Loyalty Concepts Marketing Essay
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Words: 5165, Paragraphs: 128, Pages: 21
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1. Loyalty Concepts:
Loyalty is a structured marketing technique that gives you awards and, therefore, encourages you to obey loyal buying behaviour. The main objective of the programme is to have regular customers loyal to an organisation and also increase the commitments with occasional customers as well as develop new customers. It many times compels the regular as well as occasional customers to come back due to loyalty program. It’s no longer a secret today that the 20% customers bring about 80% of the total business sales and profits.
And it is very difficult to retain all the time those brilliant 20% customers loyal. Therefore, to enhance brand loyalty and to efficiently cultivate relationship between customer and the marketer, loyalty programmes has been developed, which encourage the customer to buy frequently, and also up hail the amount they spend every time. The worldwide customers has become more frugal with their money and are having a keen eye on every product and ensure it in advance that they get a better quality brand product and also verify that it values for their money.
To meet the requirements of new era customers, relationship marketing should be introduced, which would focus on customer satisfaction and retention rather than looking to the figures of sales transactions. Despite the fact that alot of percentage of customers will still remain stick to the business industries or retailers they trust who provide good quality products aswell as customer services. Therefore, the researcher have found out that, with good quality products and customer services, now we have to introduce relation marketing in the form of loyalty programs which persuades the customers in such a way that he is forced to do shop in their loyal shop only to gain some more extra points and get few more benefits from their expenditure. There are many different kinds of loyalty cards offered by departmental stores, super store, retailers, and also businesses like bakeries, takeaways, coffee shops, sandwich bars, butcher shops, hence each and every business have started this type of business. And they have many different names like Club Card, Nectar Card, Loyalty Card, Points card, Reward Card, Advantage card, Miles Card, etc. But their main aim is the same, which is to encourage the customer to become loyal to the business and also to give some extra benefits or percentage of discount which compels the customer more and more to their business. We can explain this with the help of an Example:
Sainsbury’s is having a loyalty card known as Nectar Card. On every pound you spend in Sainsbury, they are giving you two nectar points. Now when you collect five hundred nectar points you can have redemption of two pounds and fifty pence from your bill which is almost equivalent to 1% discount. So the customers try to spend more and more in Sainsbury to get considerable amount of points and to use them as a reward which he/she considers as a discount. Once you start collecting them so you would struggle to have more and more points. For this purpose, you wouldn’t go for shopping to any other store. And slowly and steadily you will become loyal to Sainsbury’s. Than Sainsbury will know about what you are buying and how often do you spend every week or month. And they will calculate your expenses and will give you offers every week and month and will encourage you to spend more than previous spending. And every month they will be giving you free worth of discount vouchers or extra points and in this way you would become loyal to Sainsbury’s only and then you will go even for petrol or anything you need only to Sainsbury to get extra Nectar Points. So with the passage of time, it will become your hobby or you may become addicted to it. In this way Sainsbury will make an occasional customer to a frequent and loyal customer. Which will in turn gives alot of profit to him and which they calculate as £70,000/- in the life time of one person.
Another customer loyalty concept is to develop combined loyalty card which can get points from different retailers and stores and can be used in different retailers and stores. For Example, Nectar Card points could be gained from Sainsbury’s, TheAA, Argos, EBay, Amazon, O2, HomeBase, and 400 other companies. And you could use it in the same way in these companies for redemption. In this way people are attracted more to this card, because you can collect the points from many different places and could have alot of opportunities for spending the points in different locations. In this way a person is diverted from one business to other only because of loyalty card and then become loyal to that business. Also the Loyalty card providers make them happy by giving bonuses and reward every month to encourage the customer to become more and more loyal. In this way the flow of traffic of customers towards your business increases and their trust also becomes stronger.
2. Types of Loyalty Cards Schemes and their Popularity:
There are many different kinds of loyalty cards offered by different companies around the world. Every company claim that their loyalty card is the best among the others and do their advertisements in the best possible way. Nowadays loyalty cards are offered by all the departmental stores, superstores, bookshops, coffee shops, Airline Companies, Hence each and every business have introduced the loyalty cards scheme to compel more and more customers to themselves and to have a loyal relationship with them for making a long term customers rather than occasional customer. The most common and significant cards are given below:-
M & S
& More or M&S Privilege Card
Boots Advantage Card
WHSmiths Club Card
Co-op Dividend Card
Executive Club Card
Air New Zealand
John Lewis Card
Morrison’s Miles Card
Waterstone’s Loyalty Card
The Game Reward Card
HomeBase Spend & Save
Shell Plus points
The Body Shop
The Body Shop Reward Card
BHS Choice Card
Debenhams Beauty Club Reward Card
The main aim of introducing loyalty cards by any company is to attract the customers towards their business and make a long term relationship by giving them some rewards in form of discounts and promotions and make them feel as they are very special for them.
Every time when you go to checkout of any store, and it comes the time of payment, they would ask you the same question. Do you have a loyalty card? And if you do have it so they will scan it and your entire shopping list will come on their database regarding your buying behaviour and taste of that store. This card will track your entire preferences towards products at that store and in return, they will reward you in a way which suits you the most. According to market researchers TNS, 85% of the population of United Kingdom have at least one loyalty card. All the loyalty operators observe significant increase in the signing up and using of loyalty cards especially in the time recession where everybody wants to get extra for what they are spending.
All the loyalty cards are doing their best and every one is claiming rapid increase in their sales after the introduction of loyalty cards and has appreciated this scheme. Tesco Clubcard claims 100% increase in their new applications since the re-launch of their Clubcard scheme and their loyal customers have exceeded 15million this year. But the question is how many customers are really loyal to them and how many accounts are active and doing transactions all the time only in Tesco.
Sainsbury’s claims last year that they have active 12.8million customers who every day or minimum once a week use their Nectar card. Also Nectar claims that they have redeemed £1.4Billion worth of points through their partners in the last 6 years. In 2010 Nectar have announce that they had tad overtaken their rival Tesco Clubcard and have become the UK most popular loyalty card. The main reason of their success is that they are partners with petrol distributors BP, the credit card American Express and many other such companies. And where ever you shop, you would get those nectar points. So customers make a tree for themselves and do all the shopping from the stores, which are having Nectar cards and than for fuel they go to BP or Sainsbury petrol station. Hence they shop from all those stores, where nectar card can be used and then they redeem their vouchers in more than 400 different locations around UK which includes Argos, HomeBase, EBay, Amazon, O2, VUE, Philips, Expedia, etc. In this card you have more opportunities to get the points from different location and can also spend it in any location of your choice, which influence a person to be attracted and addicted to this scheme more than any other scheme available in the market.
Loyalty schemes were initially developed by Airline Companies which give rewards to customers on mileage and also they have special counters for the loyal customers, so the customers make themselves really proud and there were alot of facilities for them in terms of baggage, counters and extra VIP treatment. And slowly and the steadily they move towards the discounts in tickets after collecting a certain amount of miles. Nowadays there are also loyalty cards in airline industry and British Airways scheme Airmiles has almost 2.4million collectors who are currently active from the last 18 months and there has also been an increment of 42% in the collection of Air Miles from this year. And also their consumers who join the program this year has been increased 350% in the first quarter.
Boots loyalty card is also most common among the users of loyalty cards in UK. And it is believed to be the most generous card having 16million active users. But there is not a visible change in the redemption behaviour of customers over the past year.
Waterstone a famous book seller’s loyalty card scheme has around 2.9 million customers. Among them a high proportion are active users.
There are also some of the high street retailers, like coffee shops such as Cafe Nero and Costa offers the paper version of loyalty card. Every time, you shop there, they will put a stamp on your loyalty paper. And according to their scheme which is every 6th of 8th time, you will get the free coffee. Or give you a loyalty card which is entitle to 15% discount. These schemes could give you 15% – 20% discounts which is very effective. And in one high street there are alot of coffee shops, but you will go to your own coffee shop again and again to get more and more benefits from you loyal store.
In this way alot of businesses are boosting their profits by the introduction of loyalty cards and simultaneously building loyal customers. In short the researcher show how the loyalty cards plays effective role to improve and increase customer retention and build brand loyalty.
3. How is Loyalty Card Used?
Every year Supermarkets and Chains spend millions of pounds on loyalty card. Tesco alone have last year given £200million pounds to loyalty card users. And in the same way Sainsbury’s claims to have spent £1.4Billion pounds through their partners on Nectar Card in the last 6 years. Which in return increase their sales by 28% and 24% respectively. In the same way Boots, British Airways, Airmiles and all the other companies are also investing in loyalty programs and in turn they increase their profits and customers loyalty.
But the main question is how loyalty cards are used. Every store enquires at the checkouts that do have their loyalty card or not. It is not necessary that you would be a customer of that store for a long time. But you could just simply sign in at the checkouts or apply online and you will get your nectar card for free. They will send it to your postal address or you could collect it in store but then you have to register it online. In registering, they get your details e.g. name, address, date of birth, telephone number, etc. Than whenever you do shopping in superstore like Sainsbury’s, you should give them your nectar card at the checkouts. For every pound you spend there, you would get two nectar points. When these nectar points reach five hundred, it will worth two pounds and fifty pence. And you could redeem you bill by £2.50/- online or at store. You could also save them and check online for different offers in www.nectar.com or there are more than 400 different locations where you could spend it. It includes redeem their vouchers in more than 400 different locations around UK which includes Argos, HomeBase, EBay, Amazon, O2, VUE, Philips, Expedia, etc If you spend it in store, every 500 points worth £2.50/- but if you spend it online for air miles, you can get benefit of £5 or £10. In the same way if you are buying the cinema ticket for £8 pounds, you can get it with nectar card for 1000 points which worth £5 pounds only. So you have to check online and find out what deal is good for you. Some people collect the points throughout the year and then spend it on Christmas so all their Christmas shopping is almost free. If you collect it for the long time, there always comes an option of double all you points or double points on shopping and schemes like that. This benefits you alot. Nectar also keep track of all your shopping and they find out that if you spend £40pounds every week in Sainsbury, So they send you an offer to spend £50pounds this week and get £5pounds off or get double nectar points or any reward in the form of loyal customers. In this way, you double you points as well as save a little bit extra. So using your Nectar card, Sainsbury gives you £5pounds off voucher every week, which is equivalent to 1000 nectar points and also you will get nectar points on your shopping. This will be a double fun. In this way nectar card not only reward you but also treat you with some gift aswell. And once you become very loyal to Sainsbury’s, they will try to give you rewards every week and every month and will offer you different schemes, which will benefit you to such an extent, that you wouldn’t wish to go to any other store. And slowly and steadily, you will start collecting nectar points which is addiction and consistent consumption. Loyalty is an emotional state and when people do cost-benefit analysis, they would be attracted more and more to Sainsbury’s only due to nectar card.
Every Loyalty card is having different policy in collecting the points and its value differs from others. Than in case of redemption is also change from each others. Tesco Clubcard is a bit different from Sainsbury’s Nectar Card. Tesco Clubcard could only get the points in Tesco and could be used only in Tesco. And you will get 2 points on every pound spend. And when you get 200 points, you qualify for £1pound redemption.
Hence every company have different policy regarding loyalty cards. And you could redeem your bill at the checkouts, once you have collected the points. And in some cases you could collect the points in one place and spend it in the other place.
4. Advantages and Disadvantages of Loyalty Program
Loyalty cards have alot of advantages and a few disadvantages. First we will have a look of Advantages of Loyalty Cards
4a. Advantages of Loyalty Program:
Loyalty Program has alot of advantages which differs from business to business. The researcher has tried to arrange them in points so that it could be easily understandable:-
Loyalty program can be useful for retaining a customer and persuade them to always shop in their store to increase their points and get benefits, which increase the customers saving and in turn shoot the profits of a company
Exclusive deals, offers and discount vouchers attract more customers. For this purpose the organisation has to give extra ordinary customer service due to which relationship of customer and company increases and will have a better fortune.
In many Airline Companies and in restaurants etc, if you are loyal customer, you would have a separate queue and will be treated in a VIP treatment, which is better than the normal customers and you will feel a kind of happiness in your mind due to extra ordinary service.
Not enough passwords or security needed. Just swap or scan and get your benefits. If lost or stolen, no worries as you could get every thing back
The data retrieved from the customers at the time of registration and every day shopping is recorded in the specific database, which stores the required data about the customer’s day to day shopping and in turn, it will drive targeted and effective marketing strategy.
Having the record of customer’s buying behaviour; the stores could have better advertising and marketing campaigns as they will know about the majority customer’s taste and buying behaviour. For example, If the superstore offer some discounts or gift vouchers to the loyal customers, so they are compelled to spend more and are also interested about frequent purchases and gaining more and more points.
Having the data and knowledge about the customer’s behaviour, and spending power, the business can offer more and more deals to specific customers and they are persuaded to spend more in their store rather than spending somewhere else. This in turn leads to increase in sales and more profits.
Loyalty cards can be useful by persuading customers to have prepaid cards and get more nectar points. So the business will get the money for the required card without being used. In this way for the interest of nectar card, a customer can get the company’s credit cards, insurances, Energy schemes like EDF, etc. And the customer will only buy those schemes to have more and more loyalty with that store only for their loyalty card.
In terms of Business Growth, there are many advantages of loyalty card programme which could be in the form of low cost advertising or Increased Return on Investment (ROI).
Loyalty cards could bring more business in the form of collaboration with other companies for their product marketing, which is useful for both customer and the company. The company will have business and will give some profit to Sainsbury and they will share the profit with the customer. In this way customer and Sainsbury both got profit on a certain scheme without the cost of Sainsbury’s. For example, if a Sainsbury’s customer joins TheAA Breakdown Recovery Scheme, there will be discounted price aswell as 2000 nectar points. This is equitant to £10pounds. So the customer is happy due to the discounted price and nectar points and Sainsbury do business without investing in it and satisfy his customer aswell. Which would lead them to have long term relationship
Loyalty cards scheme could persuade the customer towards a business and keep them away from other stores in the same business which leads to have less competition with the rivals. They can also increase person life time expenditure at a store which a person spends in their entire life at a specific business brand. For example Sainsbury’s think of every customer as £75,000 pounds which they could spend by having the business with them for life time. So if Sainsbury’s value them accordingly, they could have a very prestige business with the business and it will be a very long term relationship.
4b. Disadvantages of Loyalty Program:
The researcher has find out that Loyalty Card Scheme has a lot of advantages and some disadvantages aswell. They are given below:-
Loyalty cards persuade customers for frequent use at the specific store, which is excess of money expenditure
If the business organisation plan about marketing of loyalty cards is not well organised, so it could decrease the business growth and depreciate its value.
Increased advertisements to a specific customer is always felt bothering, and this could lead to change the thinking of the customer and considers the promotional letters as junk mail, which they will ignore it straight away without bother to check it.
Not very much secured, as there is no password or pin numbers for using it and any one can easily use it if they have found it.
The main disadvantage of the Loyalty program is that customer feels offended when you ask them about personal information for joining a certain loyalty card scheme. And they could refuse to do business with that organisation only for their data integrity.
Increased use of loyalty program can destroy the effect of marketing campaigns, which results in losing the customer’s buying power for any product and as result is not willing to buy any product at the normal prices. And are always in search of more and more rebate and still are not satisfied. And if this behaviour of discounts and redemption from customer continues, so it can suffer the business and bring a lot of losses in short-term and long-term profits.
If the loyalty scheme is used ineffectively, it can decrease the value of product or service offered by a business because the customer assumes the quality of brand based on its sale price.
Increased expenses on the loyalty cards implementation and promotion.
The marketing staff/efforts could be moved to loyalty card project from other marketing projects which could be more effective and also need more time and money to be spent on these kinds of projects to educate the staff and customers.
If the loyalty scheme is not a successful marketing strategy, it could leads to extreme failure of the business especially in terms of monetary losses.
Client’s data could be either not enough or misleading.
It’s also having chances of falling foul of Consumer Privacy ACT
5. Loyalty Cards in the World
Loyalty is a special marketing formula, which gives you awards and, therefore, persuades you to obey loyal buying behaviour. The main aim of the programme is to have regular customers loyal to an organisation and also increase the commitments with occasional customers as well as develop new customers. It many times compels the regular as well as occasional customers to come back due to loyalty program
To meet the requirements of new era customers, relationship marketing should be introduced, which would focus on customer satisfaction and retention rather than looking to the figures of sales transactions. Despite the fact that alot of percentage of customers will still remain stick to the business industries or retailers they trust who provide good quality products aswell as customer services. Therefore, the researcher have found out that, with good quality products and customer services, now we have to introduce relation marketing in the form of loyalty programs which persuades the customers in such a way that he is forced to do shop in their loyal shop only to gain some more extra points and get few more benefits from their expenditure.
There are many different kinds of loyalty programmes in the world. As nowadays it’s a very competitive business world and sometimes one feels very hard even to survive in the business and for that purpose, every business is looking for different techniques to persuade more and more loyal customers to their business. We will have a look of different countries of the world which are given below:-
United States of America. USA:
Republic of China (Taiwan)
1. United States of America. (USA)
In United States, major chains, alot of superstores and pharmacy have loyalty card schemes, which give the customer alot of benefits and are used for target marketing. These include Kroger, Albertsons, Safeway, Harris Teeter, Winn-Dixie, Giant Eagle, Ingles, Tops, CVS pharmacy. All these stores are having their own loyalty cards and some of them are having joint loyalty cards with one another or other different companies. In these superstores, if you go to checkout or go to self checkout or do business online, in any way they keep track of your shopping and personal records and then reward you whenever needed or required. In US there is some different kind of loyalty programmes aswell, which don’t benefit the customer, but its benefits will be given to some pre defined charity stores who get your benefits according to your wish. But most notably Wal-Mart which is a big chain of stores having 2.2million staff and operating business revenue of more than $435billion dollars are not having any loyalty card scheme because they think that they are already giving a much discounted price and the customers should be satisfied of that. Its subsidiary in United Kingdom by the name of ASDA is also not having loyalty card but still they are doing very well and its sales increases day by day. In the same way the music stores are also having loyalty cards which give alot of discounts. Some independent hardware stores like True Value and Ace Hardware also introduce loyalty cards to compete with major chains of stores. In the same way office retailer stores like Office Depot and Staples, Inc. Also start using the club card which is a type of loyalty card in 2005.
In the race of loyalty cards, the hotels are also not left behind and almost all the hotel chains are having their loyalty cards to take more and more care of their loyal customers and to benefit them more efficiently. These include Choice Hotels, Best Western, Marriot, Holiday Inn, Super 8 models etc. Their loyalty system is a bit different. They could either give you some points, which you could redeem in future or could get the gifts and presents. Hilton’s HHonor’s programme give you points as well as air miles at the same time so you could redeem you bill and also use your Airmiles for discounts in travelling. Also all major Airline in America have also introduced the loyalty schemes, in which you could earn points and could get redemption in tickets or get some extra miles or gifts free from the service providers. But in some cases for example Federated Department Stores, Kohl’s doesn’t have loyalty scheme because they already have direct relationship with the customers by issuing their own credit cards and they also have their stores, in which the customers of those credit card holders happily do shop. Also many retailers are not having those much resources or they are not large enough to have such schemes.
USA is a very big country and is having alot of competition among the stores. It’s a famous saying that in the presence of big fishes, the small fishes cannot survive. And if they have to survive, they have to really work hark. For this purpose, in some stores of US, the loyalty rewards are called Good Neighbour Rewards. Guests are being giving rewards on the basis of their visits and they get benefits like 5%, 10% or 15%. Additionally guests are being given additional rewards occasionally by virtue of which they are persuaded and attracted to their shops.
Bank are also not left away in this competition from others and they also have loyalty schemes including Citizens Financial Group, Capital One, PNC Financial Services and National City Corporation etc.
In Canada, there are alot of loyalty schemes and the oldest one is Canadian Tire company which give the rewards in the form of coupons, which are like money. The largest of all the loyalty programs in Canada is the Air Miles. This could be earned at more than 100 different companies and could be used in thousands of different locations. Air Miles is a sponsored program of Bank of Montreal which is been around from 25 years. Today they have over 70 different partners and represent more than 150 brands. Another large Canadian loyalty programme is the HBC Rewards/Club Z. This offers the President’s Choice. Hence if you go to Book Shops or Music Shops, Banks or departmental stores, Coffee shops or Individual shops. All businesses are having either their own loyalty card and have their own terms and conditions or are collaborated with any other card to be collected or redeem at their stores. In this way efficient marketing is taken place and the customers are treated in a very loyal way.
Loyalty program is also famous in Australia and is topped by FlyBuys, which was developed in 1994 by Wesfarmers and National Australia Bank. They have more than eight million cardholders. Its rival is Woolworths who have a loyalty card by the name of Everyday Rewards which is petrol discount card. They were having 3 million cardholders by 2009.
Looking into the retailers of Australia, Myer’s one program(departmental store), Amcal Club (pharmacy), the Priceline Club card (health, beauty, home) , BB Retail Capital Pulse Rewards Program (Virgin, Sainty, HMV, dusk, Bras & sunglasses) and Milers Retail Club (apparel) are the most common. They have more than 3 million customers.
The major banks of Australia also offer the loyalty schemes in the form of credit cards with Qantas frequent-flyer program. Its opponent is Virgin Blue which has Velocity Rewards cart and is partnered with National Australia Banks. One of the biggest reward schemes is Rewards Central which is having 1800 loyalty programs and has 289,000 associated perks. Among online Australian frequent flyer community, the largest one is frequentlyer.com.au.
4. New Zealand
There are alot of loyalty programs in New Zealand but the largest among them is Fly Buys. Some other includes AA Rewards card, New Zealand Automobile Association, Once Card and Countdown supermarket card etc.
In 2000, the loyalty program was launched in Germany called PayBack which is now the largest loyalty card company. According to GfK in 2007, 61% Germans have PayBack card. Than the second comprises of 42% Called Happy Digits. And on the third number is Shell Club Smart. Also the two cards join together namely DeutshlandCards and Arvato in 2009 and are now having more than 5 million active users.
In Switzerland, loyalty card is also famous in two main supermarket chains, Coop prominent and Migros which use The M-Cumulus card used in Migros supermarkets, libraries, DVD shops, book shops, sports good and other retailers. The Coop Supercard can be used in variety of different associated stores. The pioneer of the Switzerland market was a German-based Webiles which claims to be the first online bonus program, now it offers for 70 different online stores.
In Italy, Loyalty program is also popular. There are two main supermarket chains, Il Gigante and Esselunga. Other businesses are also having cards such as Interio which is a furniture distributor etc.
In Hungary there are also loyalty reward schemes. Among them there is a coalition of two stores namely Multipoint and SuperShop. Its partners are OMV, OBI, Spar, Burger King, Photo hall etc.
In Spain there is also a loyalty reward called VOILA Hotel Rewards which was launched in 2008 with Husa Plus a partner program of Husa Hotels. It is now extended to around 145 different hotels in Spain
10. Hong Kong
There are many different loyalty cards offered in Hong Kong. Among them Octopus Reward was the most famo