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The evolution of customer loyalty

Loyalty programmes in the modern format of rewards (generally electronic 'points' currency redeemable for defined rewards) for consumer purchases from defined suppliers have been around in Europe for approaching three decades. Finding a new perspective and theme for the future development of this type of marketing initiative is becoming an innovation challenge. When the first loyalty programmes of this era started to appear in the early 1980s the consumer marketing environment was a very different place: the Internet was relatively unknown, Europe was still divided by the Iron Curtain, mobile telephone technology was 'clunky' and resembled a hand-held brick, media channels had not yet fragmented, direct marketing was still the domain of book clubs, and environmental/ ethical/ social responsibility issues remained a remote focus for consumers. The European consumer was also very different: more trusting, less demanding, not yet exposed to low cost air travel and reality television shows, less culturally diverse within their own market. The macro and micro marketing environment has changed significantly in the last 30 years both structurally and technically.

Loyalty marketing programmes circa 1985-1995 were characterised by:

  • 'points means prizes';
  • continuity of consumer spend as key objective;
  • minimal if any data collection and analysis;
  • programmes expensive to build and launch;
  • very limited targeted marketing and personalisation;
  • most programs single brand;
  • a 'one-way' message from the programme operator to a passive consumer.

A second generation of loyalty programmes circa 1995-2005 was characterised by:

  • emergence of the coalition loyalty model as a 'depth and reach' play to deliver customer insight;
  • cost justification pressure on single brand programmes that are were not linked to very strong brands;
  • development of data analysis and segmentation leading to greater customer insight capability;
  • smarter consumers who responded to a single card for multiple retailers and faster earn options;
  • development of 'bolt-on' and technical advances e.g. key fob ID, instant coupons, real-time & location-based;
  • experimentation with even more technical innovation of RFID and near-field cards;
  • portals and on-line activity starting to have greater importance strategically;
  • travel frequent flyer/ guest-type programmes evolving and still attracting members via corporate cross-subsidy.

The era from 2005 until the present is now characterised by:

  • very 'savvy' consumers who now play the game intelligently;
  • a very highly focused (and ROI-justified) programme operator data analysis and targeted marketing to membership;
  • the relentless growth in the coalition model and acquisitions seeking international cost efficiency;
  • the single brand programme's slow death or migration to replacement with partnership in a coalition programme;
  • Tesco's 'Clubcard' and some notable others e.g. Harrahs, Amex Rewards bucking the trend to coalitions;
  • the emergence of communities-based loyalty programmes with a social conscience (green, local, anti-capitalist);
  • a trend towards service and exclusive access as the reward preference for high value membership;
  • attempts by governments at social engineering initiatives with customer loyalty in healthcare, lifestyle, etc.

So what comes next? What will the second decade of 21st century consumer loyalty look like? This becomes a game of guessing the 'ghosts in the dark' from some emergent but as yet undefined trends. We can all play this game and the success rate for even well-funded futurology research is patchy at best. Outlined below are some personal themes that resonate.

The rapid growth over the last three years in social media engagement by large numbers of consumers in most developed markets will inevitably have an impact on the customer loyalty space. The difficulty is knowing what. We are seeing experiments and attempts at understanding the business model (is there one?) being developed by both single brand and coalition loyalty programme operators. The travel and leisure sectors are setting the pace as they perceive customer feedback benefits from this sort of interaction with consumers.

A reasonable claim to be a good candidate for the 'icon' of the first decade of the 21st century is the iPhone. We are now seeing loyalty 'apps' targeted at consumers in this tribe. Others will surely follow as Nokia, Blackberry, Sony and HTC all start to catch up. The mobile handset and the almost universal global penetration of the mobile (cell) phone will inevitably continue to play a key role in loyalty programmes' development. The mobile phone is a very personalised, location specific and low cost communication channel by which loyalty programme operators will continue to explore, hopefully by a permission-based approach, ways in which to further exploit this device for the mutual benefit of all stakeholders in the consumer loyalty game.

Social media interaction is also having another impact on consumers in the form of personalisation of profiles and the expectation from the consumers active in this space that 'they' own their profile and have access to amend it as they wish. This may seem a stark contrast to the member profiles that are sitting in consumer loyalty programmes, access to and control over which is moderated by the programme operators. Will some members of some programs start to demand personal profile portability, control and access to 'their profile', the ability to take 'their data' with them as they move allegiance to a competing loyalty program offer?

The global economic slowdown and recession in many developed economies is having a lasting impact on the perception of value. All retailers are under intense pressure in mass markets to offer greater value. Consumers are trading down to lower price point brands and some are surprised at the quality (not as bad as they expected) and possibly changing their allegiance on a more permanent basis. When the average shopper in developed economies is being presented on every type of shopping experience with 'buy one, get one free' and 50% price discounting offers in most of their purchase experiences then the typical loyalty programme reward of 'buy one hundred, get one free' seems a very poor offer in comparison. We should reflect also that although the 1% margin give-away associated with most consumer loyalty programmes is a standard rate for the better programmes, many actually offer an even lower rate to earn opportunity. In this context it is the overall value proposition offered by the retailer engaged in the loyalty programme that will be the crucial determinant of success and failure in the future. Loyalty programmes have never researched well, the rewards driver has nearly always operated at the margin of consumer conscience but the impact of the global economic meltdown will probably have lasting impact in the mind of consumers. 'Every little helps', as one very well-respected loyalty programme offer brands itself. The issue for the next decade is that the little is starting to seem very small indeed in perceived value but its impact can never be discounted. The 'like for like' sales in Tesco UK stores over the Christmas 2009 period were reported in their results as having benefited from a 0.8% uplift attributable to the additional £100m pounds of extra Clubcard vouchers. That is a significant gain in the grocery sector.

Some possible future events and issues in the design and evolution of loyalty programmes:

  • The successful launch of large scale loyalty programmes in the USA and Chinese markets.
  • Interactive and lifestyle management functionality built into all large-scale programmes.
  • National governments passing legislation to force programme operators to incorporate climate change benefits.
  • Growth in 'off the grid' consumer groups who grow concerned at the data concentration.
  • Recognition in some developed markets of the needs of 'ageing members' as the over-65s outnumber the under-35s.
  • An inflationary spiral in FFP unredeemed IOUs to consumers creating the equivalent of a run on the bank.

In attempting to try and pull some of these thoughts together three possible scenarios for consumer loyalty may evolve from this cocktail of issues and legacy program impacts.

Scenario 1. The relentless growth of large-scale programme managers and coalitions. In effect the globalisation of loyalty as IT platform operators, data analysis and segmentation tools and reward management software are aggregated into Mega Customer Insight corporations that have industrialised the consumer loyalty market to provide the global manufacturers with the customer data they need to supply markets more efficiently. What benefit does this scenario deliver however for the consumer membership personally unless they have some control and 'ownership' of their data?

Scenario 2. in which the continuing legacy of value orientation from the global economic meltdown of 2008-9 has relegated loyalty marketing to at best a hygiene factor that existing players continue to market but with decreasing enthusiasm on the part of the programme managers, the sponsors that are paying for the programme and most importantly the programme members themselves. Programmes are regarded as irrelevant to future success or failure for the retailers and suppliers that have historically funded their development.

Scenario 3. in which growth markets such as China, India, Latin America and even a resurgent US economy have adopted and re-invented the consumer loyalty model as a more dynamic format that links consumers and suppliers in a mix of benefits, information, status, research, feedback and entertainment.

The most likely outcome? As often happens in predicting the future, some disruptive new technology or societal shift will determine the outcome. Loyalty programmes are at their best a conduit to better understanding consumer wants and needs. This is a constantly evolving understanding: a journey, not a destination.

Peter G Wray

The author is managing director of pgw Ltd.

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