Omnichannel Retail: Loyalty is dead, long live loyalty

Welcome to the third instalment of Eagle Eye’s blog, serialising the newly published book by our CEO, Tim Mason, called Omnichannel Retail: How to Build Winning Stores in a Digital World.

Last time, we explored the five key learnings from traditional loyalty schemes as revealed by Tim’s Analogue Learnings (Chapter 2) from launching Tesco Clubcard, as one of the UK’s largest loyalty schemes.

In Chapter 3 Tim goes on to argue that his Clubcard experiences and the best practice answers the question, “is loyalty is dead?” Although hard to empirically quantify, having a favourite brand or store is tangible.

  “Thinking about loyalty in its truest sense, it is unlikely that consumers ever feel as loyal to a business or brand as they do to their family, school or team. That doesn’t mean that trying to be someone’s go-to grocery store, restaurant or favourite fashion or tech brand isn’t a worthwhile and, indeed, valuable thing to do. The question more accurately put that most businesses have is: ‘Are plastic cards and points-based schemes dead?’ Or, when the stripped-down, convenient offerings from limited-range discounters and e-commerce retailers are winning, have 25-year-old loyalty schemes had their day?” (Mason, T., Knights, M. Omnichannel Retail, p45, Kogan Page.)

Loyalty is an emotion, and so is far from dead. In fact, retail loyalty is alive and well – both in the traditional formats we’ve become accustomed to through stamp cards and points schemes and in many new guises.

The differentiator nowadays should be whether it enables the operator to know who their customers are and keep them in focus. In that sense, the D.I.A.L mechanics first identified with Clubcard still apply today.

So does the contract that informed the Tesco scheme (Fig 2.3, p47). It draws on the ‘give to get’ dynamic that governs the value exchange powering any loyalty-based marketing activity. It was also focused on retention.


Figure 3.1 – The Clubcard customer contract

 

Clubcard enabled Tesco to strike a balance between emotional and transactional value. If enough existing Tesco customers returned, this would support a self-sustaining organic acquisition strategy as well.

 “Growth is fuelled when your best customers recruit new customers by being your best brand advocates.” (Mason, T., Knights, M. Omnichannel Retail, p47, Kogan Page.)

The danger here is not to underestimate the emotional connection you’re establishing with your customers when you ask them to identify themselves in this way. You have to recognise them as no longer anonymous.

This is why you must use any customer data gathered to offer relevant incentives that are designed to drive one more visit or the sale of one more product per visit by rewarding the behaviour you seek.

As former colleagues Clive Humby, Terry Hunt and Tim Phillips wrote in their book, Scoring Points, about Tesco Clubcard: “When Tesco said, ‘Thank you’ to customers, they responded by opening wallets wider.”

It’s no surprise that, for all those who proclaim that loyalty is dead in the digital age, I point to the fact that traditional loyalty ‘winners’ are doubling down on their investments, while others are using similar dynamics.

Sainsbury’s buyout of Nectar in the UK, Kroger’s acquired dunnhumby in the US and Woolworths bought Quantium in Australia. Consider also Amazon Prime and the rise of subscription-based schemes too.

All of these companies understand how to use the mechanics of loyalty and offer transactional and emotional value in the form of cost-savings and added convenience, or increased recognition and/or relevance.
 

While Tesco wasn’t the first to launch a loyalty scheme and certainly wasn’t the last, it was able to tap into emotional loyalty by clearly stating that its intention with Clubcard was to recognise and thank customers.

  “…Loyalty programmes will only tangibly boost loyalty if the insight gleaned from the data is used to quantify the amount that should be spent on these best customers, and the investment should be targeted to reward the behaviour you seek. Put simply, this falls into three broad areas:

1. ‘Thanks for shopping with us.’

2. ‘Please shop with us one more time.’

3. ‘Next time you shop with us, please enjoy this incentive to spend a bit more than you usually do.’”  (Mason, T., Knights, M. Omnichannel Retail, p47, Kogan Page.)

It’s also easier to make emotional loyalty pay in sectors where frequency affords a regular view of customer shopping habits, and the top 20% of customers represents somewhere between 50-80% of trade.

For those sectors with long or infrequent purchase cycles, or for those occasional customers, the strategic decision has to be whether it’s possible to ramp up investment according to potential customer value.

Loyalty schemes can tell you a lot about your most regular and valuable customers, but not a lot about those so-called ‘prospects,’ who may only shop once or occasionally. You need a conversion strategy too.

In Chapter 4, Tim goes on to explore how to apply these principles to acquire, convert and retain customers that interact with your business both online and in-store.