As brands start to look past the normal model of discount-based loyalty programmes, is rewarding customer longevity the answer to increasing customer loyalty and creating profitable customer relationships?

You know what they say, “if you want loyalty, then get yourself a dog”. Dog’s are known to stay completely loyal to their owners their whole life as long as they’re loved, fed and given shelter. But unfortunately for marketers, customer loyalty can’t be gained the same way.

The initial launch and incredible success of the Tesco Clubcard throughout the 1990s and 2000s created a model for discount-based brand loyalty that many organisations used and continue to use throughout the UK and around the world. However, a significant increase in competition has made it harder for loyalty schemes to “stand out” and be a success for organisations, and with the added pressures of economic changes, businesses are now faced with the dilemma of balancing customer rewards with the cost to the business itself. As a result, many businesses throughout the UK are finding they have to scale back the rewards they’re offering by either decreasing their value or increasing the amount customers need to spend in order to earn each loyalty point. As you can imagine, customers generally aren’t too happy about this!

Looking at the turbulent loyalty market in the UK recently, it seems as though it’s time for a change of direction when it comes to customer loyalty schemes. In fact, both Sainsbury’s and Tesco have suggested there will be significant changes to the Nectar and Clubcard schemes. These changes involve rewarding customers for long-term usage and deeper engagement with their business, rather than for just short-term sales.

However, despite the changes these big brands are planning, customers still seem to favour simple money-off rewards, rather than the more complex structure of ‘unlocking’ levels of rewards. An example of this is Marks & Spencer’s huge investment in its Sparks scheme, which uses the more complex approach, and has so far not achieved the results they’re looking for. It, therefore, seems as though marketers are facing the challenge of changing how customers perceive loyalty schemes and what their purposes are. This is particularly clear in the retail industry where brands are facing high levels of competition and consumers that are spending time searching for the best deals.

Around this time last year, Sainsbury’s paid out £60m in order to take full ownership of the Nectar Reward scheme. Shortly after this, they announced their loyalty scheme will be undergoing a complete revamp and is trying out a new model that sees customers receiving points based on how often they shop with Sainsbury’s and for how long they have been a customer, rather than just how much they spend. Simply put, the more loyal a customer is to Sainsbury’s in the long term, the more they will be rewarded.

With Sainsbury’s new loyalty scheme, people are able to select their offers via the app or online from a list based on the products they purchase most often. Waitrose had actually been offering something along these lines on their myWaitrose scheme, however, they ended the scheme last year after customers complained they found it too confusing. The good news for Waitrose is that free coffee and newspapers appear to be working just fine for them. 

So despite the way companies go about it, one thing we know for sure is that customers want to be rewarded for their loyalty. In fact, YouGov found that three-quarters of the UK population are members of a loyalty programme, and 59% think all brands should offer one. Unsurprisingly, the primary reason people sign up to loyalty programs is to benefit from the discounts and offers they’ll have access to.

In this article, we’re looking into the different ways in which some of the biggest brands in the UK are rewarding customer loyalty. 

Rewarding customer longevity

Loyalty programs aren’t only for the retail sector, Sky is also looking at rewarding their customers for how long they have been with them rather than how much they spend. They introduced the Sky VIP loyalty programme last year, in an attempt to increase customer retention amid increasing competition from companies such as BT and Netflix. 

Since it’s launch, 1.8 million people have signed up and 70% of which have received a reward, whether it was a free film or an experience. Sky is expecting subscriber numbers to increase significantly over the next 12 months. Rob Chandler, the head of loyalty at Sky, says the programme started initially to reward loyal customers, but now it’s more about Sky showing loyalty to their customers. He explains the programme is about looking after their customers, rather than demanding their loyalty. The framework of rewarding customer longevity gave Sky the opportunity to do just that since it’s all about how long customers have been with their brand.

He went on to further explain how Sky has made the decision not to use their loyalty programme to encourage people to change their behaviour, claiming they “don’t need the bribery action of traditional loyalty programmes,” instead they’re focusing on recognising the value of customers and making them feel more valued.

However, the problem with rewarding customers for how long they have been with a brand is that there is a risk of losing some of your valuable customers. For example, Sainsbury’s loyalty scheme doesn’t account for customers who occasionally shop with them but spend a lot of money when they do. By rewarding customer longevity, these customers will have no incentive to continue shopping with Sainsbury’s and may, therefore, choose to shop with a competitor in the future. 

Another limitation of the tenure-based loyalty scheme is that it doesn’t account for customers who simply decide to take a break. There are many reasons why people may change their behaviour dramatically. For example, in the travel industry, brands may have customers who have been travelling with them for years, but if these customers were to have a significant lifestyle change such as having children, their custom may stop for a while. If this is the case, is this type of customer still a part of the brand’s loyalty programme?

Many airlines, and, of course, businesses in different industries, give their customers ‘maternity leave,’ and Sky says it is doing this currently on a “case by case” basis. Sky will be reviewing the set-up of their loyalty program over time as it learns more about their customers and how tenure works for loyalty programmes. 

Creating a community

Another brand that’s trialling out schemes that reward customer engagement is women’s fashion retailer Simply Be. Following their research which showed customers feel as though they have to try too hard to get rewards from point-based schemes, they launched their loyalty programme Perks. This programme rewards customers for their engagement by giving out personalised rewards.  

Simply Be have explained how they are aiming to build relationships with customers based on more than just transactions. They’re also wanting to deliver an engaging experience that their customers can relate to.

With the aim of creating a community, Simply Be are looking to make their customers feel like they’re a part of something personal and to interact with their brand. So far Simply Be has seen some great results with Perks, which shows just how effective making customers feel a part of something exclusive actually is. Since its launch, Simply Be claims they have seen a significant increase in website traffic and people joining the scheme. However, the purpose of Perks goes beyond just rewarding customers, it’s objective is to build a strong customer community with rewards ranging from event invites to gifts from third-party brands.

Another great example that shows the effectiveness of building a community is Sephora’s Beauty Insider loyalty programme. The scheme has more than 10 million members and is split into tiers – Beauty Insiders, VIB and VIB Rouge. Customers can then make their way through the tiers, with VIB Rouge being gained once a customer spends $1,000 over a year. Tier-based schemes can be very effective in creating a community and making customers feel as though they’re a part of something, particularly when they reach the top of the tiers. 

Another example of a company that uses a similar loyalty programme is Royal Caribbean with its Crown & Anchor Society scheme. Members earn 1 Cruise Point for every night they sail with Royal Caribbean and double the points when they book to stay in a suite. These points add up to great benefits and enable you to become a part of each membership tier. There are six tiers in total starting from Gold which requires 3 points, through to the Pinnacle Club requiring 700 points. The rewards get bigger through each tier, with a complimentary 7-day cruise for members of the Pinnacle Club.

Tier-based schemes can be very effective as people like to feel part of something, especially when they are one of the few at the top. 

The continuing appeal of points

Despite these top brands beginning to change the way their loyalty schemes work, traditional point schemes still seem to work well. According to Byron Sharp’s thesis on loyalty, brands are wasting their time by coming up with complex mechanisms to generate an emotional bond with customers. Sharp’s theory argues that repeat purchasing is created by ensuring a brand is physically and mentally available to the market at the right price. With this in mind, you can see why Boots Advantage card scheme has over 18 million people signed up. The advantage card simply gives customers four points for every £1 they spend. The incentive this gives to customers to shop with Boots has led to huge success for the brand. 

Since launching in 2011, Superdrug has seen 12 million people register for their Health and Beautycard. Superdrug also recently made a move outside of their industry and released a £10 a month no-contract mobile service designed exclusively for loyalty card members.

Jo Mackie, head of customer and people at Superdrug explains how the company is always looking at ways in which they can add value for their customers, adding that since Superdrug customers typically use their phones a lot, it seemed like a good opportunity to offer a SIM-only deal to members.

Elsewhere on the UK high street, M&S’s Sparks programme works by rewarding different customer behaviours, including engagement and the frequency customer’s shop with them. Members of the scheme are able to choose from a list of offers, supposedly based on each customer’s interests, that are sent out every few weeks. In theory, giving your customers the choice of which rewards they get should work wonders, but in reality, it’s not as effective as it may seem. The Sparks scheme has been heavily criticised for being too confusing and not very personalised to customer’s interests. 

Bryan Roberts, global insights director at TCC Global, says “it’s important to remember that loyalty isn’t a piece of plastic or an app, it’s much more emotional than that.” In today’s extremely competitive marketplace, failing to create an emotional bond with your customers can negatively impact your market share.  

A different approach all together… 

So, maybe it’s time to rethink customer loyalty entirely! There is, in fact, behavioural evidence that suggests customers are actually more likely to take action if they’re unaware of the value of the incentive. This comes from a study in which participants were either offered $2 or they were given a fifty-fifty chance of winning either $1 or $2. Surprisingly, the results showed that it was the participants in the second condition who were most likely to participate. 

These results actually go against how most brands create their loyalty schemes. Most programmes offer customers fixed rewards, such as Starbucks giving customers a free drink for every 15 drinks you buy. However, according to the research from this study, it’d be more effective to mix up the rewards that brands offer their customers. For example, maybe it’d be more effective for Starbucks to mix up their rewards and offer a free pastry sometimes, a free sandwich other times, and sometimes nothing at all! Psychological evidence suggests this would be a more effective approach than always offering the same rewards. 

Whether the answer lies within points, tenure, engagement, unpredictability or simply a free coffee, when it comes to customer loyalty it’s clear that there isn’t a one size fits all approach, and what works for one brand may not work for another. Humans are complicated, our needs and behaviours change as we get to different stages in our lives. Therefore, brands need to continuously work hard to become more than just a card in our wallets and develop an emotional connection with their customers. After all, convincing customers to keep shopping with a brand on a regular basis is increasingly difficult in today’s crowded marketplace.

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Perx Rewards provide a suite of white-label reward based marketing tools designed to help you attract and retain more customers. If you’re interested in finding out more about how PERX can help your business, contact us at sales@perxrewards.co.uk or call 0333 202 88 33.