The Loyalty Cards Phenomenon

One of the most effective ways to collect data from customers and then to develop a dialogue with them is to build a loyalty scheme.

Kevin Roberts, the worldwide CEO of Saatchi and Saatchi, categorizes the best brands in the world as: “the brands that create loyalty beyond reason”. Even in a recession Roberts believes that emotion is king. “Brands build loyalty for a reason. Loyalty beyond reason; beyond price; loyalty beyond recession!”

SMART SOLUTIONS FOR ROI
Insight into their customers’ motivations is a direct route to higher profitability for retailers, giving them all the information they need to target a very specific group of people, says Christophe Malgorn, Regional Sales Director of HID Global, one of the leading vendors of loyalty cards and loyalty card printers. Most loyalty cards current in Europe are ‘non-technology’ cards, which use a chip, magnetic stripe or barcode to link to a database, rather than storing data on the card itself.

However, loyalty cards using smart card technology, which contains a read-write memory chip or RFID-based contactless technology with the ability to store data on the card, are growing in prominence. “These closed-loop contactless smart card loyalty schemes, offer a faster route to return on investment as well as greater speed, security and convenience,” he says.

A recent consumer survey conducted by GI Insight in the UK showed that food and drink brands demonstrated very poor knowledge of their customers in their communications.

“Supermarkets, on the other hand, were rated the highest in their knowledge of their customers,” says Andy Wood, Managing Director of GI Insight. “This isn’t an accident. Through loyalty cards, supermarkets can access information on customers’ eating habits – gauging, for instance, whether they are likely to be vegetarian or have children in the home. But in the digital age it is not beyond the scope of food and drink brands to create stronger direct relationships with their end customers though their own loyalty initiatives.”

SUCCESSFUL CROSS MARKETING
Outside of the USA, the UK has provided a benchmark for loyalty schemes. The Tesco Clubcard launched in 1994 is the most successful, operated by dunnhumby, which is now majority owned by Tesco. The customer rewards are small but with more than 30 percent of the UK grocery spend it gives Tesco valuable information on shoppers’ habits and demographic.

You can now redeem Clubcard points against a new car, an extension in response perhaps to the success of the Nectar Card operated by Sainsbury and other retailers including BP and a number of food outlets like Beefeater and Brewers Fayre. Nectar doesn’t have the close brand association of the Clubcard, but it gathers marketing data from a wider footprint, gives adopters an initial ROI between 50 and 250 percent and cross-markets between strong brands.

One of Europe’s strongest loyalty programs is PayBack. On average Germans carry four cards on their person, according to a 2010 study by TNS Emnid, and 32 percent of them carry a PayBack card – a 2007 study showed that 61 percent of German households have a PayBack card.

SMARTER AND SMARTER
Hotels, supermarket chains and airlines all run loyalty programs and all these impact the food industry.

Starbucks is big enough to leverage new technology. Its second iPhone app, now trialing, allows you to check your Starbucks Card balance, top it up wherever you are and even use the iPhone to pay, creating a barcode that can be scanned in store. This is leading edge stuff but it is undoubtedly the future for loyalty schemes. The winners will be the companies that can marry the mobile technology in every customer’s pocket with the food and drink they buy every day.

Quick Service restaurant chains are increasingly using the mobile phone as a customer loyalty vehicle, with some impressive success rates in initial deployments. Recently, McDonald’s offered a mobile discount coupon and customer loyalty campaign across Portugal and Germany. NeoMedia, a pioneer in 2D barcode technology for mobile phones developed electronic coupons by smart message, MMS and/or EMS that were delivered direct to customers’ phones, and worked with partners to deploy the technology. Customers take their phone with them to restaurants, and are more likely to use a discount offer from McDonald’s if they don’t need to carry a paper coupon with them. This provided McDonald’s with a new way of tracking which customers were accepting offers, and encouraged a response rate in Germany from one in every three customers, with nearly 75 percent of them returning to take advantage of multiple offers.