GUEST COMMENT Loyalty is dead, long live loyalty

Loyal (adjective): giving or showing firm and constant support or allegiance to a person or institution.

It’s a word that conjures up images of knights putting their lives on the line for their chosen king, but it’s trotted out again and again in the modern world. I can, however, only think of a handful of things people are truly loyal to today – a loved one, a football club, perhaps, but a retailer?

Customer loyalty has been the Holy Grail in the retail industry since its inception – repeat custom is something every company strives for, and many would rightly argue a shopper that returns again and again is worth far more than a first-time buyer. According to the Chartered Institute of Marketing, it costs between four and 10 times more to acquire a new customer than it does to keep an existing one.

While the word ‘loyalty’ is no doubt overused, and its original meaning somewhat diluted, the sentiment is a noble one: to offer customers something additional in a bid to add value to their experience and encourage them to come back for more. So where did it all go wrong? And why are Tesco Clubcards disappearing from keyrings around the country?

I’m sure I’m not alone in immediately thinking of the Clubcard when someone mentions loyalty schemes – Sainsbury’s Nectar card was also popular, and both are still clinging on, but their days are surely numbered. Sainsbury’s even halved the number of Nectar points accrued on purchases in April and completely abolished the bonus given for using your own shopping bags, while Tesco is selling off its data arm, Dunnhumby.

The ‘big four’ supermarkets have very much lost their tight grip on consumers’ wallets, with Lidl and Aldi rising to prominence as people felt the squeeze of the economic downturn. Mainstream retail has been in a race to the bottom for many years, and these lesser known players gained popularity thanks to their lower prices. The big four didn’t adapt quickly enough, and were left scratching their heads as to why a monthly voucher for 5p off a pint of milk wasn’t enough to pull customers back in.

Nonetheless, with some of the world’s largest, most innovative companies looking at buying Dunnhumby, there would appear to be life in the old dog yet. There’s no way the likes of Google would consider acquiring an unwanted company if they couldn’t see a bigger picture. Loyalty schemes certainly make sense for supermarkets – traditionally, families have done a food shop at least once a week, while other retailers that may only see one or two sales per customer each month. If any supermarket can find a way to keep those families coming back to them every single week they’re onto a winner.

If loyalty isn’t dead after all, one big question that remains is how it will evolve in the coming years. Waitrose, for example, is experimenting with something new – in June it launched a ‘pick your own’ discounts scheme, offering customers the chance to choose up to 10 items they’d like to save 20% on, from a list of almost 1,000. It’s an innovative idea and I can see it being hugely popular with customers, especially as Waitrose is rolling it out both in-store and online.

Interestingly, Marks & Spencer is also rumoured to be looking at launching a new loyalty programme – but this one is in the mould of the more traditional card-based schemes. ‘Sparks’, as it may be called, could offer customers ‘more personal treats’ rather than simply accruing points and receiving a pre-determined voucher in the post.

These new offerings from Waitrose and M&S have a key attribute in common – an emphasis on greater personalisation for the end user. It’s a clear indication of shifting expectations, with the modern consumer insisting on interacting with retailers on their own terms. What companies like Dunnhumby enable is access to rich customer data and, with so many supermarkets vying for our attention, that is crucial in order to deliver a more tailored benefits programme.

I think Apple is a great example of a company that engenders loyalty in millions of customers worldwide. Apple brings out a new iPhone, a new iPad, and now even a Watch every year, and its products are some of the most expensive on the market. But the company keeps people coming back for more and parting with hard-earned cash every time, thanks to the sheer quality of the goods it provides.

If you consistently produce the very best equipment, or provide the very best service, people will come back for more – in this way loyalty can be built organically. Some brands also have that ‘cool factor’ that so many strive – usually unsuccessfully – for, but they’re few and far between.

For those that can’t guarantee best-in-class products, loyalty will be gained through personalised offers and discounts, and an omnichannel approach that breaks down the barriers between the digital and physical worlds.

Consumers see retailers as a whole, not in ‘channels’, so it’s important to provide a seamless, consistent customer experience every time they interact with your brand. They also expect more in return for sharing their personal information with a brand so, while customer data is a powerful tool for any retailer, it must be used sensibly and sensitively.

While the stamps and free drinks my local coffee shop gives me mean I’m happy to walk the extra two minutes past Starbucks every day, giving away goods isn’t necessarily a scalable model for a high street retailer or a big supermarket. Those businesses that use data to put the customer first, exploring their wants and needs over the brand’s own, will ascend the throne in the new age of loyalty.

Peter Veash is chief executive of The BIO Agency