Loyalty schemes

Do you need a loyalty card scheme to engender loyalty?

No. Loyalty cards themselves do not necessarily make customers more loyal. A recent Verdict report showed loyalty cards come low down in the pecking order when it comes to drivers of loyalty – with price, convenience and quality, as well as 18 other factors, inspiring more loyalty. Waitrose, for example, does not have a loyalty scheme, yet Verdict says it has one of the most loyal followings in the grocery sector.

So why have a loyalty scheme?

In some cases schemes can indeed engender loyalty, but most retailers find the biggest advantage is the power of the data, which filters through into their marketing strategy.

This data enables retailers to more successfully satisfy their customers, and Verdict analyst Neil Saunders says it is this that is the real driver of loyalty, not the card.

What different types are there?

Retailers can run schemes themselves, like HMV, Tesco and Boots do, or they can choose to join group schemes like Nectar, which DIY chain Homebase joined last month. Sainsbury’s, Argos, Comet and Next are also signed up.

The advantages of joining this kind of scheme are that the brand and infrastructure are already set up, so it is cheaper and easier than creating a scheme from scratch.

But not everyone is convinced by Nectar. “Nectar hasn’t taken off in the way Tesco’s Clubcard has,” says Saunders. “The rewards aren’t clear, and the data insights are not as good.” However, 50 per cent of UK households own a Nectar card.

Which retailers do it well?

Tesco Clubcard, launched in 1995, is a world-leading example of a loyalty scheme, and has been one of the planks of Tesco’s success in recent years due to its formidable use of data.

Shoppers get one point for every £1, and 15 million customers have signed up – one in every two UK households. Last month the grocer ploughed £150m into relaunching it.

The Boots Advantage card, launched in 1997, is also a success, largely down to it being one of the most generous schemes in the market, with shoppers obtaining four points for every £1 spent. It has 16.4 million members.

Which retailers have failed in the area?

The Safeway ABC card was scrapped five years after its launch, the grocer preferring to cut prices instead. Asda trialled a card in the 1990s but binned it soon after, claiming that such schemes cost too much and give little in return. Somerfield discontinued its card in 2006.