In my last post I explained, how, counter-intuitively, and according to Tesco, the key purpose of a loyalty programme is not loyalty.
Instead, the purpose should be to know who your customers are, be able to recognise them, understand them, reward them and market to or service them differentially.
It follows that the right type of programme is one that enables and does this efficiently and effectively.
Loyalty programmes, like houses, come in all shapes and size. There are multi-channel coalition programmes like Nectar and PAYBACK. Online affiliate coalitions like Quidco and Top Cashback. Single brand programmes like Boots Advantage or Pets at Home VIP Club. Programmes that incorporate currencies like Tesco Clubcard, Avios or Virgin . Many are free to join and some you pay separately for like Amazon Prime or Go Outdoors.
We’ve helped many businesses with various aspects of their loyalty programme design and optimisation and would suggest that three key requirements are :
1. The customer has to sign up for the programme and give their permission to participate
2. Customers need to get something worthwhile in return for their participation
3. The programme should reward desired behaviours and these behaviours should be measurable
Good programme design should deliver these requirements in ways that align with the core brand proposition, make it simple and easy for customers to join and participate and for businesses to set up and operationalise.
Brands need to consider whether they want to be a programme owner like Sainsburys (owner of Nectar), Tesco or Amazon or a programme participant, for example, like British Airways within Avios or most brands within Quidco. Some brands might also want to be the programme operator, others to have someone do it for them.
Sharing a programme with other brands might be a great way of acquiring new prospects, pooling costs and creating value for customers. Solus brand programmes are typically more expensive but don’t need to share with others and might be able to offset costs in other ways eg via suppliers or distribution partners like P&G, Nestle and many other fmcg participants in Tesco Clubcard and Amex, Hilton and Avis who are major buyers and distributors of Avios points.
In some cases the programme might be seen as a marketing cost in others it might be a strategic asset that has its own P&L and is separately monetisable. Aeroplan, the frequent flyer programme of Air Canada lent money to its parent in order to keep it afloat before it was sold off and floated as a separate entity.
Whichever operating or business model is chosen, it will require people, technology and process know how. Much can be automated. Like any good house, things should start with a plan and it probably helps to have an architect.