Conference Preview: Big UK loyalty programmes remain successful and set the benchmark globally
Loyalty programmes in the UK are the most advanced in the world but the retailers using them still face challenges as the rise of big data and the need to drive redemptions are an issue.By Glynn Davis
Ahead of chairing the 4th Retail Bulletin Customer Loyalty Conference 2013 on June 12 Mike Atkin, chief executive of loyalty specialists MJA Associates, conveys his views on the changing role of loyalty programmes in the UK and some of the key challenges for retailers.
At its heart it is a positive story, he suggests: “When I travel around the world the UK is considered the most mature market for loyalty, with Tesco Clubcard and Nectar having created the standard and the benchmark. They’ve created what retailers aspire to – managing customer data and driving growth from it.”
In his view, one of the current trends is the move towards coalition schemes such as Nectar because they are driving the best return on investment for member retailers. The spread of companies involved in such schemes enables a much broader array of redemption opportunities for cardholders, which Atkin says is proving increasingly beneficial as this is what drives greater levels of loyalty.
“Retailers have recognised that a point not redeemed is a disengaged customer,” which is why Tesco’s Clubcard as a standalone programme has sought to broaden the redemption choices for its cardholders by teaming up with other organisations: “It found people used their points quicker when their £5 of points could be redeemed for £20 [of value] in Pizza Express”.
The drive now is for retailers to get their cardholders to use their points rather than just sitting on them: “The emphasis is changing as retailers realise the power of the redemption and so they need customers to redeem. A collector-and-redeemer is the most loyal customer, with spending 60% bigger than other shoppers.”
Both Nectar member Sainsbury’s and Tesco are both engaged in having their suppliers fund initiatives like double and triple point promotions, which are helping create a faster accumulation of points and hence quicker redemptions.
“Tesco has set the standard on showing manufacturers that they will sell more products if more points are offered – even if the price is not any cheaper – and they have a panel that decides which products should be double points each month,” says Atkin.
Another reason for this focus on redemptions is that until points are redeemed they sit on the balance sheets of retailers as a liability. This is an issue, according to Atkin, as points are valid forever and so an accumulation of potential liabilities is inevitable. As much as 45% of Nectar points go unredeemed.
He recalls United Airlines in the US having $4 billion of unredeemed liabilities relating to points on its air miles programme. In contrast to being an issue for retailers, these unredeemed points are potentially very profitable for the operators of loyalty programmes.
Atkins says Nectar makes money from any ‘breakage’ – points that are unredeemed for whatever reason – and that this can amount to a large figure, which the retailers are effectively funding. He cites the former British Airways Executive Club [air miles type programme] that has at times been the most profitable part of the airline.
Another challenge for retailers operating loyalty programmes is the rise of big data and the need to interpret the accumulated data, which no longer encapsulates just transactions but also lifestyles. Tesco for instance runs surveys of its shoppers and from its combined data sources achieves a granularity that gives an accurate customer DNA of all its cardholders.
Delivering targeted offers from this data is the aim of retailers but this can be costly as it requires the employment of data specialists who Atkins says are likely to command six-figure salaries.
Both Dunnhumby (operator of Clubcard) and AIMEA (operator of Nectar) have gone down the route of offering one-stop-shop solutions whereby they combine the ability to mine the data for insight and to then act on this with the delivery the relevant targeted communications to cardholders.
As such, these two programmes continue to play a major role in engendering loyalty among customers. According to Atkin this is partly down to the fact that at their heart – behind all the complexity of the data - they have a simple mechanic: “points mean prizes”.
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