Loyalty schemes need to serve both customer and retailer. But do they?
I read Simone McCallum’s opinion piece on loyalty cards this week with great interest. There were valid comments about the concept of loyalty – quite rightly pointing out that 'loyalty' is made up of a whole range of factors. But while I agree with her point that we are moving towards a world where physical loyalty cards will be a thing of the past thanks to smartphones and smart point of sale, and have some sympathy with Simone’s aversion to the plethora of cards offered by every cafe (which I too reject), it’s a big jump to say that all loyalty cards (and therefore all loyalty programmes) don’t work.
It won’t come as a surprise that I take this view given my role at Loyalty New Zealand, the company that runs Fly Buys. But let’s look at some facts – and I’ll use Fly Buys as my example.
Firstly, the question “do loyalty programmes work?” needs to be examined from two perspectives. Do they work for the customer who is part of the loyalty programme, and do they work for the retailer who offers the loyalty programme?.
Taking the customer angle first, the evidence is around us every day in our wallets and soon to be on our phones. Most New Zealanders are members of several loyalty programmes – from the biggies like Fly Buys down to their local retailers of choice.
In Fly Buys’ case, we have 2.4 million active cardholders, across 75 percent of households. Of course, it would be a stretch to say that Fly Buys “works” for all these customers as it depends on particular shopping habits. However, our research tells us that 70 percent of our customers say that Fly Buys “works for me”, and 75 percent say that the offering of Fly Buys points by a retailer is a consideration in where they shop (more than 40 percent say it is a major consideration). On average we give away 700,000 rewards a year to New Zealanders worth about $70 million. So does it work for everyone? No, that would be a stretch. Does it work for a high percentage of our card holders? Absolutely.
What about the retailer? The best loyalty programmes tend to “work” for retailers in two ways, by incentivising repeat purchase (the collection of points towards a reward) and by helping retailers understand their customers’ behaviour (which they can use to make their products, services and customer experience more relevant). Both of these drive positive retail outcomes.
The evidence that loyalty programmes work is clear from the number of programmes that exist. Retailers are smart. If they didn’t work they wouldn’t do them. They understand their customers like to be rewarded for their loyalty – with that reward coming both in tangible ways (the receipt of a reward) and intangible (the recognition of their repeat custom).
We can point to Fly Buys retailers that have gained and retained significant market share through their involvement in our programme. But perhaps the best evidence is the fact that our 10 biggest retail partners have all been part of Fly Buys since the first year or two of the programme, which dates back to 1996.
The debate over whether loyalty programmes do or don’t work is common. Like most debates the answer is not a simple “do they or don’t they” as it depends on a whole range of factors. But on balance I don’t see loyalty programmes or the offering of loyalty cards going away any time soon. And I think both consumers and retailers would be worse off if they did.
Lance Walker is chief executive at Loyalty New Zealand, which operates Fly Buys