The past few months have been a turbulent time for the UK retail sector. Tesco defied the retail gloom by announcing a rise in annual profits to £1.3bn, while in other positive news Sainsbury’s and Asda announced a ground-breaking merger. At the same time, there have been some losers, with both Debenhams and House of Fraser announcing multi-million-pound losses.
It’s clear that competition among retailers is soaring and has never been fiercer. Online brands such as ASOS and boohoo, combined with the extending reach of Amazon and the rise of the discount retailer, have shaken up a sector that has been slow to react. As a result, it is essential for retailers to prove their value to consumers and develop robust strategies to capture and retain customer attention and loyalty. Thankfully, one strategy already exists and has a proven track record: customer loyalty schemes.
Are loyalty schemes on their way out?
Despite criticism in recent years, loyalty schemes remain a powerful way of connecting and engaging with customers. Recent research reveals that there is an intrinsic link between how long a loyalty scheme has been running and the level of customer loyalty.
Our recent Retail Trend Report found that Tesco is the leading supermarket retailer when it comes to customer loyalty, while the Tesco Clubcard was the first scheme to be launched (in 1995). Retailers with less mature loyalty schemes have lower levels of customer trust, as demonstrated by Morrisons, which launched its scheme in 2014 and is ranked tenth in terms of customer loyalty.
Some critics have been quick to downplay the importance of loyalty schemes, with many saying that they are dying out. However, when Tesco announced plans to downgrade its Clubcard programme earlier this year, there was widespread backlash from customers, proving that there is still very much a demand for this kind of programme.
Consumers can readily understand the value and benefits of loyalty schemes – and they budget and plan ahead to make the most of them. While retail loyalty schemes don’t necessarily attract new customers, the removal or downgrading of a scheme may threaten customer retention – just ask Tesco. Consumers now expect loyalty schemes as part of the offering, gaining points rather than just lower prices.
Changing consumer landscapes
We are witnessing a dramatic shift in the world of retail. Consumers are at risk of experiencing “offer fatigue”. The untargeted bombardment of endless 2-for-1 deals, flash sales and coupon redemption offers means that consumers can become desensitised to promotional messaging from retailers. They’re looking for more than just comparable prices – they now expect retailers to go one step further and offer them deals tailored to suit their individual shopping habits.
Co-op has suffered for a number of years now, because discounting means that consumers will no longer buy full price products unless they absolutely have to. Retailers need to cut through the noise with their customer loyalty propositions, to make it worth customers investing their time and money in selecting their chosen retailer’s products. But how can this be done?
Shifting to digital
One way of tackling this challenge is by making it easier for customers to get their rewards. With customers rapidly shifting to contactless and even phone payments, the prospect of carrying around a wallet full of loyalty cards and coupons is fast-becoming undesirable. It is high time that retailers shift their loyalty schemes on to digital platforms.
Tesco has succeeded in making this transition with its Tesco Clubcard app, with CEO Dave Lewis speaking recently about how the relaunch of Tesco Clubcard last year with contactless technology has “reinvigorated engagement”. Customers who still have to swipe cards at the checkout and be presented with a wad of paper coupons in return might pass on an offer due to the extra effort involved. No matter how targeted these paper coupons are (calculated by monitoring shopping habits and anticipating what a customer will want in their next shop), the problem is that the chances of the customer still retaining that wad of paper coupons for their next visit are extremely slim.
There is also the level of expectation set by digital retailers in terms of ease of use. For instance, when Amazon provides a coupon, it is applied immediately to a customer’s account, not through some convoluted “claim” scheme.
Personalisation is key
Customers are not just fixated on saving money, however. In today’s fast-paced, time poor, consumer-driven world, customers recognise the value of personalisation, and appreciate receiving deals that have been intelligently tailored to their shopping habits. Retailers therefore need to carefully analyse and segment customer data, in order to ensure that they are anticipating the customer’s needs; building and engendering customer trust in the process.
The Boots Advantage Card loyalty scheme has historically been well-received by customers since it was established in 1995, offering high value redemption and very personalised offers. As a result of the well-managed nature of the scheme, it has slowly but steadily built loyalty in its customer base. Over time, the retailer has used data intelligently in order to provide tailored customer awards, as well as using it to understand the changing make up of its customer base.
Customer trust cannot be bought overnight, and instead must be earned gradually over time, which makes loyalty schemes more significant than ever before. It is important for retailers to ensure utmost transparency with their customers, clearly explaining to them the benefits of a data-value exchange.
In the instance of retail loyalty schemes, brands must work to convince customers that by consenting to share their data, they will stand to be rewarded for their loyalty and custom. The brands with long-standing schemes now cannot afford to lose them – they’re a key way of knowing customer habits and maintaining valuable patrons.
It is in this context of data sharing that GDPR has now arrived – providing a welcome impetus to ensure this happens right away. There are areas where the future of retail can be seen clearly and the post-GDPR landscape suggests brands will soon enjoy better communication with their increasing number of data-savvy customers.
Scott Logie is customer engagement director at REaD Group
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