Shoppers are powerful individuals. They make choices about where to shop, what brands to buy, when they shop, how much they will spend and whether they will do that online or in person. And a lot of real estate is built, dressed, stocked and serviced to meet their needs and lure them from competitors’ offers.
Loyalty programmes are a further attempt to lock them into choosing one retailer over another.
So how is that working for the retailer and the shopper?
The start point is that we’re a nation of loyalty-card holders – over-indexing on most other countries. So, we have certainly embraced the concept, in theory at least. And in practice, as the success of Fly Buys attests. Fly Buys has one of the highest penetrations of any loyalty programme in the world. But owning a loyalty card is not the same as using one and not all shoppers are the same.
For some people, shopping is a tedious necessity, carried out as efficiently as possible and relying heavily on familiarity, ease and habit. At the polar opposite are leisure shoppers who take pleasure in the activity and for whom retailer promiscuity is part of the enjoyment.
“We go to the mall most Saturdays to shop and have a coffee. Nothing in particular, just looking, and usually one of us gets something or we all will.” – Young married woman.
Between the two extremes are ‘functional shoppers’ who gain satisfaction – if not actual enjoyment – from the process and then there are ‘researcher shoppers’ who work hard to optimise their choices.
So do they all feel the same way about loyalty programmes, do they assess the earn and burn options in the same way and do they have the same effect on the behaviour of each of them? Common sense would say not, and that was one of the concerns that consumer demand agency TRA found New Zealand’s retailers shared when it conducted independent research on loyalty programmes for NZ Retail magazine.
During the research process, New Zealand businesses expressed concern that one-size-fits-all programmes were unlikely to deliver a good result. Their concerns included the differences between different types of customer in regard to frequency, basket sizes, current versus new customers, and based on TRA’s experience of talking to shoppers, it would add shopper types as well.
But although there are concerns, the broader view was that retail loyalty programmes work for both retailers and customers. The basis on which they are believed to work also finds common ground with both a pragmatic and financial story.
The survey participants believed that the main things shoppers want from a loyalty programme are:
· Exclusive discounts/pricing/offers
· Valued rewards
· Ease of earning
Customers in New Zealand are very focused on value so they need to be reassured that they will be receiving benefits, vouchers and other meaningful and useful rewards, otherwise they won’t go for it at all.
They also believe that New Zealanders have a generally positive attitude toward loyalty programmes. Three quarters of our sample thought attitudes were very or quite positive.
The preoccupation with discounts, offers and reward values was not something that anyone found surprising. Kiwis are seen to be a savvy bunch who like a bargain and who are accustomed to a discount economy.
“New Zealand – the global economic crisis, low wages and high housing costs have resulted in a discount economy. The majority of supermarket purchases are made on special offer and every fuel brand is linked to some form of discount scheme.” International brand – research output – 2014.
It is not just about perception. Supermarket shopping offers shoppers shelf to shelf discounts.
60% of supermarket sales are on promotion.
Nielsen reporting, 2015.
“And there lies the dilemma, if loyalty programmes are purely about store discounts what role are they playing in building shopper loyalty – or perhaps that’s not what retailers expect from their programmes.” – An anonymous New Zealand retailer.
“Discounting – the flip side is that by offering discounting within a loyalty scheme, that’s all they want, and [customers] won’t buy at full price. The accounting reconciliation is horrendous and it’s really difficult to show ROI.” – An anonymous New Zealand retailer.
What became apparent from TRA’s survey is that retailers do see benefits from loyalty programmes. The main things they are seen to deliver back to a retail business are:
1. Changes in customer behaviour through the incentives offered by the programme.
2. Improving customer retention by increasing loyalty and potential value for existing customers.
3. Maintaining or increasing sales, repeat purchases, margin and profits.
When every retailer has a programme and they are all discount-led, does this simply erode margins and fail to act as an incentive in choice of retailer? The problem is seen as one of saturation. The overlapping ownership of Countdown’s One Card and New World’s Fly Buys/Airpoints card is a clear example of that.
Two lines of thinking on this emerged from the survey data. Some respondents see loyalty programmes as having become merely a hygiene factor and that the success of these schemes needs to be measured in the value of leveraging the data they generate. When done effectively, there is real value to be gained.
Others are looking to a more customer-centric approach to rewards, delivering rewards in the format that shoppers want – cash store vouchers, for example, or Airpoints. These programmes need to take into account different shopper types, as their needs and motivations will differ, as well as the more financially based basket size and frequency of purchase segmentations.
But no matter how attractive the reward associated with a programme is, retailers recognise that ease of sign-up is essential. And beyond that, the days of ‘a wallet full of cards’ is numbered. Technology solutions are the holy grail, not just for shoppers, but for retailers too.
The single biggest obstacle cited by survey participants for taking full advantage of their loyalty programmes – or barriers to starting one – was lack of technology, resources, skills or time to analyse and use shopper information. Yet, they all saw the value of using shopper information collected through loyalty programmes to create tailored communications – not just offers and discounts, but added value messages and information.
Retailers are shoppers too, of course, and were highly critical of programmes they belonged to which sent out mis-cued messages, offers that had no relevance for them, and an excessive volume of communications. These were seen not only as missed opportunities but were a source of irritation for programme members. But on the positive side, there were some great examples of authentic customer engagement through loyalty programmes.
Which brings us back to shoppers, what type of customer experience they are looking for, and the role that loyalty programmes can play in that space.
“We don’t have one. We have never been able to easily iron out all the factors (different customer profiles, different retail experiences).” An anonymous New Zealand retailer.
It’s an exciting time for retailer loyalty programmes. Retailers have the attention of shoppers, they get the idea of programmes and will participate for acceptable incentives, but they are demanding ease of use and relevance of rewards. The danger is that shopper expectation is racing ahead of where some retailers are in the development of their offer. This is particularly true around technology and tailored targeting. Both are desirable and motivating and, perhaps more importantly, build the total customer experience, which in turn, feeds customer loyalty.