Tesco announced this week its plan to offer changes to the Clubcard scheme. Consumers will now have the opportunity to request that the value of their points be turned into digital vouchers on demand rather than waiting for paper vouchers to be sent to them quarterly as currently.
Undoubtedly this is an improvement to the customer experience and a step towards the digital age but I can’t help but think that changing the redemption mechanic alone will transform the scheme.
Clubcard was at the forefront of loyalty schemes and remains hugely popular with latest estimates suggesting there are over 17 million card holders in the UK but when our wallets and purses are bulging with a plethora of cards from different retailers, can this really be called loyalty?
Nielsen research has found that 89% UK consumers hold a store loyalty card and that the average consumer holds 3.6 loyalty cards. The concept of ‘loyalty’ in itself is therefore something of a misnomer – in many categories, whilst points-based schemes are still the preferred mechanic (even for under 25’s according to Deloitte research), they have become an expectation rather than a reward. In other words, rather than us feeling valued or rewarded, we have been educated to believe points are a right not a privilege.
The dictionary definition of loyalty is 'a strong feeling of support or allegiance' but in many businesses this has been diluted into a repeat purchase metric. So how can brands transform this dynamic?... I can’t help but feel that many brands are missing two underlying consumer trends.
Firstly, whilst behavioural science and the irrationality of pricing decisions is widely acknowledged , it seems largely to have passed many loyalty schemes by. Phil Barden’s book Decoded gives a great overview of how cognitive biases impact our purchase decisions with a specific focus on pricing and Richard Shotton’s The Choice Factory is a must read for anyone interested in behavioural science.
However, it feels like most loyalty schemes assume we make rational decisions and that we are constantly calculating what feels like a ‘fair value exchange'.... spend more, get more.
One of my favourite everyday examples of how our rationality can be swayed comes from the tense family battleground of the Monopoly board. Now, should you wish to take an ultimately rational approach to your Monopoly feud this Christmas, rest assured there are those amongst us who have calculated the ROI of putting an additional house on each property (http://amnesta.net/other/monopoly/) .
This shows that the shortest break-even time for an investment is the jump from 2-3 houses and that the move to hotels in particular is not a great financial decision. Equally, owning four stations is often a better strategy than putting houses on the board at all. The reality though is that we’re so busy chasing a prestigious street (Mayfair) or the kudos of owning those nice shiny hotels that we simply don’t think in that way at all.
Against this backdrop, it’s interesting that very few loyalty schemes have introduced any sense of irrational rewards into their schemes. Sure, there is the odd notable example (free coffee at Waitrose anyone?) but it feels like the points approach is a path too often trodden. Points are a familiar mechanic and easy for consumers to understand but this doesn't mean they can't be complimented by other more intangible rewards - the travel sector has long tapped into this within frequent traveller schemes.
This brings me to the second missing ingredient - the experience itself. Ever since Pine and Gilmore first coined the phrase The Experience Economy, it has widely been acknowledged that increasingly consumers are prioritising spend on experiences over spend on material goods. Estimates from the US show reveal that since 1987 spending growth on experiences has increased 70% relative to spend on material goods.
However, in the world of loyalty, the experience of redeeming and spending points remains a distinctly functional one. If you’re looking for inspiration here, look no further than the world of gaming. EA Sports claims there were 42 million console players player its Fifa title in 2017 with 1.6m users simultaneously playing online for Fifa 18’s opening weekend.
For those of you who think that a chemistry score is something only found in exam results, you might not be aware of one of the key reasons behind this success – Fifa Ultimate Team. Essentially, turbo charged Panini stickers for the gaming generation, it allows players to construct their dream line up by opening packs and completing challenges to unlock players. If you want to see how points can generate emotion, just scroll through the many pack-opening videos on YouTube.
In this arena, it is the element of surprise and delight which keeps playing coming back for more. Whilst this is quite common in sales promotions (think McDonalds long- running Monopoly game or Caffe Nero's Christmas Crackers) , there are very few loyalty initiatives which provide any genuine emotional engagement in the experience itself. In a world of hard conversion metrics, its sometimes easy to overlook the brand impact of customer facing initiatives. Pret have tried to counter this by giving discretion to their in store team which is a nice touch but it feels so many brands could do more here?
To use a recent personal anecdote, I recently unlocked a free flight through my BA Amex Card. It's a fantastic loyalty reward with very few restrictions other than an expiry date. However, the experience of unlocking this rewards was so dry it didn't feel in any way special. A note on my statement, a transactional e-mail, a barely functioning Avios website... you get the picture. A real missed opportunity to build genuine engagement both with BA and Amex and make me feel special.
Of course, these kind of emotional reactions can get missed if you're only looking at click through rates and redemption. The ground-breaking Orange Wednesdays for example had its biggest churn impact not amongst regular redeemers but amongst those who were aware of the offer but didn’t often take advantage of it. Sometimes it’s the feeling of getting rewarded not the rewards itself which provides the greatest customer benefit not a rational value exchange.
The challenge is in being able to capture and integrate these engagement metrics into the measures of success. Advances in technology mean that we can process more data than ever to build sophisticated models through which to to generate targeted offers and promotions for our customer base. However, we need to ensure we don't judge these schemes on redemption alone.
Hard metrics such as redemption rate, conversion and basket value are key to assessing the financial payback of the scheme but these need to be combined with a rich understanding of the emotions behind why and how consumers respond if we are going to truly assess the impact on brand engagement. We need to integrate our data to build up a picture of how customers feel not just what they do.