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The end of ‘loyalty’?

Posted on: Monday 9th of May 2016

Some interesting articles on loyalty covered by our Market Watch newsletter this week. One piece of research, from the Collinson Group, reports on significant drops in take-up of loyalty schemes over the last two years, while another from The Guardian reports on negative consumer sentiment.

Is the loyalty bandwagon finally grinding to a halt?

We (Ctrl-Shift) have a very specific view of loyalty and loyalty schemes.

 

Not customer-centric

First things first. ‘Loyalty’ is not a consumer-centric concept. Being ‘loyal’ to a brand does not rank high in the pecking order of consumer needs and wants, and it never has. Quite the opposite. Marketers invented the notion of loyalty because the wish was father to the thought: “wouldn’t it be nice if consumers were loyal to our brand, being willing to pay more, forgive mistakes, recommend to friends” and so on. Loyalty programmes are not designed, first and foremost to meet consumers’ needs (as every successful product or service does). They are designed first and foremost to meet marketers’ needs.

Second point to note is that from the year dot, most loyalty schemes have been a mix of two very different things: a) a promotional mechanic designed to get you buying again and b) a means of gathering data about customers – specifically, linking data about an anonymous shopping basked to a name and address. Over the years, both aspects have evolved.

 

Unstoppable evolution

As a promotional mechanic, loyalty schemes are increasingly uncompetitive. Loyalty rewards are small and take a long time to build up, whereas cash back and other online promo mechanics are both bigger and far more immediate. More compelling in other words. (The only possible exception is airlines, where the perceived value of a free flight is very high compared to the operational cost of filling an empy seat, which is close to zero.)

As a data capture mechanism, loyalty schemes are a blast from the past. When Tesco launched its Clubcard scheme over 20 years ago in 1995, there was no way to connect a name and address to shopping basket data, and the fruits of making these connections (in terms of insights, marketing opportunities etc) were significant.

Since then, two things have happened. First, most of the insight and marketing benefits have already been reaped, creating a state of diminishing returns. Second, it’s far easier, quicker and cheaper to gather huge amounts of data about customers online. Data-capture wise, loyalty schemes made sense in an information desert. Now we live in an information sea they don’t.

So where does that leave marketers’ quest for loyalty?

 

The core insight

The real benefits of long-standing loyalty schemes such as Tesco Clubcard was that they created a data-driven virtuous spiral. Tesco used the data to gain new insights, which it used to improve its customer offer, which benefited customers, making them … er, more ‘loyal’. The value of the loyalty scheme came from the value it delivered to customers.

This was an early, crude from of what we (Ctrl-Shift) now call ‘trusted data-sharing relationships’.

 

The PIMS opportunity

The point, of course, is that nowadays, you don’t need cumbersome loyalty schemes to create trusted data sharing relationships.

Also, you can only create so much customer value using data in traditional organisation-centric ways: collecting data about customers to do things to them. There is far, far more value to be unleashed by repurposing information as a tool in the hands of the customer – helping customers use information to help them make better decisions and manage their lives better.

This means the brand can ‘mine’ its data for both gold and diamonds: to both manage its business better and help customers manage their lives better. It’s all about incremental value.

This requires a different relationship: sharing data with customers to create new value with them. It is the PIMS (Personal Information Management Services) opportunity.

PIMS draw on the insights of the best loyalty practitioners of two decades ago – using a trusted data sharing relationship to add new value, which in turn delivers increased customer ‘loyalty’ – but they do so in a forward looking, 21st century way.

In this sense, PIMS are the ‘loyalty schemes’ of the 21st century.Though, if truth be told, it’s probably better and simpler to drop the word ‘loyalty’ and to focus on what was always the really important thing: value. Let’s put in another way. PIMS use the original kernel of insight behind the best loyalty schemes to create the big business and customer value opportunity of the 21st century.