The Loyalty Revolution: How Can You Reimagine Loyalty and Rewards
5 Jul 2021
Unlocking key trends, innovations and future strategies to transform customer loyalty.
It goes without saying that technology has fundamentally impacted the world of commerce, with the ubiquity of the smartphone influencing the behaviours and attitudes of consumers and shoppers the world over.
As more and more retail spending shifts online, and as many other service providers seek to ramp up their digital marketing and loyalty initiatives, it can be tempting to focus almost entirely on digital at the expense of all else.
It’s key to remember though, that physicality in sectors like retail, catering, telecoms, financial services and e-commerce is still very important. Stores and restaurants still matter. Physical banks are still important and, for most services, there is still the physicality of installation or delivery to think about.
Despite this, we should acknowledge that digital is firmly embedded from a shopper perspective and that many of them have shifted their expectations: while physical retail is still important, they expect the convenience of digital in areas such as payment and loyalty.
It is curious, therefore, that so many loyalty and membership programmes have, until recently, still been heavily reliant on traditional loyalty cards and legacy points mechanisms. The last 12 months have seen plenty of reappraisal of loyalty schemes by merchants around the world and, as a consequence, the evolution of loyalty programmes has taken on a decidedly more digital slant.
This has partly been driven by the pandemic, with apps and smartphones preferred over physical processes and touchpoints, but also by the realisation from retailers and other merchants that loyalty programmes can be genuinely enhanced by digital. With technological enhancements, retailers can generate better data; achieve greater efficiency; create a more seamless omnichannel experience and also reward customers making smarter decisions.
This transformation has been particularly evident in the UK, where retailers large and small have been proactively trying to wean shoppers off plastic cards and onto apps and at the same time trying to elevate their rewards architecture beyond legacy ‘earn and burn’ points systems.
The key trends and strategies that we’ve identified in this recent period of innovation and renewal are digitisation, immediacy, altruism, gamification & incentivisation, surprise & delight, progression and integration.
The UK’s largest retailer Tesco has been leading the way, most significantly through the introduction of Clubcard Prices – making most instore promotional prices (encompassing around 3,000 items in larger stores and online) available only to cardholders or app users.
This new aspect, launched in September 2020, has been phenomenally successful: two million more active Clubcard app users have been recruited (bringing the total to 5.2 million) and the retailer has stated that the development of this digital customer platform, now accounting for 20 million households, helps it deliver rich data and insights. This innovation has seen Clubcard penetration advance significantly: in larger stores, the loyalty card or app is now used for 79% of purchases, up from 67% before the launch of Clubcard prices. Crucially, shopper perceptions have improved too: 7% more shoppers feel that their loyalty is rewarded and 12% more customers perceive that the scheme is personalised for them.
The progress from Tesco has been mirrored by arch-rival Sainsbury’s which has also been busy overhauling its Nectar loyalty scheme. As with Tesco, Sainsbury’s has been keen to shift more loyalty card holders onto its app, a successful endeavour with nearly three million new digital Nectar users creating a total of 7.5 million. Other augmentations include the provision of personalised offers, an unluckily timed partnership with British Airways and a website operated by hotel reward specialist Rocketmiles that allows Nectar members to book hotels, pay or partly pay with Nectar points and collect 2,000 points per stay.
Sainsbury’s has also noted that its efforts to market the insights and data created through Nectar have been progressing well, with its marketing services business Nectar 360 launching a retail media platform intended to help brands and advertising agencies reach and engage shoppers more effectively through the retailer’s website.
It is heartening to see Sainsbury’s aiming to replicate Tesco’s success in this sphere. Too often, the potential of the data generated by loyalty programmes is wasted and valuable insights that could benefit retailers, suppliers and shoppers are left unutilised.
Another aspect of Nectar that is hugely impressive is that Sainsbury’s is using it to positively impact shopper choices. It has been rerunning ‘The Great Big Fruit & Veg Challenge’, an effort to get shoppers buying more produce. Nectar members using the app are able to receive extra loyalty points and unlock badges by purchasing a set number of portions of fruit and vegetables.
In 2020, Sainsbury’s revealed that over 450,000 customers signed up to take the challenge, with some 52.5 million portions of fruit and veg purchased by participating customers during the four-week challenge. Mark Given, chief marketing officer at Sainsbury’s, has noted that: “As a supermarket serving communities across the country, we have a responsibility to encourage our customers to eat
delicious food that is healthier for people and better for the planet, and the challenge is one of the many ways we are doing this.” We are big fans of digital incentives and gamification and this move from Sainsbury’s to help shoppers make smarter choices is spot on.
M&S & Morrisons go digital
The theme of digitisation is a recurrent one: both Marks & Spencer and Morrisons have also made recent strides in this direction. M&S has been candid about the rationale behind its efforts to shift shoppers to the Sparks app, noting that “the ambition for Sparks is to build the UK’s leading retail loyalty scheme to support increased customer frequency and spend” and that its relaunch in July 2020 was a shift from “a points-based plan which was largely delivered through a physical card, to a digital experience enhanced with online services.”
As a result of its renovations to the scheme, total membership has grown to over 10 million customers (and the Sparks app has notched up over 3.5 million downloads), and M&S has been investing in data science in an effort to create a more personalised relationship with members as opposed to the traditional model of targeted promotions.
There is also a new approach to rewards: previously, shoppers built up points to be exchanged for some fairly nebulous benefits like early access to clearance sales. Now, the benefits include personalised offers, a chance to get instant free gifts or an entire shopping trip for free and a charitable donation is made each time a customer scans their card. This latter point is important: shoppers expect retailers to give back to the community, and this is a nice, streamlined way of living up to this expectation.
Another theme that M&S has integrated is that of experiential rewards: shoppers appreciate the ability to have their loyalty rewarded through experiences such as meals or discounted days out.
To this end, M&S has partnered with English Heritage to give Sparks members a 50% discount at sites such as Stonehenge, a timely innovation with families looking for domestic activities rather than foreign holidays this year.
Morrisons, like M&S, was confronted by the fact that its existing loyalty scheme (Morrisons More) wasn’t really resonating with shoppers. To that end, it recently launched a new proposition called My Morrisons: Make Good Things Happen.
A key attribute here is immediacy. Rather than the prolonged process of accumulating points to be exchanged for vouchers, discounts will instead be communicated in pounds and will be available to spend immediately. The instant rewards-based scheme was accompanied by a new app that replaces the need to carry a plastic card.
Another attribute that we like with this initiative is that of integration: the app is home to personalised offers, Morrisons.com, Food Boxes, and the Morrisons Cafe Takeaway menu. Further features will include the opportunity for customers to give back to the community and Basket Bonus ‘surprise and delight’ rewards.
Both of these last aspects are something that we at tcc are passionate about: through our gamification work with Circle K and community-minded campaigns with the likes of Price Chopper, we have demonstrated that shoppers really appreciate both unexpected gifts and the chance to give bath to the community, so it’s great to see another retailer addressing these opportunities.
Hospitality providers following suit
It’s not just in grocery that loyalty schemes are being repositioned. Two high-profile brands in hospitality – Starbucks and McDonald’s – have also made recent changes to their programmes.
The successful app-based Starbucks Rewards scheme is an integrated proposition that houses ordering, payment, click & collect and rewards. The programme is noteworthy as, inspired perhaps by the likes or airline and hotel membership schemes, it offers a tiered reward architecture: receiving three stars for each £1 spent, customers unlock a free drink at 150 stars and gold membership at 450 stars.
Gold members get free extra shots of espresso, dairy alternatives, selected syrups and whipped cream and a free drink on their birthday. While UK-specific data is not available, one can gauge the success of the programme by some numbers put out for the US business: active Starbucks Rewards membership was up 18% year-on-year to 22.9 million, 50% of revenue is tied to the programme and 25% of sales are completed via the order and pay component of the app. Impressive stuff. McDonald’s is getting in on the digitisation act too. Its well-regarded and longstanding McCafé loyalty programme, which saw customers accrue ink stamps on a physical piece of card, is transitioning to app-only over the summer. When customer buy five hot drinks using the app, they get another regular hot drink free.
Tiered rewards at AVEDA
It’s intriguing to see that other brands are reinventing their loyalty proposition too. Aveda, perhaps better known as a haircare brand rather than a retailer, has been running its loyalty programme for 20 years with very little change during that time. It recently decided to overhaul the system, changing the name from Aveda Pure Privilege to Aveda Plus Rewards and completing significant enhancements to its structure and benefits.
The new programme, which has over one million members in the USA, Canada and the UK, is notable as it is a paid-for programme, customers paying a one-time £10 fee to participate. The scheme now includes benefits such as personalised rewards options, free delivery of online orders, an annual birthday gift and exclusive gifts and events.
Aveda Plus Rewards also has a well-structured system of tiers that encourages repeat spending to aid progression up the pyramid: tier one allows shoppers to redeem against relatively inexpensive rewards, while tier seven offers experiential rewards like beauty experiences and spa stays. It is expected that third-party brands and experience-providers will be added to the range of benefits. The motivation to keep the programme fresh is clear: members typically spend 43% more than non-participants.
So what are the main learnings that we can take from this recent flurry of activity in the loyalty space?
Digitisation – there is nothing inherently wrong in plastic cards, or even ink stamps on a piece of card, but the implementation of app-based loyalty programmes offer significant benefits to both brand and shopper, such as richer data and enhanced personalisaton
Immediacy – there is a sense that long-winded points collection might be becoming slightly jaded. It is notable how many loyalty initiatives are now offering immediate rewards and discounts
Altruism – customers expect brands to stand for something and contribute back to the communities they trade in. Building community or charity donations into a loyalty mechanism is a smart move
Gamification & incentivisation – while the primary objectives of a loyalty programme are to get shoppers to spend more, initiatives like Sainsbury’s incentivising the purchase of fruit & veg remind us that less commercial objectives have their place too
Surprise & delight – playing a part in programmes from Aveda, Morrisons, Starbucks and M&S, surprise gifts, rewards and acknowledgements of birthdays etc. are always a successful way of strengthening brand affection and loyalty
Progression – an approach traditionally spurned by supermarkets, perhaps over fears that a notion of tiers is undemocratic, the use of different status levels is common in many other businesses and is a proven way of rewarding higher-value customers. Is it time for food retailers to give this a try?
Integration – the last thing that customers need is complexity, so it’s important that, where possible, loyalty programmes should be integrated into a single app that also includes other functions like e-commerce, payment and ordering.