The role of loyalty schemes in customer experience

Customer loyalty schemes have come a long way since their early days, back in the 1890s(!) with Green Stamps, stamps given in return for purchases that could be exchanged for household goods. But modern loyalty schemes, whether card, mobile or online, have quite a lot in common with their predecessors, especially in their primary purpose.

Valuing and rewarding good customers

First and foremost, loyalty cards are about rewarding customers, with a view to getting repeat business. Some estimates suggest that it costs seven times as much to get a visit from a new customer as it does to get a return visit. It therefore makes sense to provide some kind of reward or incentive to ensure that your customers want to come back.

Loyalty cards are also, however, a source of valuable data about customers. Because customers want to earn rewards, they are happy to use their card whenever they buy. And each transaction tells the retailer more about what that customer routinely buys, and how they buy it: what they buy each week, what they buy late in the evening or on the way home from work, what they buy for lunch. Retailers cannot legitimately hold information about payment cards without customer consent, and cannot track cash. Loyalty cards provide an alternative that links the customer to the purchase.

Where loyalty cards have really moved in the last few years is in what retailers and card providers do with the data about their customers, and why they want it.

It used to be relatively straightforward. The data were used to identify likely products for that customer to purchase, so they could be sent some vouchers. It was all about encouraging repeat visits, but was often a bit hit-and-miss. That was partly because it is a bit spooky if a retailer guesses exactly what you’d like to buy, but also because it was hard to get it right.

Now, however, it’s all a bit more sophisticated. First, loyalty schemes reward valued customers much more. Sophisticated segmentation means that it is possible to pick out the best customers and reward them differently. That doesn’t just mean that customers who spend more get more rewards, in a simple linear way, but that high-value customers get different rewards that are more valuable to them: particular offers, or extra points, for example, or more choice of rewards.

Offering a choice of rewards is especially good, because it provides more information to retailers about what customers want, while allowing a more personalised customer experience.  Surveys increasingly show that customers value personalisation, so  this is a real win-win. Sophisticated analytics, including artificial intelligence-driven algorithms, will improve this still further over time, particularly since they can be applied across channels. Ultimately, the partnership between customer service staff and algorithms should augment the abilities of both, and make the customer experience seamless.

Getting loyalty schemes right

Loyalty schemes, then, seem like a good way to improve the customer experience. But not all do so successfully. The best loyalty schemes have a number of common features, including:

  • Simplicity. They are easy for customers to use and get value from, and customers can see at a glance how they obtain their rewards.
  • Omnichannel. Customers can use them across channels, including new channels such as mobile, via apps. The customer experience is seamless, with rewards being usable across all channels, as well as earnable that way.
  • Building immediate loyalty. If signing up gives customers valuable points, they will immediately have an incentive not to switch.
  • Use of analytics to track success. For example, the rate at which customers redeem rewards provides useful information about whether they value the scheme. Dropping redemption rates could be a sign of customers going elsewhere, and a signal that you need to take action.
  • Effective. They reward the best customers the most, and customers can quickly see how to move up the ranks. For example, Sky’s new loyalty scheme is based on the length of time that customers have been with Sky: simple, practical, and transparent.

A loyalty scheme is both a way to improve customer experience, and also a key part of the customer experience in itself. It enables better targeting of offers and ways to build spend. But it can also, by enabling customer recognition, actually be a way to directly improve the customer experience. Now that personalisation is such an important issue, customer recognition could be the key to a sale. No wonder loyalty schemes are becoming increasingly important across sectors.

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