Before the Second World War, local retailers knew their customers by name: they knew what they wanted and they knew personal details, like when their customers’ had welcomed a new baby into the family – they had a one-to-one relationship at the point of sale. The post-war years saw a dramatic change in retail, with retail chains and supermarkets capturing the lion’s share of retail spend. In an effort to win business, mass market retailers used unsophisticated incentives to win business, with money-off coupons or trading stamps being distributed indiscriminately.
In the 1980’s, I saw an opportunity to introduce a new kind of one-to-one marketing initiative with the introduction of Air Miles (now Avios) and later the Nectar Card. Customer loyalty cards enabled retailers to identify their customers, understand what they were buying, and tailor specific offers and incentives to win and retain their custom.
Having been at the forefront of the first loyalty revolution, it’s now clear to me that we are again about to see a dramatic shift in how the sector operates. This is not hugely surprising considering loyalty schemes have barely changed in the last twenty years, since ‘points’ and ‘loyalty cards’ became the norm, despite huge shifts in the way people shop and what shoppers have come to expect from the retailers and brands they buy from. At the same time, shoppers are more fickle and price-conscious than ever, with loyalty even harder to come by.
Numerous polls, opinion pieces and research into customer loyalty – both in the UK and US – have shown that loyalty programmes are still popular, but risk losing relevance. Shoppers are becoming more sceptical about the value of ‘points’ and what they really mean. This has not been helped by high-profile instances of retailers lowering the amount of rewards they pay out. Customers want to receive rewards they actually value, but this is complicated when what they value has changed. There is growing interest in money-can’t-buy ‘experiences’, not just money off. This could be invitations to exclusive shopping events, early access to sales or even involvement in the testing and design of products.
There is also growing awareness amongst consumers of the value of their data, with some concerned that despite sharing their information through loyalty schemes, they are not getting enough in return. More frustratingly, shoppers are turned-off by marketing campaigns that use data indiscriminately to bombard them with communications based on items they have never purchased, or may have bought a long time ago. Consumers are ultimately looking for a sense that they are valued and the reassurance that in giving away personal information, they will receive a more personalised service.
Technological advances are helping drive change with the rise of mobile payments, more online sales and the reluctance of consumers to carry a purse or wallet full of loyalty cards. Many of these advances are coming from a new wave of innovative companies, who, with better analytics tools that can process huge data sets to understand consumer preferences and behaviour, can help retailers to deploy highly targeted, relevant offers and messages.
I recently invested in one such company, Ecrebo, which works with retailers including M&S, Waitrose and Pandora. The ‘Holy Grail’ for retailers is to know their customers, and what their needs are at the point of sale, just like they used to, and Ecrebo does just that with the technology it has developed. With some loyalty schemes, it can take months for a retailer to send targeted promotions to customers. With Ecrebo, it happens at the point of sale, so it impacts all in-store customers in real-time. The offers and rewards shoppers receive will be relevant to them, helping to drive loyalty.
Brands too, are adapting. Starbucks has a highly-rated cardless loyalty app that gives customers exclusive and early access to new products and special offers on users’ favourite items, whilst Sephora’s ‘Beauty Insider’ scheme in the US rewards its members with personalised offers and free products.
The industry is changing faster than ever, with innovative new companies and emerging techniques; if retailers and brands don’t change too, they risk being left behind. Loyalty schemes are hugely valuable: they help retailers understand their customers and drive incremental revenues, whilst giving customers’ rewards and benefits that make them feel valued. But getting it right is difficult and getting it wrong can spell disaster for the bottom line.
Having been part of the first loyalty revolution, I’m excited by the prospect of being involved in the next one and seeing more innovative UK companies lead the way.