A reward for your loyalty?

I’m a bit of a sucker for customer loyalty schemes.

I’m aware that companies are ‘mining’ my data. Almost every time I use such a scheme, the time, date, method of purchase, the whole lot is being fed into a database. Aggregated data is then likely to be sold on to other companies too. And dozens of firms are doing it, from the major supermarket chains with sophisticated computerised schemes to local coffee shops with simple stamped card arrangements.

Loyalty Cards

Loyalty Cards

There’s an important ethical debate to be had about the use of these promotions. For some, it’s a fair trade – the customer informs the store what sort of purchases he’s likely to make, and the store adopts its sales strategy accordingly. The 21st century equivalent of the shop keeper who knows her regular customers and slips them a few extra items every now and then. For others it’s an erosion of privacy: valuable data given away in return for special offers or rewards that only benefit the store in the first place. I’m going to skirt round this argument. Important though it is; it requires looking at the practises of individual companies and the behaviour of their customers, rather than the concept as a marketing tool.

I’d like to look at how different schemes operate and the way they’re used as a sales and marketing technique.

Boots
The Advantage Card is often billed as one of the most generous on the market. Card holders are rewarded with four points per £1. Points are the equivalent of a penny, so this equates to a 4% credit.

My local coffee shop
Feast (or rather fEAsT) uses one of the simple schemes I referred to earlier, a business card with spaces for nine stamps, the tenth coffee is free. One free coffee in ten is roughly equivalent to a 10% discount.

Odeon cinema
This is the scheme that got me thinking about the different loyalty programmes on the market. You earn ten points for each £10 you spend. The scheme isn’t free like the others, the basic cost is £1.99 but you get 100 points for registering the card. Nevertheless, the 10% ‘cash back’ is the most generous of these schemes.

Tesco’s Clubcard
Perhaps the best known loyalty scheme, Tesco’s Clubcard is a text book example of a successful loyalty scheme (see CIM coursebooks!). Members earn a point per pound, but can gain extra points through special purchases, as well as through partner purchases. Ostensibly, points are worth a penny, but there are special promotions. Tesco’s also uses its sophisticated database to provide tailored offers to customers. For the purpose of comparison therefore it’s slightly better than 1% back.

The percentage values only tell half the story. What about the perceived values? There are two factors to consider here – the type of purchase and the type of reward.

Boots and Tesco’s both sell staple goods. Purchases are a matter of necessity in many cases. The coffees and the cinema trips are more of a luxury (OK, sometimes coffee is a necessity!).  The fact that we’re rewarded for what we’d have to do anyway seems like an unexpected treat. The reward for purchasing the luxury items is a slightly different story. Take the cinema. An adult ticket is £8. I tend to go with my family, so two adult tickets and a child ticket at £6.50, total £23.50. I have to spend at least £80 to get a free adult ticket, that’s one ticket on our fourth family outing there. Alternatively, for 300 points (ie a second trip) I can get a free small popcorn valued at about £3. On an academic level, I can see that this is a better saving than Boots, but it feels different. Spending £80 to get a single free cinema ticket or £50 to get a small popcorn doesn’t feel like a great saving; but Odeon are still offering a bigger percentage than most of the others.

Even more, the data Odeon get from me are much more limited. Boots and Tesco will get detailed information about my shopping habits: what I like to eat when, what brands I like, which day/time of day I like to go shopping and whether I do a weekly shop or lots of mini shops. They’ll be able to combine this with demographic data me and my family and geographical data about which stores I visit most often. Odeon on the other hand will know that I’ve been to see a kids’ movie on a Saturday. They’ll have the basic data about where I live and my email address to go with that, but it’ll be much harder to draw conclusions or trends from this information.

By contrast to Odeon, fEAsT’s scheme is a good way to keep people coming back. The cost of a coffee isn’t enough for it to be a considered purchase, but the prospect of a free coffee once or twice a month is a good incentive to keep going back there, rather than flirt with one of its competitors. But there’s no data capture, this must be handled by the staff (using facial recognition!). With Costa, the appeal is the universality of the chain, it means I can get the same coffee no matter where I go, build points gradually, but again it’s enough to get a free coffee once in a while.

So why does the cinema seem to stand out as a lesser offering?  The fact is, it isn’t a lesser offering when viewed as a percentage. But people don’t work in percentages, they put values on things, and cinema tickets are generally charged at a premium. Cinemas are reporting fewer customers, but their profits are up. Some of this is because of the high margins to be made on the sale of popcorn and other snacks, but some of it is due to the margins on the tickets themselves. Locally a much smaller chain of cinemas offers family tickets at less than a third the price of Odeon. Buying power should allow the bigger chains to offer cheaper tickets. Therein lies the rub. The ticket price doesn’t come across as reasonable in the first place; indeed the premium is such that a 10% discount doesn’t bring it in line with competition.

There’s an old saying, don’t charge what you think people will pay, charge what it’s worth. I can’t help feeling that Odeon are relying on a few people paying high prices, rather than getting a lot of people to pay a lower price. The loyalty scheme may encourage some people to come back, but cinemas need to work on volume rather than loyalty. More customers mean more sales of snacks, and that’s where their money is.

So what’s the lesson? Loyalty schemes are no good? Not necessarily: they work very well for regular purchases. After all that’s the point of driving customer loyalty. In researching this piece, I came across a very telling statement from a paper written in 2001:

“Given the complexity of tracking millions of purchases and personalising a proposition that is attractive, British retailers have given a mixed response. Tesco and Sainsbury’s have persevered with their loyalty cards, whilst Safeway discarded its ABC Card in favour of investing in price cuts.”

From: http://www.cim.co.uk/filestore/resources/canons/crm.pdf 

Whether this decision contributed to Safeway’s demise is anyone’s guess, but the fact that Tesco’s and Sainsbury’s still heavily promote reward cards certainly illustrates their value.

Loyalty schemes are not so good for encouraging people to buy extra luxury items, in this case extra cinema tickets.

It’s really important to analyse a scheme like this carefully. What seems like a good idea on paper can fail to bring the benefits you thought it would. Put yourself in your customers’ shoes and do your research to find out how effective your plans will be, above all, be confident to not do something just because other companies are.

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About Sam Elfer

Blogging about writing
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2 Responses to A reward for your loyalty?

  1. Antz says:

    I seem to remember Odeon being on Watchdog for its outrageous over priced food. So loyalty card or not you are still getting conned at the cinema. However I did hear somewhere that its alright for you to take your own food in (don’t quote me on it)

    • Sam Elfer says:

      Popcorn is the one that gets me – it costs pennies to make, they could give their loyalty card members unlimited free pop corn; you’d never eat more than a pound’s worth, but the value added to the membership proposition would be unbelievable!

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