Retailers battling customer promiscuity in fight for loyalty

UK grocer Morrisons and online fashion house Asos have both announced plans for loyalty and reward schemes in the last week, as they join the growing list of retailers to see the importance of offering customers further reasons to shop at their stores.

Morrisons has promised to start one-to-one communication with its customers in the coming weeks in the hope that it can provide personalised offers by Christmas 2014, with CEO Dalton Phillips citing the company's lack of ability to collect personal data from its customers as a prime reason for its sluggish 2013 festive trading period. Meanwhile Asos, which continues to race towards hitting £1 billion in annual sales as it grows internationally, yesterday launched a points-based reward scheme to meet growing customer demand.

With two of the UK's most prominent retail businesses putting loyalty at the forefront of their current strategies, it is clearly a hot industry topic at present. It was against this backdrop, at last week's RBTE, that Essential Retail brought together some of the leading loyalty professionals from the retail and hospitality space for a roundtable debate on the challenges in maintaining loyalty from the promiscuous shopper.

Mobile marketing, loyalty and mobile wallet company Proxama sponsored the event, which was attended by Tesco, Sainsbury's, eBay, Homebase, Whitbread and representatives from brands, travel firms and technology businesses, all of whom contributed to an insightful discussion.

Simon Burke, chairman of Bathstore and former senior executive at retailers such as Virgin Entertainment, toy store Hamleys and Irish supermarket Superquinn, kicked off the proceedings by arguing that traditional card-based schemes are not as effective as they could be in terms of creating loyalty to a particular business, as often you find that a consumer holds all the major loyalty cards in their purse or wallet.

"I have spoken to many executives over the years on the subject of loyalty cards, who have expressed the view that they almost wished they had never got into it because it was expensive and they could never really see any tangible benefit," he explained.

"The exceptions to that picture are really the ones that have been able to use their databases and their customer information effectively. Tesco stands out in that regard, in terms of how it has managed the Clubcard and its data to create connections with customers that go beyond the simple collection and redemption of points."

A sense of belonging

The consensus among many sitting around the table was that the central reason for running a loyalty scheme is to drive incremental value. There are various ways companies think this can be achieved, and there are evidently some processes retail can copy from other industries in creating this value exchange with its customers.

Sarah Cross (pictured directly below), director at make-up brand Code Beautiful and former loyalty boss at hair straightener brand ghd, believes that a lot of existing loyalty programmes simply give away margins, unnecessarily, and are not changing behaviour. The key to behavioural change, she explained, is developing a personalised approach.

"With Code Beautiful, we have a VIP programme, where there are like-minded people all with a common interest.

"When customers join, it's all about video tutorials, letting them be first in the know about certain products and what's going on in the fashion and industries, and having a personalised conversation. For this to occur, we look at things like frequency of purchase and customer propensity to drop off and try mascara somewhere else."

During his tenure as chairman Hobbycraft, Burke witnessed the development of the 'Hobbycraft Club' that followed similar principles to Code's VIP programme. Creating communities, it would seem, can foster a feeling of belonging that means customer keep coming back to a particular brand.

Three companies involved in the Nectar card scheme were present at the roundtable event, and Helen Hunter, director of customer data and relationships at one of the members, Sainsbury's, sees the coalition as a key part of its loyalty strategy.

Hunter noted: "If you look at the customer insight, the customers tell you two things: firstly, to use customer language, points collection can be a really long slog but having multiple collection points that reflect their customer spend behaviour can support them in building balances very quickly.

"With loyalty schemes, generosity is judged in part not by how many points a customer has but what they buy with them, so having a variety of places to spend points can also enhance perceptions of scheme experience and value. If you think about it through a customer lens, having more places to collect and a richer redemption experience is a positive thing in a programme."

Research released by Nielsen last week indicated that shopper promiscuity, particularly in the supermarket sector, is on the rise, with seven of the top ten supermarkets reportedly enticing new customers over the last three months. The study showed that people are still visiting the large supermarkets for the bulk of their shopping, but are often cherry-picking promotional items before buying more of their grocery staples in discounters such as Aldi and Lidl.

When you add the issue of showrooming, where customers head in-store but check online to see if they can find better value elsewhere, the aforementioned feeling of promiscuity prevails.

Ian Drake, head of relationship marketing & loyalty strategy at online marketplace eBay, said retailers can learn from the airline industry in creating a sense of inclusion among their customer base, which can foster loyalty to a particular brand.

Drake, who worked on the loyalty team at British Airways (BA) prior to arriving at eBay, suggested that upgrades, private lounges and money-off flights show how airlines generally reward customers for flying with their company.

"[With airlines] it has become very much around rewarding loyalty – it's not even a customer data platform," he noted.

"The thing that BA does well – and airlines in general do well – is around tiered rewards, which incentivise loyalty. Airlines are very good around the service-based aspects, not just the financial part, and the great thing for BA is that it costs absolutely nothing to give a mile away but the perceived value to that customer is huge, which is very different to the retail world."

Food for thought for the retail industry, perhaps, but is it something reflected in eBay's customer proposition?

"Everyone talks about loyalty as a direct marketing platform, but it's completely separate for us at eBay," Drake commented.

"We actually call it rewards internally, rather than loyalty schemes, because it's about rewarding customer behaviour and driving incremental benefit from those customers."

Data mining at the heart of it all

Whether a retailer considers things from a loyalty viewpoint or a rewards perspective, one thing that is needed in order to maintain positive customer interaction is consumer personal data.

The concept of 'big data' has been well discussed over the last few years, with a number of retailers achieving marked benefits from clever use of the customer details they have collected over time. Personalised offers can boost redemption and conversion rates, and the likes of Tesco and Amazon are often highlighted for the way they personalise their messaging to consumers, using Clubcard data and online cookies respectively.

It is a long process to get this right, and Sainsbury's Hunter was quick to emphasise that transparency is crucial if customers are to trust the retailer.

"I can track behaviour over time linked to an individual, linking debit and credit transactions over time, but we don't do that because we believe that isn't transparent to a customer and we believe that would breach their trust," she said.

"I absolutely concur that the reason we have a loyalty scheme is so we can make that analysis of shopping behaviour transparent, and we believe that transparency drives trust. I think it's really important to think about how you gain permission to alter your customers' shopping behaviour."

Chris Jacobs, director at independent consultancy Business Assyst, said there are still significant numbers of retailers that do not use the data they have collected in an effective manner, which arguably means they are missing out on retaining profitable customers.

"The whole purpose of a loyalty programme, for me, is to use the data – as it's the communication with the customer," he noted.

"You do get those avid collectors of anything and they will redeem points, but we shouldn't forget that the reason that we give them points is so they can identify themselves and we can see what they are doing, and exploit the value of the data."

Denise Watts, head of loyalty, CRM & insight for restaurants at Whitbread, says the data collected by an individual company is what differentiates any loyalty scheme from another, whether it's online or traditional.

She commented: "The biggest thing for any retailer – certainly in our sector – is that we have gone from anonymity, mass marketing and mass discounting to targeted communications with customers and actually knowing a bit about those customers. It's a massive shift."

How can mobile technology engender loyalty?

The CEO of Proxama, Neil Garner, recently told Essential Retail that the future of retail loyalty programmes is mobile. Miles Quitmann, managing director of the vendor and a roundtable participant, agrees with that sentiment and suggested that new mobile technologies provide an opportunity for retailers to foster consumer engagement.

"We are trying to mobilise the loyalty activity, so this loyalty amoeba grows into engagement in the physical world," he stated.

"We think there's a really valuable opportunity to engage with consumers in the physical store, reward them or engage with them somehow on the mobile phone – apparently something they look at around 110 times a day. Some retailers may lose out to showrooming, so we think there's an opportunity to build out loyalty into engagement when you walk into a physical store."

Much of the technology centres on location-based marketing that can inform customers about offers in real-time, as well as mobile systems that can manage multiple coupons and apps. Over the last few years, Proxama and other stakeholders in the mobile loyalty space have been looking at ways to standardise the way merchants create apps and digital coupons, in order to encourage wider adoption of mobile loyalty solutions.

Paul Crutchley, strategic engagement officer at mobile operators network GSMA, said that mobile technology could help retailers reach customers they do not yet reach, and further strengthen relationships, if conducted transparently and with customer opt-in.

"I guess what we are moving towards is the new technological way of being able to contact a customer," he explained, before highlighting other perceived benefits in terms of loyalty.

Talking on behalf of the mobile industry, he said: "How can we help influence the way people sign up for loyalty and provide more data to help you communicate with customers?"

As Quitmann alluded to, the use of mobile to engender loyalty is perhaps stretching the traditional definition of loyalty into the realms of the wider concept of engagement. Simon Andrews, founder of mobile agency Addictive, even argued that the terminology surrounding modern-day retail loyalty is incorrect.

"People aren't loyal – it's more about having a dialogue with people and using it as a way of identifying somebody," he explained.

"The ability to have a dialogue with somebody to see if they shop with you every week is really valuable, but by calling it loyalty there is a danger you get slightly complacent. The dialogue is more powerful than they loyalty."

Burke, who was previously chairman of digital couponing vendor Eagle Eye, certainly believes that technology has reshaped the way loyalty schemes can operate, but is clear these new methods should be used for set purposes.

"The question for retailers is 'how can you best harness new technology to move loyalty on from that rather vanilla product that it started out as – and which I think has limited value – to something that is much broader based which creates a much more meaningful connection with customers?'," he remarked.

It is a question that the likes of Morrisons and Asos will inevitably be asking themselves as they embark on their new ventures in the coming months. For online pure-play Asos, it is arguably less of a risk than for the grocer, which is playing catch-up to other more-established supermarket loyalty schemes.

For retailers as a whole, customer loyalty and rewards schemes remain high on the agenda – with collection of consumer data and transparent use of it thereafter seemingly integral to maximising their effectiveness. They seem open to new ideas when it comes to embracing technology in pursuit of this quest, but it would appear they will use it with caution as part of wider loyalty strategies that use data to focus on the fundamental retail principles of value, range and service.

Thank you to all participants in the Essential Retail customer loyalty roundtable, and thank you to Proxama for sponsoring the event:

Simon Andrews, Addictive founder

Simon Burke, Bathstore chairman

Sarah Cross, Code Beautiful director

Paul Crutchley, GSMA strategic engagement officer

Ian Drake, eBay head of relationship marketing & loyalty strategy

Bryan Duffy, director Hostelbookers

Katie Garrick, Tesco Clubcard strategy & development manager

Helen Hunter, Sainsbury's director of customer data and relationships

Chris Jacobs, Business Assyst director

Miles Quitmann, Proxama managing director

Shy Rahman, Homebase customer loyalty executive

Ben Sillitoe, Essential Retail editor

Graham Tricker, Proxama operations director

Denise Watts, Whitbread head of loyalty, CRM & insight – restaurants