Marketing

Published July 5th 2016

Industry Insider: The Price of Loyalty – Schemes Must Reward, Not Exploit

In his candid column, Chris Owen of M&C Saatchi reveals who he thinks is doing a great job at providing benefit to the customer...and who isn't.

Just recently the Virgin team launched Virgin Red, a loyalty brand which will perhaps uniquely be a conduit for customers across a wide range of Virgin’s brands and services.

It’s a nifty move, and one which in hindsight is a startlingly obvious one.

After all, customers under an umbrella group of companies shouldn’t sit in silos, and if there’s scope to encourage intra-loyalty towards your brand, it should be immediately secured.

However, where Virgin are innovating, there remain all too many major brands which seem stuck by comparison in the Dark Ages when it comes to loyalty and reward.


A bad deal

One of the worst perpetrators is British high street music retailer HMV’s loyalty card (‘PureHMV’), which not only has a non-redeemable cash equivalent (unlike some cards, where spend is rewarded with vouchers), it also features a hugely limited selection of stock to choose your reward from.

PureHMV returns one point for every penny spent in store, and one point for every two pence spent in its online store.

One man's trash is another man's treasure

These points are only redeemable against tiered products within the PureHMV site which has less than a hundred items available to choose from.

Hardly a wide selection.

There’s also precious little (aside from ‘priority booking’) at the low end, and some of the higher end range are borderline insultingly expensive.

Given you have to spend 1p in-store to get a point, the items at 150,000 points therefore equate to a £1,500 spend (or £3,000 online).

For this you could get a 6-month weekly magazine subscription; and for just 280,000 points (£2,800 in-store, £5,600 online), you can get an annual subscription. You know, I’m not sure these are bargains.

Granted, if you saved up a bit more and collected 250,000 points you can get – *baits breath* – a signed poster, and while I’m no expert I’m pretty confident they’re won’t be at a Beatles’ level of rarity and market value.

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Compare this return on investment by the customer to that the vast majority of coffee shops (both chain and artisan) offer, which is effectively 11% (buy-nine-get-tenth-free), and it’s obvious that this high street retailer just isn’t investing in loyalty.

While the music industry remains in flux as streaming and downloads continue to bite traditional sales, you’d have thought HMV might try and bring a bit of brand-passion to the table, but no, it appears not.

It’s a trick missed – and one they could probably learn much from another British high street retailer.

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Taking a leaf from someone else’s book

Take Waterstones. For those reading in the US, think Barnes and Noble.

The book chain gives customers a stamp for every £10 spent, and a completed set of ten stamps is returned as a straight out £10 off next purchase – a direct 10% loyalty scheme.

However, this is augmented by its own points scheme which sees three points given for every pound spent, which is then redeemable point-per-pound – an additional 3% on top of this initial 10%.

That’s a 13% return – healthy, and it fuels customer loyalty to the store; there’s something in it for them.

A lot of food shops offer similar, not only through special offers and discounts across a range of products, but through personalizing them too; customers can choose what they buy most often and want permanent offers on, and they get them. Now that’s personalization.

Plus there’s even free coffee – a small gesture, but one which says ‘thank you’ when you come in-store.

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As the battle for the consumer’s wallet continues to be highly contested, loyalty becomes paramount.

The days of singular brand loyalty are perhaps over, now we have a ‘portfolio’ of preferred (but not exclusive) brands we go to, but if you make that return trip worthwhile and say ‘thank you’ in whichever way makes your customer feel special you’re more likely to remain among this portfolio.

Virgin has hit upon a novel approach through Red by bringing its various elements together and it’ll be interesting to see how this pays off – and which brands replicate this model.

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At the end of the day, you get out what you put in – the bare minimum is likely to yield nominal returns in the long run.

Time for a rethink.

Chris is a regular contributor to the Brandwatch Blog. Find out more about M&C Saatchi by clicking here.


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