How are loyalty schemes evolving for the digital age?

Digitisation of loyalty schemes is sweeping the retail industry as the major players give loyalty a long-overdue overhaul.

Tesco is trialling digital vouchers, Boots recently made its Advantage Card loyalty scheme digital, Morrisons has seen users of its loyalty scheme jump to five million since digitising it at the end of last year, and Sainsbury’s is preparing to fully digitise Nectar.

James Calvert, chief data officer at marketing agency LIDA, says the digitisation of loyalty schemes is becoming mass market and will become the “new norm”.

In the loyalty space, the Tesco Clubcard has often been viewed as the trailblazer, but in recent years Clubcard’s reputation for innovation has arguably faded. Tesco is now re-evaluating its approach to loyalty through its trial of digital vouchers and cheaper prices for Clubcard holders.

Michelle McEttrick, group brand director at Tesco, says the trial has had a “fantastic” reception from customers: “Innovating in a space we have not innovated in for quite some time is very exciting,” he says.  

One of Tesco’s original objectives when launching Clubcard around 25 years ago was to create direct mail that people looked forward to opening. This meant Clubcard statements were sent out at intervals where it was calculated that enough time had passed for the customer to have accumulated a meaningful amount of loyalty points.

Before the recent trial, Tesco was concerned customers could be disappointed with the amount of points accumulated if they could check their points total between statement periods. However, such fears have proved ungrounded.

“The fact is people absolutely love it, it is just a lot easier,” says McEttrick.

Legacy systems

Ben Pask, managing director at consultancy firm Rare, says a major factor that has held back the digitisation of loyalty schemes until now has been the legacy systems of retailers.

“A lot of retailers have historical data systems that are just so out of date,” says Pask. “I was with a retailer and they were running on Windows XP, which is no longer supported by Microsoft, and that was what their EPOS was working on.”

Technological advances and the rise of fintech companies are helping bring down the costs and barriers to entry for the digitisation of loyalty.

Calvert cites the partnership between Flux and Monzo as an example, which sends customers digital receipts and loyalty rewards in real-time whenever they use their Monzo card at any retailer signed up to the platform. 

The convenience benefits for the customer are obvious, but Calvert warns that apps aggregating loyalty schemes could make it harder for retail brands to create an emotional connection with the customer.

Bespoke solutions

Pask believes a danger also lies in choosing an “off the peg” solution that mimics what other firms are doing around loyalty because these fail to offer a point of differentiation.

For some retailers, a bespoke solution could be more fruitful. Following its split with Nectar, BP has just launched its first company-owned loyalty scheme. The BPme Rewards scheme is geared towards making its customers feel valued through personalised offers and promotions.

“BPme is beginning a transition from a transactional payment app to a multi-platform customer relationship, with the BPme Rewards loyalty scheme being that first step,” says Nicola Grady-Smith, UK retail director at BP. “BPme is how customers interact with our brand as we move towards the digital future.”

A digital loyalty card is offered through the BPme app, which was downloaded 17,000 times on the day of launch, but customers are still offered a physical loyalty card if they prefer.

Card v digital

In research ahead of the launch, BP’s customers indicated there is likely to be an even split between adoption of a digital card versus the traditional card. Grady-Smith says the company will continue to provide a physical loyalty card as long as there is a demand for one.

“Digitisation gives retailers the opportunity to still look after their customers and drive what they want as a business return, but also to try and do it in some new and interesting ways”James Calvert, chief data officer at marketing agency LIDA

But the digitisation of loyalty schemes provides retailers a great deal more opportunities than a physical card.

“Usually loyalty programmes and schemes have been very promotion and offer driven but have perhaps lacked in creative opportunity,” says Calvert. “Digitisation gives retailers the opportunity to still look after their customers and drive what they want as a business return, but also to try and do it in some new and interesting ways.”

Calvert suggests this could include offering customers value-added services such as educational content about provenance of products that will help customers feel closer to the brand.

Digitisation also creates a new world of possibilities for those that use loyalty cards for more promotions-led reasons.

This is because a digital loyalty scheme allows for many more opportunities for data capture. 

“Depending on the permissions requested you will also get the device details, regular locations, and other bits and pieces,” says Calvert. “You will be able to geo-locate on most of those devices, and say here is the nearest store and here is the offer for you.”

Data captured from digital loyalty schemes should also open up the potential for advertising retargeting across devices.

“That is technically possible now, but it is not yet straightforward or easy to do,” says Calvert.

However, any retargeting will need to be handled carefully because there has already been considerable kickback from consumers about adverts following them around the internet based on their browsing history.

Pask believes a key to success when building loyalty is maintaining the trust of the consumer.

Retailers would be wise to view any innovations around loyalty through the lens of whether it provides a true benefit to the customer.

Once that is established it is vital that any benefits are effectively communicated, along with how the scheme operates.

Pask cites the example of one client that had spent millions of pounds on a loyalty scheme only for it to be used solely by the firm’s employees because staff were not trained to educate customers about the scheme.

Digitisation of loyalty offers a lot to retailers and consumer alike, but retailers must think hard about the type of solution that best suits them. 

Calvert concludes: “There is no one right answer and each brand has to find what works for them and their customers.”

After years of loyalty schemes growing stale and predictable, they are entering an exciting new era. Those that do not update their loyalty schemes for the digital era risk being left in an evolutionary dead-end.