By Ellie-Rose Davies, Content Executive at IMRG
There has been much debate around the value of loyalty schemes given that many customers sign up for them to reap the benefit of exclusive first purchase discounts to then only shop elsewhere once the discount has been redeemed.
The difficulty in achieving loyalty has heightened since the depths of last year’s economic downturn in the UK, and the struggle has reverberated as the cost of living crisis continues, causing many cost-conscious customers to prioritise affordability over loyalty.
Examples of retailers using these schemes include sister companies Abercrombie & Fitch and Hollister, who have, for a number of years now, offered their new loyalty scheme customers £10 off on either a £50 or £40 spend. Many other brands have adopted this strategy, and there are those considering it. But these retailers might start to think about generating lifetime value to keep these customers beyond the structure of scheme, redeem, buy, and fly.
Starting to breaking the mould
One way to break this structure is offered by Chris Gerber, CEO at Talon.One, who exclaims, ‘effective loyalty programmes are built on a framework of concrete business goals, not random rewards and discounts.’ To do this, Chris says, ‘it’s important to use metrics that align with your business objectives and can be easily tracked for success.’
‘Brands should avoid vanity metrics and focus on metrics such as loyalty campaign uplift or repeat purchases driven.’ Chris states that ‘to measure the success of promotions, it’s essential to clearly understand the desired behaviour change and track it over time. The best metrics are those that spotlight this incremental improvement.’
Loyalty rewards upon sign-ups can be the first point protocol to measure customer behaviour, and ‘offering a bargain will have the added bonus of enticing a crop of new customers – and therefore a fresh new audience moving forwards – to browse and purchase what’s on offer’, reveals Claire Gates, Chief Commercial Officer at Huboo.
She continues, ‘repeat customers are more likely to keep purchasing from a brand, even after a negative experience, such is their buy in following a series of positive experiences. This means that the marginal increase in retention that a loyalty scheme can spark has the power to generate a 25% profit increase.’
Yet, while discounts provide great value, as mentioned above, prompting repeat purchases through discounting alone might just not cut it. Retailers can start to think outside of the box and even work together.
Providing value through collective rewards
While it may be unchartered ground for retailers to walk on, there is great potential in creating a loyalty scheme with a collective rewards system. Collective rewards are when an online retailer offers their customer not only a discount or reward linked to their own website but with that of another. In turn, customers may desire to build up their points or tiers more quickly.
Chris Gorman, Head of Professional Services at Esendex shares that ‘when it comes to loyalty programmes that actually work, customers currently want collective ones that reward their consumption across multiple brands that they’re already in tune with.’
The benefit of ‘a collective rewards system built on a more connected understanding that moves beyond pure discounts’ is that it ‘can also remove engagement barriers, such as the ability to collect enough rewards with one brand quickly enough to feel rewarded.’
Though, Chris notes that customers’ trust in this process is hard to attain and can only be developed through repeated interactions. ‘Choosing the right channels to direct and manage that interaction is critical’, he says, where ‘a clever blend of multiple communication channels (think email, SMS, WhatsApp Business, newsletters, and surveys) as well as pinpoint timing and relevance, help brands to develop deeper bonds with consumers to instil trust – and ultimately, greater loyalty.’
Reiterating the usefulness of collective rewards is Lee Metters, Client Partner for Brand Partnerships at Awin, who says, ‘a well-engineered reward programme should include the addition of value-added rewards from non-competing brands.’
Lee states that retailers are ‘also recognising their first-party customer databases as a marketable source of revenue income. By selling ad-space to a non-competing retailer, brands can maximise their own customers’ experience with the inclusion of a value-added reward, whilst also driving inbound revenue.’
‘Mobile phone networks have executed this perfectly by instilling a habitual mentality where customers frequently reengage with the brand via their rewards platform. The networks are also able to sell ad-space in return for giving retailers access to a highly engaged database of potential shoppers.’
While this is one great method to generate loyalty from particularly hesitant customers, things can still go wrong if retailers are not careful.
Ensuring the success of your loyalty scheme
Online retailers might jump into the deep end, quickly installing loyalty schemes to satiate their hunger for profits, especially now we know that year-on-year online revenue for the total market was down -10.5% in 2022, that is according to IMRG’s Index. However, without being careful and having strategies in place, problems can occur.
Karolina Fialkowska, Senior Consultant at Sovos, exclaims, ‘Loyalty schemes are a powerful technique to entice customers´ buying behaviour and keep them coming back. It’s good to know that the supply of loyalty points to customers shouldn’t be subject to VAT in the UK (unless there’s a fee to join the scheme).’
‘The customer, lured by savings, subsequently makes an order knowing they’ll get vouchers or loyalty points for their purchase.’ Yet, it is important to note that ‘Once the customer wishes to redeem them, the VAT liability arises which must be accounted for on the total price of the product.’
Also considering the protection of profits is Monica Eaton, Founder of Chargebacks911, who starts by looking at the vantage points of subscription service loyalty schemes. ‘Subscription services are an excellent way to break up larger subscription dues and membership payments into smaller, more manageable increments. These loyalty schemes can significantly improve your reach, increase monthly revenue, and allow customers to try services before agreeing to larger payments.’
‘However, many of these loyalty-based subscription services can bring with them notorious hidden fees, the public’s natural aversion to contracts, and the issue of customers subscribing to things and forgetting about them until their billing statement. Monica concludes that ‘loyalty schemes can be very lucrative when managed effectively, but, they are also highly susceptible to recurring billing chargebacks.’
Rob Griffin, CEO at MIRACL celebrates the mutual benefit of loyalty schemes, where ‘. Individuals benefit from special deals, retailers benefit from insightful customer intelligence.’ However, he raises three important questions; ‘what happens when they go wrong? When hackers break into a customer’s loyalty scheme and spend all their hard-earned points? Or the brand suffers a data breach and customers’ personal information is compromised overnight?’
One way to reduce the likelihood of things going wrong, Rob says, is through using efficient ‘patented multi-factor authentication to minimise risk and maximise brand value with those you are trying to please.’
There is mutual agreement that loyalty schemes can be a catalyst of loyalty. But, it requires setting goals, trialling, testing, and measuring customer behaviour for retailers to see its value.
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