Customer loyalty programmes, a long-time faithful tool in the retailer’s marketing arsenal, have grown so rapidly that they are now ubiquitous in consumer markets across the world. Today they are at their highest in number, form and popularity. Despite their growth and popularity, are these programmes really paying off for retailers? Read more.
Given the ever-intensifying competition in the retail business, customer loyalty programmes, a long-time faithful tool in the retailer’s marketing arsenal, have been growing incessantly over the years.
Today, retail loyalty programmes have grown to such an extent that they have become practically ubiquitous in consumer markets across the world. And these programmes are now at their highest in number, form and popularity.
Recent surveys have found that globally an overwhelming majority of respondents strongly favour loyalty programmes. And in the Asia-Pacific marketplace, this majority is sizably greater than the global average.
However, despite their growth and popularity, new questions about loyalty programmes are casting an unsavoury pall over them. Do they actually work well? Do they really pay off for retailers? Maybe yes; maybe not…
Some analysts now think that loyalty programmes are not working as well or delivering as much as believed. Some experts even think that they might be destroying value for their programme owners. Where have loyalty programmes gone wrong? And, perhaps more importantly for retailers, what is their upside potential, if any?
How awesome is the growth and popularity?
The answer is: Very awesome… according to statistics and survey findings.
One vivid testimony is a recent survey on the subject by The Nielsen Company, a leading global information and measurement company. The Nielsen Global Survey of Loyalty Sentiment was conducted early last year and published last November. The comprehensive survey polled more than 29,000 online consumers in 58 countries over 16 industry segments across the world’s major markets.
The Nielsen survey found that consumer demand for loyalty programmes had grown to an extremely high level – about 84% of respondents stated that they were more likely to shop with retailers that offered a loyalty programme.
In Asia-Pacific, that figure was even higher – an overwhelming 92% of Asia-Pacific respondents preferred shopping at retail outlets where there was a loyalty programme.
And supply had been very profuse as well. Nielsen found that nearly 59% of all respondents claimed that loyalty programmes were readily available at the stores where they shopped.
The bullishness in both demand and supply has been pushing up loyalty programme membership by leaps and bounds. A recent article by McKinsey & Company, one of the world’s leading global management consulting firm, said that between 2008 and 2012, US consumer loyalty memberships increased by 10% per year – reaching over a whopping number of 23 memberships per household.
The relatively more conservative European consumers are not much restrained with loyalty programmes. Almost 80% of shoppers in Europe reportedly now belong to at least one loyalty programme.
What about the Asian consumers? Although there is no definitive survey numbers in this context, educated guesses among industry watchers is that Asian loyalty programme memberships are as high, if not higher, than the US and European figures.
So, what are the concerns?
Despite what seems like a glowing picture, there are concerns about the actual efficacy and worth of loyalty programmes.
The first obvious problem is the numbing effect from too much supply. With the many loyalty programme memberships that a consumer now holds, consumers have a very broad spread of options where they can get rewarded for their shopping. This often means that they can readily defect and spread their “loyalty” around.
One industry expert said, “There is still a yawning gap between the percentage of people who say they’re satisfied with a business and those who consider themselves “loyal” to that business.” The playing field among programme-owning retailers is therefore somewhat leveled. This implies that generally loyalty programmes are not really yielding the loyalty they have been designed for. And more fundamentally, the benefit of strategic differentiation and competitive advantages underpinning the concept loyalty programme for retailers is eroded.
The second problem is the cost-and-benefit issue. Another recent McKinsey study suggested that on average, loyalty programmes do not pay off and, alarmingly, “may in fact destroy value for programme owners.” The study, involving 55 publicly traded North American and European companies, said, “…those that spend more on loyalty, or have more visible loyalty programs, grow at about the same rate or slightly slower than those that do not (4.4% versus 5.5% per year since 2002).”
McKinsey said that the findings varied according to industry sector. “However, as a whole, companies surveyed that had higher loyalty spend also had EBITDA margins that were about 10% lower than companies in the same sectors that spent less on loyalty…” the study added; EBITDA being earnings before interest, taxes, depreciation and amortisation.
Going forward, what’s new for loyalty programmes?
Is there a next big thing that will singularly impact upon the whole concept, makeup and eco-system of loyalty programmes like never before? Yes… And it is the dramatic convergence of the online, social and mobile realms and the digital era that it precipitated.
The digital era and specifically social media have produced epic changes in the way human beings communicate and interact with one another and with organisations on a daily basis. It has in turn provided consumer marketing with an entirely new reality to understand consumer psyche and to build relationship with customers. Social media has already provided consumer marketers tremendous opportunities that are unheard of until now – in monitoring in real-time what people are saying about their brands; listening to and joining conversations; communicating value proposition 24/7; etc.
A concomitant big thing is the new dimension of business analytics – available in much greater power, breadth and depth than just a short time ago. The new breed business analytics would lift loyalty programme strategy to much greater height. One immediate opportunity for retailers would be the ability to dice data finely enough to be able to understand and identify customer segments and to target the right customers for their loyalty programmes.
Part 2 of this article in the next issue of RETAIL ASIA shall examine some of the key drivers necessary for forging successful loyalty programmes in the new era and what specific opportunities Asian retailers can leverage going forward.