Swimming the Channel

David Murphy

Andy Wood, Managing Director of TotalDM, explains why mobile should be an essential element of any multichannel loyalty scheme

Andy_wood_manadirect_copySince the early 90s, the cult of customer loyalty has gone from strength to strength.  For many industries, winning new customers occupies far fewer marketing brain cells than keeping the ones you already have, and developing their value to your organisation.

Since Bain & Cos claim that a 5% increase in loyalty can lead to a 25-85% increase in profitability, the attraction of customer loyalty as an idea has permeated the marketing community. Yet just because a company manages to keep customers, that does not mean that it is also capable of developing the value of those customers. 

Just after the turn of the millennium, many pundits started claiming that loyalty schemes might be falling out of fashion. Safeway cancelled its scheme. Sainsbury decided to join a coalition scheme rather than run its own. However, the gloomsters and doomsters were denied satisfaction. There are now more loyalty schemes in operation in all sectors (but especially retail) and the number continues to grow.  Nevertheless, doubts still remain with Vodafone and Barclaycard leaving the Nectar consortium loyalty scheme in quick succession recently.

The popularity of loyalty schemes is unlikely to diminish, for one very good reason.  According to research from Group 1 Software, the world is becoming generally more mobile and less loyal. Back in 2003, the all-industries average customer defection rate was 16.9% per annum. Now, the annual average has risen to 19.1%.  No wonder marketers are becoming obsessed with retention and loyalty initiatives.

Why make loyalty multi-channel?

This latter point brings us neatly to the main theme of a research report that we recently commissioned from MarketingUK, which surveyed UK top 100 company marketers about the importance of managing loyalty initiatives across different channels to the customer.  The theory of Customer Relationship Management (CRM) by definition embraces the importance of channel management.  It is usually defined as managing relationships with customers efficiently and consistently across all channels to improve satisfaction, retention and profits. Therefore loyalty initiatives that do not embrace all channels to the customer are in danger of - at best - dissipating their appeal and effect, or - at worst - making the customer think that the scheme is mere window-dressing.  What is the consumer to think of an enquiry centre that cannot use their loyalty registration to call up a profile of recent purchasing?  Why should the consumer favour an organisation that allows points redemption in-store but not online?

Not that we should expect every single loyalty scheme to operate across all channels, however.  Channel mix is determined by audience preferences. For instance, only a tiny proportion of some vendors audiences have Web access at home (remember that only half the population does). Equally, there are other audiences that have no interest in a high street presence and want to deal exclusively by remote media such as phone and internet. Yet among the industries studied, such companies are, and will remain, in the minority.  Most large companies need to cover all channels to satisfy the majority of their customers.

If there is any media combination that is likely to be prevalent in the near future, it is the axis between the retail store, the post and the mobile phone.  Post and mobile will be dominant, rather than internet, because they are always on (the mobile lives in most users pockets) and have near-universal reach.  Everyone has a letterbox, and 83% of the adult population have a mobile.

Looking at the big picture, our research, completed in September 2005, has revealed that just under a third of those companies that have loyalty schemes treat the customer consistently across all channels mail, phone, Web, SMS and face-to-face.  This means that conversely two thirds of UK top companies are potentially undermining the value and return on investment from their loyalty schemes.

Above average scores for multi-channel loyalty schemes come from credit card issuers, retailers and travel companies. Credit card and retail are two sectors that pioneered the use of loyalty schemes in general, and points-based rewards schemes in particular.  It is particularly important for retail to be at the forefront of multi-channel loyalty development, given that most online retailing activity is now owned by traditional retailers. Online now represents some 8-10% of retail sales, and is mainly made up of online options from high street outlets rather than pureplays. In parallel, the credit card industry - including issuing banks - has been busy developing its online marketing and, as importantly, its online customer services.

There are plenty of examples of multi-media loyalty schemes embracing the mobile channel.  Phone operator Orange has teamed up with Odeon cinemas to allow Orange users to claim two-for-one tickets via a text message.  Heineken boosted the redemption rate of its coupons by 80 per cent when it sent out mobile coupons, and similarly, Blockbuster's redemption rates rose when it put two-for-one offers on mobiles. Waitrose is to encourage consumers back into the kitchen by texting recipes to their mobiles. And supermarket Jacksons, a subsidiary of Sainsbury's, is pioneering a mobile service at stores in and around Hull, which sends barcode-based vouchers to shoppers' mobile phones via text message.

Stark polarity

In conclusion, there is a stark polarity between the best- and worst-performing industry sectors when it comes to managing loyalty schemes consistently across mail, phone, web, mobile and face-to-face. Sectors that have either become very data-rich (e.g. retail) or that are desperate for methods to encourage usage (e.g. credit card issuers), or whose markets have been disrupted and disintermediated by the Web (e.g. travel) are paying the most attention to multi-channel loyalty activities. And as alternative channels achieve accelerating traction, by the end of the decade, we predict that an overall majority of loyalty schemes will operate consistently across all channels to the customer, fulfilling the basic tenets of CRM.


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