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21 of 56 DOCUMENTS Marketing August 6, 2008

Divided loyalties
BYLINE: Nicola Clark SECTION: CONSUMER RETENTION; Pg. 28 LENGTH: 1417 words Loyalty schemes can provide valuable data and drive engagement, but opinion is split on how best to approach them. Almost 80% of the adult UK population belong to a loyalty scheme of some sort, from AirMiles to the ubiquitous Tesco Clubcard. However, the cost of creating and running a major loyalty scheme puts many marketers off doing so and, with the economic downturn never far from the headlines, it remains to be seen how many brands will invest in developing such programmes in a recession. Last month a report from Verdict Consulting revealed that British consumers are more disloyal than ever, with 10.8m shoppers prepared to switch between stores on the basis of price. According to the research, while the credit crunch has made consumers more inclined to shop around for a bargain, the fundamental issues facing the market increased competition and the proliferation of internet shopping - remain key. Martin Hayward, director of consumer strategy and futures at loyalty marketing agency dunnhumby, claims that loyalty marketing is essential in a downturn. 'Targeting individual consumers with a tailored message is often more effective than blanket price messages,' he says. In the UK there are 13m Tesco Clubcard holders and, according to dunnhumby, the make-up of this group reflects society as a whole. The success of the Clubcard scheme is held up by many in the industry as a blueprint for the potential benefits of creating a loyalty programme. Key to its success is its place at the centre of Tesco's marketing strategy and the fact that it enables the retailer to capitalise on a wealth of data about each individual's shopping habits. While data capture is both commercially lucrative and a vital tool for marketers, some observers believe there are marketing departments that put too great a focus on data. Using loyalty schemes simply to find out more about consumers and bombarding them with hard-sell offers is short-sighted. Gavin Dein, chief executive and founder of loyalty marketing agency Reward, argues that the primary reason for companies to run loyalty schemes is to reward their customers. 'However, the majority of companies do it to gain valuable data on their consumers,' he adds. Reward has developed an innovative cardless scheme allowing consumers to register their data and then collect loyalty points across a range of retailers every time they use their credit card. 'It is very simple - you could be in Sainsbury's or an Italian restaurant and you can use the scheme,' says Dein. Jonathan Shilling, head of strategic consulting at rewards agency Grass Roots, says the fact that many consumers are reducing spend should not detract from the important role played by loyalty schemes. 'While we are seeing more pile them high and sell them cheap strategies from value brands, those brands seeking a long-term relationship with consumers are taking a different approach.' Shilling points to the increasing number of brands using loyalty schemes to enable them to progress beyond simply the value of the product or the service they provide. 'Many brands are now seeking to position themselves as a broader lifestyle provider and to do this they need to provide rewards and value to customers beyond their own proposition,' he says.

a division of relationship marketing agency HS&P. the reward for consumers is instant. and it can devalue the brand. average member spending in Reward's retailer network has increased by 55%.8 3.6 2. Fans simply register any or all of their credit or debit card numbers on the One Hotspur website and can then redeem points for cash every time they spend on their card in participating retailers.4 1. CASE STUDY .' This view is echoed by Louise Isaacs.CONSUMERS' RETAIL DISLOYALTY Retail sector 2008 disloyalty % Change 2008 % Change 2007 % 1 2 3 4 Food and grocery Clothing DIY Homewares 32. was launched in April 2007 as a way to manage oversubscription for match and season tickets. .2 21. 'Many brands won't be investing in long-term marketing investment in a downturn and will simply focus on short-term promotional activity. Whereas loyalty schemes have traditionally rewarded consumers for long-standing or repeat purchases. The scheme has proved so successful that it is to be extended.1 0. for instance. head of marketing at Tottenham Hotspur.TOTTENHAM HOTSPUR: ONE HOTSPUR The London football club's scheme.The club Tottenham Hotspur has benefited from increased revenues both through an increase in spend within the club as fans redeem their points and through the direct commissions the club has earned from retailers. whether these campaigns represent a sustainable. head of the Loyalty Practice. the Virgin Mobile scheme offers users discounts immediately.0 1. which will enable members to redeem their points directly with the club and earn cash back through club-related activities. in reality. short-term promotional activity and. which was created by Reward. In response. long-term marketing strategy is not clear-cut. 'Discounting is a slippery slope . While the offer of money off at hairdressers Toni & Guy may not necessarily cost Virgin Mobile a great deal. Over the past 12 months. the pay-as-you-go model has become more popular for consumers when choosing. Virgin Mobile has created a loyalty scheme designed to create brand warmth among consumers at the earliest possible opportunity. A 'Club Cash' card is being developed.To some extent the worsening economic situation is bolstering the importance of loyalty schemes .1 .particularly in the fickle pay-as-you-go markets. Halfords experienced a 60% uplift in sales from Spurs fans when compared with average customers.' A great deal of marketing carried out in the name of loyalty is.it is not a long-term fix for falling sales.Looking ahead Emma Taylor. though they will be few and far between. says that as a result of fans' enthusiasm. According to dunnhumby's Hayward. FACT FILE .4 20.The retailers Over one six-month period.0 2.or 18-month contracts. .4 25.0 3. while there is a rush of brands embracing prize promotions and price cuts. .3 3. the loyalty scheme is to be extended. With consumers becoming unwilling to commit to 12. those brands taking a long-term view will benefit by investing in loyalty schemes. a mobile phone operator or gym membership.

5 1.1 3.0 2.4 1.0 Source: Verdict Consulting CASE STUDY . 'Loyalty schemes can be depressing. The concept was devised in-house and the website designed by Elvis.' Lohan adds. managing director of boutique hotel guide brand Mr & Mrs Smith. creating a 'guestbook' that allows users to share hotel reviews plus travel hints and tips has the added benefit of helping to build a community. .namely to encourage consumers to keep booking through Mr & Mrs Smith.' says Lohan.com or through their travel agent .2 2.1 22. and building on relationships with key brands it has worked with in the past. . The company also added glamour and boosted the launch's PR-potential by offering a diamond as the biggest reward. which debuted this summer.1 17.5% of the total room cost is deposited into their account in 'Smith Pounds'. Choosing the rewards offered was 'fairly simple'. However. with Smith opting to link up with brands that had a natural affinity with travel and the company's ethos.mrandmrssmith.MR & MRS SMITH: THE VAULT James Lohan. tells the story behind the launch of the firm's loyalty scheme. LOAD-DATE: August 6. 2008 LANGUAGE: ENGLISH PUBLICATION-TYPE: Magazine JOURNAL-CODE: MKT Copyright 2008 Haymarket Publishing Services Ltd. .at www.How does it work? When a Smith member books a hotel online . but we are pretty generous in the returns we are offering our customers. The scheme was kept simple using pounds as a reward denomination.Why was it set up? The primary rationale was focused on the bottom line .0 1. He also advises the highest level of generosity possible to engage consumers by offering products they will love.How long did it take to set up? The scheme took less than six months to set up from start to finish. The Vault.4 19. not points. the key is to ensure a loyalty programme offers rewards that are relevant to the brand's target audience. . . 'We are not offering them a set of crap crystal glasses.Advice According to Lohan.8 2.2 2. Most companies operate on a margin of 1%-2% but we are giving 5%.Page 3 5 6 7 Footwear Electricals Personal care Overall average 19.

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