ANALYSIS: Why loyalty’s not as simple as ABC - As Safeway ditches its ABC card scheme, saying that consumers prefer lower prices, Alexandra Jardine asks whether ’loyalty’ cards are a modern-day misnomer

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.

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

increasing.



They might have worked in the beginning, but recent research has shown

that ’loyalty’ cards are a misnomer - they simply don’t make customers

more loyal.



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?





Loyalty overkill



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

points.’



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).





Analysis costs



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

the costs.’



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



LOYAL SHOPPERS?

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



Discussion

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus
Brand Republic Jobs

subscribe now

Latest

John Lewis walks consumers through its history to celebrate 150 years of business
Waitrose boosts content strategy with 'Weekend Kitchen with Waitrose' C4 tie-up
Hottest virals: Cute puppies star in Pedigree ad, plus Idris Elba and Fruyo
Amnesty International burns candles to illuminate new hope
Toyota achieves the impossible by calming angry Roman drivers
Tom of Finland's 'homoerotic' drawings made into stamps
YouTube reveals user habits to appeal to 'older' marketers
Ex-M&S marketing chief Steven Sharp consulting at WPP
Wolff Olins reveals new CEO after Apple poaches Karl Heiselman
Glasgow offers £30,000 prize to best digital idea for 2014 Commonwealth Games
Google's revenues surge but shares drop as it grapples with transition to mobile
Facebook beats Twitter to most 'marketing friendly' social media site crown, says DMA
Fableists believe children like Finn should be outdoors enjoying life
Homebase, Baileys and Camelot join the line-up at Media360
MasterCard renews Rugby World Cup sponsorship to push cashless message
Lynx unleashes £9m 'Peace invasion' campaign
Social Brands 100 Youth: Pizza Hut most social youth brand in UK
Cheryl Cole is wild and arresting in new L'Oreal work
Morrisons told not to show alcohol ads during YouTube nursery rhymes
O2 head of brand Shadi Halliwell departs after 23 years at company in restructure
Tesco hit by further sales decline as it turns to digital Clubcard and social network
Branding guru Wally Olins dies aged 83
Duracell short film captures epic Transatlantic voyage
Ash runs Tinder experiment to show smokers are less desirable to opposite sex
British Airways teams up with Gerry Cottle Jnr for summer of rooftop film screenings
Arklu says 'girls can be superheroes too' with doll design competition
Coke enters squash market with Oasis Mighty Drops
Virgin Galactic signs up Land Rover as space flight sponsor
Motorola marketer Andrew Morley departs as Google gears up for sale to Lenovo
US Airways apologises after tweeting obscene image at a customer