Loyalty programs – what is the point?

Michael Baker
February 4, 2014
The Age
In an era of instant gratification, waiting for rewards seems outdated.
Are loyalty programs still relevant?
Loyalty: “a strong feeling of support or allegiance” (Oxford English Dictionary). Based on that definition, most retailer loyalty programs are a misnomer.
Mark Price, managing director of Waitrose, one of Britain’s largest supermarket chains, happens to agree. He thinks loyalty programs based on awarding points for purchases are no longer relevant to the 21st-century consumer.
Price has a point. Gen “Now” wants instant gratification, not some vague promise of a reward sometime in the future. So Waitrose is doing something simple but radical – instead of offering points rewards, the Waitrose loyalty card, myWaitrose, entitles holders to a free cup of coffee on the way into the store and a free newspaper on the way out.
It has made Waitrose Britain’s second-largest purveyor of coffee after McDonalds, a feat that would not bring a lot of pleasure to the nation’s specialty coffee chains.
For Waitrose customers though, the gesture is welcoming, the gratification immediate, and the business impact tangible. Along with the free coffee and newspaper, myWaitrose offers discounts on selected items in the store. Mr Price believes the loyalty program made a strong contribution to recent strong same-store sales growth for the chain.
In particular, he thinks the coffee helps engender genuine loyalty among his customers. This is in contrast to points-based programs that are purely transactional – the more the customer buys the more points he or she accumulates. In that case the link between transaction and reward is not clear and the shopper is unlikely to develop any deep affinity for the retailer.
This is particularly the case when the length of time between redemption and reward is long, or if the reward itself turns out to be of dubious value.
Anyone who has tried to redeem frequent flyer points will know how airlines say “thank you”: you can rarely get the seats you want on the flights you want and you still have to pay hefty taxes. You are treated like a second-class citizen instead of a loyal customer.
In some instances, loyalty programs act like a kind of “disloyalty program” by causing let-down customers to seek alternatives and use the programs less.
Yet this is still the way most loyalty programs operate.
If Mark Price is right, the time may be ripe for points-based loyalty programs to be quietly phased out and replaced with concepts that will speak more directly and sincerely to Gen Y and Gen Z’s “what’s in it for me right now?” mindset.
It isn’t clear that a lot of other retailers have got the message. Direct discounts for loyalty card-holders on key store items are a step in the right direction, as, for example, Woolworths Everyday Rewards and Coles FlyBuys cards now offer. But the warm and fuzzy feeling is still missing. It is still transactions-based and falls short of telling customers that the supermarkets really love and value them.
Some supermarkets, mostly overseas, do a wonderful job handing out high-value treats to shoppers as they browse the store. Good wine shops host free tastings. But even though the samples are free, the clear objective of the retailer is usually direct and obvious: it’s to sell the product being sampled. Sure it enhances the shopping experience, but it still doesn’t qualify as a feel-good reward for loyalty.
Interestingly, businesses other than retail do better at following the Waitrose model. When a client visits a consultant, a legal adviser or an accountant, an offer of coffee or tea is often the first thing on the agenda.
Retailers need to think about what kind of gesture they can offer their customers for loyalty that will resonate. It may not be coffee. (Herbal tea maybe? Bottled water?)
Like it or not, they are now operating in a world where everyone expects not just to be a winner but to get the prize immediately. It may not be the kind of expectation retailers want to cultivate and it may even be a sign of a society gone off the rails. But it doesn’t cost much relative to the potential sales gains, and if Waitrose is anything to go by it may just be a material competitive weapon.
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