When Safeway announced it was scrapping its loyalty scheme last
week, there was a ripple of approval from the City. Never mind the fact
that Safeway’s annual results were forecast to be down on last year, its
struggling share price rose by 22p on the back of the news.
It’s a marked contrast to just a few years ago, when Sainsbury’s got the
thumbs down from analysts for being slow to introduce a loyalty card,
and Tesco was hailed for its innovation in launching one.
In 1995, the loyalty card looked like the perfect marketing tool, giving
customers an incentive to spend more while at the same time gathering
precious data about spending habits. So what has gone wrong?
It could just be the retail climate - the supermarkets are waging war on
price, and ploughing money into discounts, as Safeway is doing, is
currently viewed as a smart move.
But more significantly, scepticism about loyalty schemes is
They might have worked in the beginning, but recent research has shown
that ’loyalty’ cards are a misnomer - they simply don’t make customers
A recent Mintel report on customer loyalty revealed some damning
statistics, including the fact that over one-third of customers would
rather settle for lower prices than points or incentives. While some
consumers were happy to collect points, they often had more than one
card - and the cards did not make them more loyal to any one shop.
Perhaps most tellingly, not having a loyalty scheme did not seem to make
any difference. Morrison’s, a retailer with no loyalty card, had the
highest proportion of loyal shoppers, according to Mintel.
Suddenly, Lord Sainsbury’s infamous description of Tesco’s loyalty
scheme as an ’electronic version of Green Shield stamps’ doesn’t seem
quite so short-sighted.
Safeway reckons it will save pounds 50m this year by scrapping its ABC
card. So are the schemes a waste of time and money?
Opinions are still sharply divided. Asda was the first supermarket to
scrap its card last year - but its scheme was only a pilot and in any
case, price-cutting had always been higher on Asda’s priority list.
Wal-Mart, its new parent, has become the world’s most successful
retailer without a loyalty scheme and Asda just didn’t see the point of
spending pounds 60m on a roll-out.
Safeway, in contrast, had a substantial five-year-old scheme with six
million active cardholders, several ’clubs’ and a major database
marketing operation. To dump all this is a serious move.
But new chief executive Carlos Criado-Perez, the former chief operating
officer of Wal-Mart, says there are simply too many loyalty cards in the
market for them to work any more: ’People are bored by loyalty cards.
When they go shopping, they open their wallet and have three or four
cards, so it has stopped being a stimulant to visiting a store.’
Some retail industry observers believe that Sainsbury’s and Tesco would
secretly love to do likewise, despite the fact that they are both
currently staunchly defending their schemes. Both were quick to make hay
of the Safeway announcement. Tesco promised to print two million extra
cards, while Sainsbury’s is offering 500 Reward points to Safeway
customers in exchange for handing over ABC cards.
Sara Weller, Sainsbury’s marketing director, says that while focusing on
price cuts might work for the likes of Asda, which has a heritage in low
prices, its Reward Card suits the Sainsbury’s target customer.
’It is an integral part of our pricing policy,’ she says. ’It’s not just
a matter of collecting points but giving customers a better offer - such
as using the scheme for Air Miles which have twice the value of Reward
Boots the Chemist, too, is investing heavily in its loyalty scheme and
this autumn plans to launch a credit/loyalty card in a joint venture
with Egg, the Prudential’s online operation. Customers will be able to
gain points on purchases in any store, but redeem them in Boots.
Crawford Davidson, who heads Boots’ Advantage card programme, says such
cards are not so much about creating loyalty as identifying those who
are most loyal and encouraging them.
’Loyalty works when you link it to your brand initiative. Our brand
proposition is about looking and feeling good and our card plays on that
- it’s about allowing you to buy indulgent treats for yourself. It’s
more personal than a discount off the family shopping bill.’
A major argument in favour of loyalty cards is their function in
gathering invaluable customer data. ’The main pay-off of loyalty cards
has been savings in the supply chain - Tesco has saved about pounds 500m
simply by using the data it has collected,’ says Chris Davies, chairman
of Relationship Marketing International (RMI).
So is Safeway losing out by dumping its database? No, it argues, because
it could not afford to analyse it properly. Mike Pearce, business
development director of direct marketing agency TSM, says this is a
valid point: ’The statistical challenge of analysing all that data is
enormous - you have to look at whether the marketing benefits outweigh
And Mark Price, marketing director of Waitrose, is a fierce believer
that loyalty schemes don’t work and says there are now far cheaper ways
of gathering data.
Instead of a loyalty card, Waitrose is investing in shopping via WAP
phones and the internet as a way of targeting customers. ’Sending a 50p
letter to a customer about an offer on baked beans just isn’t cost
effective,’ he says. ’But with customers shopping via WAP and the
internet, the one-to-one relationship moves into a whole new era.’
Chris Davies of RMI predicts that within two years, WAP phone users
belonging to a scheme will be able to simply point their phone at a till
to have their points recorded. ’Then later you will be walking down the
road past Boots and the phone will ring, saying, ’Come in now, Mr Smith,
we have a personalised offer just for you’.’ So loyalty schemes - even
if they come in new forms - may not be dead yet.
REMAINING LOYALTY SCHEMES
SCHEME SUBSCRIBERS HOW IT WORKS
Boots Advantage Card Over 10 million 4% return on spend
Users can save up points for ’treats’, such as a day at health club
Tesco Clubcard Over 12 million 1% return on spend
Customers can save up for ’keys’ toward travel-related discounts
Sainsbury’s Reward Card 17 million 1% return on spend
Also includes third-party offers at other high street chains; Air Miles
75% of UK adults have at least one loyalty card
Over 45 million cards are actively used in the UK’s top seven schemes
Tesco Clubcard has the highest penetration - 37% of all UK adults
Boots Advantage has the highest number of regular users - 9.5 million
42% of Tesco card holders have a Sainsbury’s card, while 52% of
Sainsbury’s card holders have a Tesco card
48% of those with grocery cards participate in more than one scheme
Source: Mintel, Customer Loyalty in Retailing, October 1999