Has Sainsbury’s sounded the death knell for coalition loyalty schemes?

This week Sainsbury’s implemented a change to its Nectar scheme, meaning shoppers who collect points will now have to spend twice as much to earn the same number of points.

This has sparked a wave of speculation that card-based coalition loyalty schemes which encompass more than one company - though currently delivering value for retailers who invest big - are ultimately destined to become obsolete for consumers.

There is no doubt that an elevated level of cost-consciousness has stuck with consumers since the peak of the recession, keeping a lid on household spending, which has remained broadly flat since 2007.

This sense of permanent austerity has led to an increased willingness to shop around to get the best value; a ‘disloyalty effect’ which means today’s supermarket shoppers are more promiscuous than ever before. The weekly ‘big shop’ now often means visiting more than one supermarket, probably including a discounter.

Carrying around a second loyalty card, or even a third and a fourth if you like to shop around, is not a convenient option for consumers, and increasingly these shoppers are forgetting to use them.

Dilute the value of these schemes, as Sainsbury’s has just done, and shoppers may start to question whether it’s worth bothering with at all.

Instant gratification

Customers increasingly demand good deals at the point of purchase. Accumulating points, one by one, waiting for a monthly or annual reward, will seem insignificant when you can strike a good bargain right there and then at Aldi or Lidl.

In tougher times, transparent, straightforward and tangible monetary rewards are all the more appealing to customers. Brands that mask their loyalty proposition via point collection or prize-based gamification risk misleading their customers on what holds the truest value, and as such risk their custom altogether.

As long as loyalty schemes continue to dilute, instant gratification through deals with real perceived monetary value will outweigh the smoke and mirrors of point collection.

The alternative

Digital loyalty apps, like the one pioneered by Starbucks, could prove a compelling alternative for retailers. Starbucks has made real headway with consumers and it will be interesting to see if other big schemes like Nectar choose a different tack by paring back ‘always on’ loyalty points for all shoppers, in favour of more personalised, targeted offers.

From our perspective, we’re seeing a growing interest from retailers in our own credit and debit card-linked cashback proposition, which allows retailers to reward loyalty using the payment cards that customers already use every day. 

These shoppers rack up cashback at multiple retailers – both online and on the high street – but it accumulates in a single place – a one-size-fits-all. The retailer payoff is huge amounts of data about shoppers’ spending habits, which can be used to target them with relevant, dynamic personalised offers.

In a fiercely competitive retail landscape where digital innovation is increasingly vital to ensuring long-term success, the priority for retailers has to be turning previously anonymous consumers into registered customers, using the data that is generated when they shop to help drive sales through personalisation, without devaluing their brand by blanket ‘always-on’ discounting.

Finally, this loyalty-less retail world can of course also be a great leveller – an opportunity for agile businesses to steal a march on their bigger competitors by working harder and smarter to truly get to know their customers.

• Andy Oldham is managing director at Quidco