27 November 2014 • marketingweek.com
Loyalty rewards are a key factor in attracting consumers but as it is now much easier to find offers, brands need to innovate to keep their customers. And with a savvy younger generation of shoppers who know what they want, retailers need to work harder to earn loyalty.
News that Sainsbury’s is halving the number of Nectar points consumers earn from purchases caused a storm in October.
The supermarket insists cardholders will not lose out because there will be more bonus and personalised points available as the retailer aims to create a more engaging loyalty programme. However, Sainsbury’s decision, which was made as it prepared to announce a half-year loss of £290m in November, also looks on the face of it like a watershed moment for incentive schemes such as Nectar.
The supermarket is reacting to a changing market in which consumer attitudes to loyalty programmes based on points, vouchers, coupons and gift cards are evolving. Rival supermarket Tesco, which is also struggling with an accounting scandal and underperforming sales, has been advised by some retail analysts to ditch its Clubcard rewards scheme.
Yet the situation looks less dire elsewhere. Research published in November by loyalty specialist GI Insight reveals how vouchers remain a crucial ingredient to get people excited about loyalty schemes. For the The Lure of Loyalty survey, more than 1,000 UK consumers were asked why they joined a loyalty programme.
Vouchers and coupons are the second most popular reason (60%) behind the opportunity to earn redeemable points (74%). The research also finds that women are more eager than men to receive vouchers or coupons.
The recession has certainly changed the perception of vouchers and coupons. People have become used to looking for deals and the stigma some consumers felt about redeeming them no longer exists.
Claire Davenport, managing director at online voucher provider VoucherCodes.co.uk, says households had to find new ways to save money as wages stagnated and now the idea of searching for vouchers or coupons before making almost any purchase is fixed in people’s minds.
“As the economy has improved, it has become more about smart shopping rather than just money saving,” says Davenport. “Some people used to be embarrassed about using vouchers but now this is the sensible thing to do because it has become so much easier to find offers. People come to our site to see who has the best offers before deciding what to buy. It is up to brands to use vouchers intelligently.”
More than half of consumers (55%) cite loyalty rewards as an important factor when staying with a provider and more than half are part of a supermarket loyalty scheme, according to customer engagement services provider The Grass Roots Group. It asked 2,500 UK consumers about their relationships with telecom, utilities, insurance, banks and supermarket brands, uncovering the role vouchers and incentives play in these sectors.
Insurance companies, for example, are missing a trick by failing to use the schemes effectively to retain customers. Around 90% of people do not know whether their insurance provider offers any incentives encouraging them to stay.
In a world where consumers are constantly checking price comparison sites, vouchers, coupons and gift cards can be powerful weapons in the battle to retain loyalty. They prompt people to interact with specific brands as opposed to a competitor, but the offer must be kept simple because busy consumers will shun anything too complicated.
Students love vouchers but this group has become extremely discerning about how it uses them, according to the most recent applicant lifestyle survey by the Universities and Colleges Admissions Service (UCAS). Millennials and Generation Z are the young consumers who have grown up with price comparison websites, peer-to-peer reviewing and daily discount deals.
The responses to the latest UCAS Media research highlight both the expectations and the shrewdness of this cohort. According to the study of more than 18,000 people, 42% prefer upfront discounts such as vouchers on the retail price, compared to a one-off cash payment (8%) or a free gift (15%).
“This audience is looking to save money on various lifestyle purchases and it wants discounts such as vouchers that can be redeemed immediately rather than rewards that build up over time. They know the product they want and they want a good deal,” says Debbie Scott, head of insight and strategy at UCAS. “The preference for vouchers over cash payment could also indicate a wariness of cash-based gifts and any requirement to provide bank details.”
A large portion of students fall into an age group where they are old enough to pay adult prices. UCAS says brands could be missing an opportunity by not doing more to target and build loyalty among the ‘in-betweeners’ – those aged 16 to 18.
One of the most prolific sectors for vouchers is the home delivery pizza market where consumers of all ages expect to find online and offline vouchers before ordering. Andrew Gallagher, senior director of marketing at Papa John’s, says vouchers are vital because around three-quarters of orders are bought on a deal.
It means voucher offers must be clear, while local and national promotions must work together across a franchised network. Papa John’s targets its voucher deals based on how frequently people order from the brand, the length of time since they last made a purchase, the time of the day and the day of the week.
“The industry has got itself into a place where it can be difficult for consumers to understand the value of different pizza offers sometimes,” says Gallagher. “And whether you are a pizza brand or an airline, however good your product is, there is always a price or offer point at which most people will switch.”
Papa John’s uses the Rant & Rave customer satisfaction and feedback tool. It sends customers a text one hour after they have ordered and asks them to rate their experience from 1 to 5. The response rate is around 20% and the brand has received more than 100,000 responses since it started using Rant & Rave six months ago. It has achieved an average score of 4.1.
“The customer feedback has enabled us to improve the order process, offers and the product and manage customer expectations better,” says Gallagher. ”You might have great voucher offers but in pizza, the quality of the delivery service is vital to customer loyalty.”
Like the pizza market, the world of minicabs is also very competitive, especially in London. Taxi booking and comparison app Kabbee, which works with more than 70 taxi firms, launched a loyalty programme into the app in November called Kabbee Treats. It uses voucher codes that allow people to apply for their rewards in-app. The vouchers include money off their next journey, an upgrade to a more luxurious minicab or rewards from third-party brands including LateRooms.com, storage company Lovespace.co.uk and local restaurants.
Head of marketing at Kabbee Laura Przybek says it can be difficult to encourage busy Londoners to stay loyal to one taxi firm, so people need a reason to return. “We used research to identify what our users enjoy doing in their spare time and the top interests were travel and food and drink. We’ve created our loyalty programme based around the things they love and need.”
Providing vouchers and gift cards as presents is another growth area. According to the UK Gift Card & Voucher Association (UK GCVA), the market grew by 13% between 2012 and 2013 to nearly £5bn. A similar level of growth is expected this year. Andrew Johnson, director-general at UK GCVA, says around 50% of gift cards are now sold to companies as staff incentives to reduce absenteeism and keep employees engaged.
“We have seen new entrants in the market such as hotel and restaurant chains, and an increase in more practical gifts, such as supermarket vouchers, to help with household purchases to stretch the family budget,” says Johnson.
Although around 6% of gift card value is never redeemed, Johnson says brands would prefer consumers to redeem their cash or points because it increases footfall and people tend to spend another 40% in store.
Red Letter Days for Business, which supplies companies with vouchers to boost staff engagement, says most of its growth is coming from digital rewards and advises that gifts should be chosen by staff focus groups and employee surveys rather than by the management making assumptions.
The home improvement sector is one area where gift cards have emerged in recent years. For Christmas this year, Wickes has launched a festive gift card to increase the number of light DIYers visiting its 228 stores. Wickes accepts it needs to shake off its image as the place to go only if you are a serious DIYer or a tradesman.
The company’s own survey of 1,993 consumers carried out by market researchers ICM Research claims that 39% of people label themselves as light DIYers, confident of performing small projects, such as painting or putting up a shelf. The brand’s gift card can be loaded to a maximum of £500 and is designed in part to appeal to people looking for a different kind of wedding or house-warming present.
The cards are also being supplied to the business-to-business (B2B) market as a reward and incentive option for employers.
Martin Alden, head of B2B and partnerships at Wickes, says the chain has fallen behind its rivals in terms of gift cards. Although it has had paper vouchers for some time, these will be phased out.
“Our heritage has been to attract enthusiastic DIYers and we do need to broaden our appeal,” says Alden. “We will expand the gift card idea to focus on different seasons during 2015.”
He adds that providing people with a gift card is not enough on its own to build loyalty. “It is also important we change the layout of our stores so they are easy for light DIYers to navigate, and that the service and staff knowledge is good.”
Vouchers are also extending into social channels. Retailer Debenhams ran a social selling campaign recently, giving online shoppers the opportunity to purchase gift cards for its autumn/winter 2014 collection. The value increased as more people committed to buy. Also, tying in with the retailer’s Found It Christmas campaign, customers can sign up for a coupon based on staff selections. The incentive improves as more people participate.
This co-buying ecommerce activity is being powered by technology provider Buyapowa, which has also worked with Argos. Director of ecommerce at Debenhams Ross Clemmow says the chain wants innovative ideas to engage with customers around coupons.
Receiving and redeeming a voucher, coupon or gift card is more acceptable than ever across all consumer groups because people have become used to hunting out relevant and targeted offers. It is up to brands to make sure that the offers they promote are not only attractive, but also breed longer-term loyalty.
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