed us to set up our mobile application to default to the travel itinerary page rather than shopping page if it is accessed within seven days of travel. If the customer is looking to make a booking at the last minute, the app will revert to showing hotels nearby,” Warner says.

Indeed, while the research suggests that brands need to manage messaging online to ensure relevance, Warner sees the mobile segment as an emerging force behind the ability to use loyalty data to deliver highly relevant and, critically, timely offers.

Tesco’s Clarke went on to note in his WRC speech that sending out different types of offers based on data from Clubcard was only a small part of Tesco’s relationship-building, citing innovations in click-and-collect, web design and smartphone applications that all responded to insights derived from the loyalty scheme.
Social media is also playing a part with rewards for customers engaging online, seen more in the form of an ongoing dialogue with the company rather than a purely offer-based relationship. Samsung and Statoil both use LinkedIn to develop relationships through follower groups such as the latter’s Energy Innovation group, which provides members with access to forums and content. Samsung has stated that 33 per cent of LinkedIn followers claim they are more likely to buy a device after following on LinkedIn.

Others are looking at an even bigger picture. “I want to look at what the overall data can tell us,” says Oxfam’s Farquhar. ”If Aimia and Oxfam got together it would be interesting to see what it can tell us about the world. The collaboration could give us insights into alleviating poverty through changing behaviour.

“At the moment data through loyalty is about customer relationship management, but in the future it could provide great information around thought leadership.”

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