Why loyalty programmes are the be-all-and-end-all of customer retention

In an age when competition between businesses is at its most fierce, maintaining a consistent customer base is one the key pillars of success.

Simply put: customer retention is king. Loyal, repeat customers will not only spend more per transaction, they are also considerably more likely to try new products and share positive brand experiences with others.

Over the last 50 years, the general public’s quality of life has improved exponentially – and so has its disposable income. With greater spending power comes higher expectations around the quality of both services and products.

Globalisation has also created fiercely competitive markets in all economic sectors – how then does a brand differentiate itself from its rivals?

First pioneered in the US in the middle of the 20th century, loyalty programmes have now become a tried-and-tested means of both retaining customers and rewarding their loyalty with discounts, perks and premium experiences.

Here Marketing Beat breaks down three popular types of loyalty programmes; points-based, tier-based and values-based, to find out what makes them such successful tools in a brand’s marketing arsenal.

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Points-based loyalty programmes

Points-based loyalty programmes are the by far the most common and with good reason – they are simple, easy-to-use and highly effective.

Most major brands will use a variation of the points-based programme due to its innate simplicity – this is the type that most costumers will be familiar with from the get-go, so why complicate matters?

Two of the UK’s oldest and most successful loyalty programmes are unsurprisingly points-based, Tesco’s Clubcard and Boots’ Advantage Card. Both introduced in the mid-90s, the schemes currently boast combined membership figures of close to 35 million.

Within three years of being launched, Clubcard enabled Tesco to effectively double its market share and gave the grocer seemingly unlimited access to highly valuable raw customer data, allowing it to tailor products and services to the specific wants of its members. The top-tier grocery range Tesco Finest was introduced as a direct result of Clubcard data.

Boots has also pioneered the use of customer data to fundamentally retarget its products and services. Advantage Card data allowed the high street chemist to confirm that the vast majority of its clientele were 20-45 year-old women, which in turn has led to a better, more personalised experience for its customers.

Commenting on the scheme, Boots director of customer marketing, Hollie McLellan told Marketing Beat: “The Advantage Card allows us to come up with tailored offers and promotions. We’re only able to do that because our members give us access to their data, to let us know what they like buying.

“It means that we’re able to tailor the promotions we give them rather than just giving them blanket offers, when they walk in a store. In turn, it drives that retention, and therefore it drives sales for the business as well.”

McLellan also pointed to the scheme’s importance in building direct, personal relationships with consumers: “For customer engagement it plays a big role.

It’s the one of the most loved loyalty schemes in the UK, we’ve got over 15 million active card members, and it’s also one of the most generous schemes – we give away four points for every pound that you spend.

“For us as a mechanic, we’re trying to build a relationship with the customer, and by customers getting their Advantage Card at the start, it helps us to establish that relationship.”

READ MORE: Boots to celebrate 25th anniversary of Advantage Card with exclusive member event

Tier-based loyalty programmes

Particularly popular with the travel and hospitality sectors, tier-based loyalty programmes are – for the most part – associated with premium experiences.

Much like points-based programmes, customers can accumulate points in accordance with the purchases they make. However, once they reach a certain threshold, they are able to gain access to a higher level (or tier) of membership, which gives them exclusive perks and benefits not available to other members.

In such highly competitive sectors as travel and hospitality, offering loyal customers worthwhile rewards and perks is paramount to retaining their business – premium customers expect premium service.

This is exactly why a tier-based loyalty programmes is espoused by multinational hospitality group IHG Hotels. Hospitality is after all quite a personal experience, you are hosted and taken care of by others – and with such bespoke loyalty programmes – businesses like IHG can offer repeat customers truly personal and memorable experiences.

Highlighting the importance of tier-based programmes to the industry, IHG senior vice-president of global loyalty and partnerships, Heather Balsley said: “Over the last few years, we’ve seen how travel demand has shifted and evolved.

“As a result, tiered loyalty programs are essential to our business because they offer more benefits, increase brand awareness among travellers and help build meaningful relationships with new and returning customers.

Offering customers tailored rewards according to their membership tier is also key in drawing them in to a closer relationship with the brand, as Balsley explains: “We believe in the power of being cared for. IHG One Rewards will connect our guests to any of our 17 brands in our portfolio.

“IHG believes that we’re real people taking care of real people, and when people are taken care of, they feel free to show up as themselves and live their best life.

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Values-based loyalty programmes

As customers grow increasingly conscious of ecological and social issues, they are also increasingly looking for the brands they use to have a values-led approach, rather than being solely motivated by profit.

These kinds of programmes allow businesses to build deeper personal connections with their customers, based not on promotions or membership tiers, but around a shared set of values.

Usually, brands will opt for charity or NGO partnerships, allowing their customers to support causes or organisations that are important to them and creating an added incentive for loyalty.

Pets at Home’s highly popular VIP Cub is a glowing testament for the extensive demand which exists for this type of programme. Despite launching just ten years ago, the scheme now boasts 7 million members.

Pets at Home’s head of CRM, Jessica Ross tells Marketing Beat: “With over 7 million active members, and over 70% of our transactions coming from our members, we are in a strong position to understand our pet owners, their pets and their relationship with us.

“In turn, we can use this data to serve personalised offers and experiences that drive both engagement and retention,” she says.

“The advice, guidance and offers we provide are driven by personalisation. We have prioritised capturing key data points up front to enable this level of personalisation and the fact that we have pet information for 98% of our members reflects how important personalisation is to the success of the club, and the richer ongoing relationship it facilitates.”

It is also crucial that a business’ loyalty programme reflects the organisation’s wider values, and the VIP Club certainly does this, generating donations to local and national animal charities selected by the user every time they use their card.

Highlighting the importance of these values to the retailer, Ross says the loyalty programme is “not just an extension of our brand experience, but a fundamental part of it”.

“The majority of our customer are VIP club members so it’s imperative that we reflect the values of the brand. Integrating a way to give back to pets that are less fortunate has always been a foundational part of the club.”

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Ultimately, customers want to be treated as valuable individuals, to feel like they matter to the brands they choose to do business with.

As loyalty programmes evolve over time to reflect customer want and needs, it is their ability to draw consumers into close, personal relationship with businesses that assures that they will remain an invaluable aspect of marketing for decades to come.

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