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21 of 56 DOCUMENTS

Marketing

August 6, 2008

Divided loyalties
BYLINE: Nicola Clark

SECTION: CONSUMER RETENTION; Pg. 28

LENGTH: 1417 words

Loyalty schemes can provide valuable data and drive engagement, but opinion is split on how best to approach
them.
Almost 80% of the adult UK population belong to a loyalty scheme of some sort, from AirMiles to the ubiquitous
Tesco Clubcard. However, the cost of creating and running a major loyalty scheme puts many marketers off doing so
and, with the economic downturn never far from the headlines, it remains to be seen how many brands will invest in
developing such programmes in a recession.
Last month a report from Verdict Consulting revealed that British consumers are more disloyal than ever, with
10.8m shoppers prepared to switch between stores on the basis of price. According to the research, while the credit
crunch has made consumers more inclined to shop around for a bargain, the fundamental issues facing the market -
increased competition and the proliferation of internet shopping - remain key.
Martin Hayward, director of consumer strategy and futures at loyalty marketing agency dunnhumby, claims that
loyalty marketing is essential in a downturn. 'Targeting individual consumers with a tailored message is often more
effective than blanket price messages,' he says. In the UK there are 13m Tesco Clubcard holders and, according to
dunnhumby, the make-up of this group reflects society as a whole. The success of the Clubcard scheme is held up by
many in the industry as a blueprint for the potential benefits of creating a loyalty programme. Key to its success is its
place at the centre of Tesco's marketing strategy and the fact that it enables the retailer to capitalise on a wealth of data
about each individual's shopping habits.
While data capture is both commercially lucrative and a vital tool for marketers, some observers believe there are
marketing departments that put too great a focus on data. Using loyalty schemes simply to find out more about
consumers and bombarding them with hard-sell offers is short-sighted. Gavin Dein, chief executive and founder of
loyalty marketing agency Reward, argues that the primary reason for companies to run loyalty schemes is to reward
their customers. 'However, the majority of companies do it to gain valuable data on their consumers,' he adds.
Reward has developed an innovative cardless scheme allowing consumers to register their data and then collect
loyalty points across a range of retailers every time they use their credit card. 'It is very simple - you could be in
Sainsbury's or an Italian restaurant and you can use the scheme,' says Dein.
Jonathan Shilling, head of strategic consulting at rewards agency Grass Roots, says the fact that many consumers
are reducing spend should not detract from the important role played by loyalty schemes. 'While we are seeing more
pile them high and sell them cheap strategies from value brands, those brands seeking a long-term relationship with
consumers are taking a different approach.'
Shilling points to the increasing number of brands using loyalty schemes to enable them to progress beyond simply
the value of the product or the service they provide. 'Many brands are now seeking to position themselves as a broader
lifestyle provider and to do this they need to provide rewards and value to customers beyond their own proposition,' he
says.
 To some extent the worsening economic situation is bolstering the importance of loyalty schemes - particularly in
the fickle pay-as-you-go markets. With consumers becoming unwilling to commit to 12- or 18-month contracts, the
pay-as-you-go model has become more popular for consumers when choosing, for instance, a mobile phone operator or
gym membership.
In response, Virgin Mobile has created a loyalty scheme designed to create brand warmth among consumers at the
earliest possible opportunity. Whereas loyalty schemes have traditionally rewarded consumers for long-standing or
repeat purchases, the Virgin Mobile scheme offers users discounts immediately. While the offer of money off at
hairdressers Toni & Guy may not necessarily cost Virgin Mobile a great deal, the reward for consumers is instant.
According to dunnhumby's Hayward, those brands taking a long-term view will benefit by investing in loyalty
schemes, though they will be few and far between. 'Many brands won't be investing in long-term marketing investment
in a downturn and will simply focus on short-term promotional activity.' This view is echoed by Louise Isaacs, head of
the Loyalty Practice, a division of relationship marketing agency HS&P. 'Discounting is a slippery slope - it is not a
long-term fix for falling sales, and it can devalue the brand.'
A great deal of marketing carried out in the name of loyalty is, in reality, short-term promotional activity and, while
there is a rush of brands embracing prize promotions and price cuts, whether these campaigns represent a sustainable,
long-term marketing strategy is not clear-cut.
CASE STUDY - TOTTENHAM HOTSPUR: ONE HOTSPUR
The London football club's scheme, which was created by Reward, was launched in April 2007 as a way to manage
oversubscription for match and season tickets. Fans simply register any or all of their credit or debit card numbers on
the One Hotspur website and can then redeem points for cash every time they spend on their card in participating
retailers. The scheme has proved so successful that it is to be extended.
- The retailers
Over one six-month period, Halfords experienced a 60% uplift in sales from Spurs fans when compared with
average customers. Over the past 12 months, average member spending in Reward's retailer network has increased by
55%.
- The club
Tottenham Hotspur has benefited from increased revenues both through an increase in spend within the club as fans
redeem their points and through the direct commissions the club has earned from retailers.
- Looking ahead
Emma Taylor, head of marketing at Tottenham Hotspur, says that as a result of fans' enthusiasm, the loyalty
scheme is to be extended. A 'Club Cash' card is being developed, which will enable members to redeem their points
directly with the club and earn cash back through club-related activities.
FACT FILE - CONSUMERS' RETAIL DISLOYALTY

Retail sector 2008 Change Change

disloyalty 2008 2007

% % %

1 Food and grocery 32.4 2.3 3.0

2 Clothing 25.2 3.0 3.1

3 DIY 21.4 1.4 0.6

4 Homewares 20.0 1.8 2.1

 Page 3

5 Footwear 19.4 3.4 2.0

6 Electricals 19.1 1.5 2.0

7 Personal care 17.1 1.8 1.2

Overall average 22.1 2.2 2.0

Source: Verdict Consulting

CASE STUDY - MR & MRS SMITH: THE VAULT

James Lohan, managing director of boutique hotel guide brand Mr & Mrs Smith, tells the story behind the launch
of the firm's loyalty scheme, The Vault, which debuted this summer.
- How does it work?
When a Smith member books a hotel online - at www.mrandmrssmith.com or through their travel agent - 5% of the
total room cost is deposited into their account in 'Smith Pounds'.
'Loyalty schemes can be depressing, but we are pretty generous in the returns we are offering our customers. Most
companies operate on a margin of 1%-2% but we are giving 5%,' says Lohan.
- How long did it take to set up?
The scheme took less than six months to set up from start to finish. The concept was devised in-house and the
website designed by Elvis. The scheme was kept simple using pounds as a reward denomination, not points.
Choosing the rewards offered was 'fairly simple', with Smith opting to link up with brands that had a natural
affinity with travel and the company's ethos, and building on relationships with key brands it has worked with in the
past. The company also added glamour and boosted the launch's PR-potential by offering a diamond as the biggest
reward.
- Why was it set up?
The primary rationale was focused on the bottom line - namely to encourage consumers to keep booking through
Mr & Mrs Smith. However, creating a 'guestbook' that allows users to share hotel reviews plus travel hints and tips has
the added benefit of helping to build a community.
- Advice
According to Lohan, the key is to ensure a loyalty programme offers rewards that are relevant to the brand's target
audience. He also advises the highest level of generosity possible to engage consumers by offering products they will
love. 'We are not offering them a set of crap crystal glasses,' Lohan adds.

LOAD-DATE: August 6, 2008

LANGUAGE: ENGLISH

PUBLICATION-TYPE: Magazine

JOURNAL-CODE: MKT

Copyright 2008 Haymarket Publishing Services Ltd.

All Rights Reserved