Loyalty cards face a struggle in an era of price discounting

With supermarket discount wars raging have loyalty schemes have lost their lustre?

From Marks & Spencer's ‘Dine in for two for £10' deal to the resur­gence of cut-price basic brands, discounts and promotions have become the centrepoint of many brands' marketing strategies during the downturn. In contrast, loyalty programmes, which require that both consumers and brands invest in long-term rewards, are facing challenging times.

Many schemes are relaunching their cards as cash-strapped shoppers rein in spending. The supermarket price wars are moving battlegrounds as grocers use their loyalty cards to attract new customers and retain their existing ones.

This summer, Tesco backed the relaunch of its Clubcard with a £150m push, and is offering double points in several non-food areas. It claims this is the most significant change to the scheme in its 14-year history.

Meanwhile, the Nectar card scheme, which counts Sainsbury's among its partici­pating retailers, has launched its first TV campaign in five years to promote its new partner, DIY and garden-centre chain Homebase. Airmiles also relaunched at
the beginning of the year with a fresh TV campaign.

In contrast, Asda, which has long eschewed the use of loyalty cards, has hit out at rivals in a TV ad, with a shop worker telling viewers: ‘I don't think you need loyalty cards, not if you've got low prices.' The absence of a loyalty card does not appear to have damaged the supermarket's appeal to its shoppers.

Consumer interest

Some observers believe the public has become less responsive to the lure of earning and spending points, as their wallets are bulging with cards from the multitude of schemes.

The initial excitement such programmes may offer, such as the appeal of being a member of an ‘exclusive' club, has waned. Sceptics claim that over the years, points have lost their lustre and many shoppers now take them for granted. However, the operators themselves say people are signing up for the cards in greater numbers in the recession as they seek to take advantage of discounts and find alternative ways of paying for treats. 

It is certainly true that fear of unemp­loyment has led shoppers to re-evaluate their buying habits and ruthlessly cut unneces­sary expenditure. Consumers
are now much more likely to shop around for the lowest prices. The question is whether loyalty cards can minimise
such behaviour.

The Tesco Clubcard relaunch has shifted the battle away from simple price-cutting to promoting value. However, it may also signal that the scheme has lost some allure.

‘The relaunch of Clubcard suggests that Tesco may have come to the conclusion that shoppers see points as a right rather than a privilege,' says Duncan Woolston, head of business development at loyalty specialist The Continuity Company. ‘By doubling-up on points, Tesco can provide shoppers with a better deal. It has enabled them to shift from price wars with Asda, Sainsbury's and Morrisons and put the emphasis on value, which is where it wants to be.'

Woolston also believes that Nectar benefits from its cross-promotions with different partners, but adds: ‘It is a more passive form of loyalty and is less rewarding and generous than other programmes.'

Others agree that loyalty schemes need to offer more than simple price-discounting, which does not create much engagement with shoppers.

‘Customers want to see a bit of effort by organisations to retain their custom,' says Chris Whitson, planning partner at direct marketing agency Stephens Francis Whitson. ‘In a downturn, people are more ready to investigate schemes and do the maths. The emotional benefits become more important, as the cold benefits of extra points often don't work out.'

Although a Tesco spokesman insists that it does not share individual Clubcard data with any third party, Whitson claims that it has made significant profits from selling its customer data to suppliers. This, he believes, caused the retailer to lose sight of the emotional side of the equation. ‘Because of the money and power [Clubcard] was generating, it forgot the core part of custo­mer loyalty, and it has gone back to that,' Whitson adds.

Loyalty at a price

Further, Whitson argues that Nectar is not a true loyalty scheme, but merely one that encourages consistent consumption.‘Loyalty is an emotional state, habitual consumption is a behaviour,' he argues. ‘I don't think Nectar builds an emotional brand. When people do the cost-benefit analysis, if you have no emotional appeal, they will drift away.'

However, Nectar managing director Jan-Pieter Lips says the scheme appeals to consumers on different levels. Some use it for money-off discounts, while others use
it to save for aspirational rewards, which builds an emotional bond with the card's partners, such as Sainsbury's, Homebase, BP and Expedia.

‘People are using Nectar to supplement their spend in ways they would not have done before the downturn,' says Lips. ‘We expect a pretty good Christmas in terms of redemptions. People are saving up toward their Christmas shop, or to take the kids for a day out at Alton Towers. It is discre­tionary spend, which is meaningful to them.'

Tesco claims that Clubcard is more popular than ever in the downturn, as people realise the ‘something for nothing' benefits of the scheme, and the spokesman says that 1m customers have already taken advantage of the double-points offer.

Meanwhile, Ian Pringle, Airmiles'  head of customer insight and loyalty, argues that his scheme's tie-up with Clubcard is all about offering cardholders aspirational rewards.

‘Tesco wants to give Clubcard an emotional attraction, so it wants to grow partners like us,' he says. ‘Otherwise, it is just a deferred discount. With Airmiles, customers set their minds on an aspira­tional goal.'

Supermarkets are not the only com­panies running loyalty schemes. EHS Brann, which works on Clubcard, has helped HMV launch a loyalty scheme called Pure HMV. This offers added-value rewards such as a guitar used and signed by heavy metal group Metallica. Tash Whitmey, managing partner at EHS Brann which works on Clubcard, says loyalty cards give customers ‘a reason to prefer'. She adds: ‘HMV has thought outside the box about what is going to be valuable for its customers.'

As retailers battle it out in the run-up to Christmas, it will become clearer whether it is price alone or a combination of discounts with loyalty-card points and rewards that prove more attractive to shoppers. The outcome of this loyalty battle could not have higher stakes for
the retailers.

Loyalty cards

All the main loyalty operators claim they are seeing a significant increase in the take-up and use of their cards during the recession.

Tesco Clubcard

Tesco figures reveal that Clubcard has signed up an additional 1m customers every year, reaching 15m this year. It predicts that the card's relaunch in May will attract a further 1m. There has been a 100% increase in applications since the relaunch.

Nectar

The scheme claims that 10.8m households have earned points on their cards in the past 12 weeks. Over its six-and-a-half-year history, Nectar claims that £1.2bn worth of points have been redeemed through its partners.

Airmiles

The British Airways-backed scheme says it has 1.9m collectors who have been active in the past 12 months and that there has been a 41% increase in Airmiles collected since January. It claims the number of consumers joining the programme increased by 300% in the first quarter.

Boots Advantage Card

The chain says its loyalty card is the most generous in the UK and that it has 16m active users. A spokeswoman says there is no evidence that redemption behaviour has changed over the past year.

Waterstone's

The bookseller says its Waterstone's Card scheme has 2.9m holders,
a high proportion of whom are active.

Viewpoint: Jon Ingall, managing partner at Archibald Ingall Stretton was a key player in the devel­opment of Tesco's Clubcard. He explains how the programme has helped Tesco become the biggest retailer in the UK.

The Tesco Clubcard is a means to an end, not an end in itself. It is a way of gathering huge amounts of knowledge and insight about the behaviour of customers. It is the clever way that the company uses this data to have an impact on every part of the business that has made it success­ful, not just having a ‘loyalty scheme'.

At a time of recession this allows it to target those people that it knows buy value products with a value prop­osition and compete head-on with the likes of Asda. However, as we know, the recession has not hit people equally. Many are now better off as a result of low mortgage rates. Clubcard data allows Tesco to aim its communications at potential Waitrose shoppers and avoid unnecessary discounts.

As David McCarthy, an analyst at Citigroup, recently put it: ‘Tesco has pulled off the trick of appealing to all segments of the market.'

Two years before we presented the Clubcard to Tesco in 1993, we gave the same pitch to Safeway. They just didn't get it. We all know what happened to Safeway. I find
it amazing that, having watched Tesco steal their customers over the past 15 years, the other major supermarkets still don't seem to get it.

 

 

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