Is loyalty a missed marketing opportunity for mid-sized retailers?

Source: http://www.utalkmarketing.com

Organisations have been taking advantage of loyalty schemes ever since the Co-operative (or the ‘Rochdale Pioneers Society’ as it was known then) launched its dividends scheme in 1844. The most notable loyalty system today is probably the Tesco Clubcard, started in the mid 90’s by Grant Harrison and Dunnhumby. Schemes continue to evolve, with Debenhams recently announcing a loyalty system using an iPhone app, helping the brand to interact directly with customers via their phone handsets.

According to the Journal of Retailing and Consumer Services, it is recognised that when loyalty scheme members are happy with the benefits of a programme, they will be less fussy about in-store prices, and more likely to return to the store and provide repeat business .

However, these days consumers are targeted with a variety of cards, vouchers, offers, membership deals and subscription-only loyalty schemes. Many of these soon become ineffective as consumers sign up to gain the benefits, but simply receive mass-mailed marketing and general, non-specific promotions.

A problem of size?

Although many loyalty programmes do function well, there is a perception that these are only run by large companies; smaller organisations are limited to ‘cards to get stamped’ to get a free beverage, for example. Indeed, many mid-sized retailers have hesitated over getting into loyalty because of the perceived barriers to entry. Many retailers believe that loyalty systems, with their complex tracking and prediction algorithms, are both difficult and expensive to implement.

But let us take a step back for a moment. There are many mid-sized organisations which are better suited to loyalty schemes by virtue of their specialism or the nature of their services. Small hotel chains, for example, are in regular physical contact with their customers, presenting a strong opportunity for a bespoke scheme and tailored communications. They also gather a wealth of data via bookings systems, which they could potentially feed into loyalty systems, providing customers with offers which exactly suit their requirements – or offer them new opportunities, encouraging new visits and building up the store relationship with the customer.

Loyalty schemes can certainly help these mid-sized players compete with their larger rivals andengage with existing customers. A tailored experience and custom-fit offers can go a long way to make customers return to the store again and again. It also offers a way of testing new products and services with existing loyal customers, or cross- and up-selling. Tesco’s Clubcard, for example, makes no secret that although most of the discount vouchers sent out are for already-purchased items, two out of every six are for items related to existing purchases, expanding sales opportunities.

A new wave of accessible loyalty

As we have said, many small retailers and organisations believe loyalty systems to be inaccessible because of the cost barriers. However, this is far from the truth – with the latest wave of ‘Software as a Service’ offerings, companies can purchase ‘pay as you go’ access to loyalty solution, based on a rental, rather than purchase model, eliminating many of the costly outgoings.

Indeed, Finlandia (a chain of boutique independent hotels in Finland) is using a highly effective loyalty programme, and pays for its loyalty software based on the number of customer sign-ups to the scheme. Finlandia also charges customers €26 for its loyalty card for three years, so the procedure is quite painless from a budgetary point of view.

Once organisations do overcome the perceived barriers, loyalty schemes not only increase customer ‘stickiness’ but also enable organisations to engage with customers, improving brand experience both in-store and out. It can also act as a catalyst for business and a safety net in adverse times.

Today’s need for loyalty

To put this in context, customers included in Finlandia’s loyalty scheme currently account for 5-25% of turnover. During the downturn, overall sales dipped by 20%, but sales from customers in the loyalty scheme only dropped 10%, clearly showing the value of such a scheme properly executed.

Although retailers can hesitate over loyalty schemes, mid-sized retailers should not flinch from the opportunities which they can present. In fact, with many of the issues now a question of perception, rather than of fact, and with a loyal customer often making the difference between a lean year and a good year, now is certainly the time to get involved.