Julian Wells debates the merits of loyalty schemes for companies to attract and retain business.

Recently I went to an interesting seminar facilitated by The Financial Services Forum and Collinson Group, which asked whether loyalty schemes are ‘really worth it’ in 2014.

Central to the debate was the volume and use of customer data and how that has changed the relevance and effectiveness of loyalty schemes. The first presenter, from Beyond Analysis, set the scene by saying that financial services (FS) has become over-reliant on apathy and one size fits all loyalty schemes to create loyalty.

There has been an element of disruption in the space too, with companies like Groupon offering daily deals from a range of companies – it’s become a race to the bottom with discounts on services generally leading the way.

People like discounts, but the practice has fundamentally altered consumer behaviour because now they are transient and will choose the best deal on a numerical basis, rather than their emotional attachment to a brand. People have realised that loyalty schemes are not tremendous value either. To earn £65 through Clubcard for example, a customer has to spend £5k a year at Tesco. If it’s convenient for the customer that makes sense, but that sort of value could easily be recouped elsewhere over a 12 month period – it’s not enough on its own. There are also vast amounts of points that go ‘unredeemed’ while research from the Collinson Group suggests those who redeem points are 5-7 times more profitable. Given the time and resource Tesco invests in Clubcard, might it be nearing the end of its usefulness?

So to reflect other trends in modern life, loyalty has to be about an interactive and personalised service, which offers value, but also says ‘you know me and you know my lifestyle.’

Gathering customer intelligence

The opportunities to collect data from customers are numerous, and data on mobile and social media usage in particular has the ability to provide vast insight to brands.

Traditional data capture opportunities (in branch/store) are reducing, so brands must be smart. Finding out why a customer is saving money could lead to opportunities to provide a personalised service – for example if it’s a wedding, are there other services or opportunities to help the customer (and therefore build loyalty) in the run up to the big day?

To work effectively here, brands must strike the balance between helpful and invasive, so taking an opportunity to learn about customer communication preferences is vital for developing a relationship they will value.


Mastercard’s global head of products presented on the work his firm does with major institutions and retailers. By pooling data, Mastercard can segment the behaviour of customers, which informs business decisions for contributors. It also helps banks understand how their customer behaviour compares with the rest of the market.

This is used to provide a personalised service. For example, Mastercard can see where a customer buys petrol from using apps and statements. By bringing GPS into the equation, it can tell a customer where the optimum place to buy petrol is and pass the recommendation on to the bank, which will inform the customer.

This is called a recommendation engine and they’re becoming increasingly valuable. The number crunching is easily applied to mobile phone and utility bills. It’s still effectively a cash reward if it saves them money, but it says the brand cares and it is personalised.

What are brands trying to achieve?

This question was on everyone’s mind and it was raised by a member of the audience at the end. A panellist responded with ‘changing behaviour to make a customer profitable’. Expanding on this, the panellist talked about segmentation. It’s not about offering everyone rewards, people behave differently and rewards should be segmented to optimise returns. Your best performing customers now might not be the best in a couple of years, so are you rewarding the right people? If there are customers who take up a lot of customer support resource, it could be a waste of money to reward them. Aligning reward strategies to the commercial goals of the business has to be the primary aim.

Is it worth the effort?

It’s a fact that loyalty schemes are expensive to administer. The physical card, literature, legals etc are a big commitment and in a crowded and extremely competitive marketplace they have to be unique.

However, research from Collinson Group suggests engaged customers are active for up to seven times longer. If your business operates on a repeat transaction basis, this is valuable, but brands really need to make the best possible use of their data and be clever about loyalty schemes.

Brands are also taking steps to reward intelligently. Waitrose’s reward scheme only kicks in when a customer has made two purchases. This is because executives want to avoid the ‘deal-hoppers’ who switch to whoever does the best offer on the day.

The smart brands are looking to create value for themselves through loyalty schemes – apparently there is one FS provider that has offered lower interest rates if the customer can refer a certain number of likes on the company’s Facebook page.

That feels much more 2014 than a Nectar card…