Loyalty schemes should create happy customers and provide valuable insights into shopping habits, but are they worth it?

With the annual operating cost of Tesco Clubcard estimated at £500m and Sainsbury’s announcing a reduction in Nectar points from April, it seems a good time to ask the question ‘is loyalty worth the cost?’

While research has indicated 95% of UK adults belong to one or more schemes, 8 million now say they use loyalty cards less than they did a year ago and the more cynical have come to regard them as ‘spies in the wallet’.

Savvy shoppers are starting to wonder if these cards are of greater use to retailers than consumers and say they prefer the cheaper prices at Aldi, Lidl and Asda or are turning to other reward schemes – Santander’s 123 bank account is a good example.

So, after nearly 20 years, are we falling out of love with loyalty schemes?

Well maybe, although Morrisons says it has recorded a strong uptake of its new Match & More card. But, taking a different tack, Waitrose withdrew its offer of a free coffee when it found shoppers forgot to spend as well as sup. Clubcard, Nectar and the Boots Advantage Card still have between 16 to 19 million active users and Boots says that 60% of purchases are linked to the card, with users spending 60% more than non-users.

Increasingly efficient data analytics have revolutionised retail, enabling greater sophistication, personalisation and more effective local marketing.

This better use of customer insight can improve margins and reduce spend on less targeted marketing, while the sale of customer behavioural data to FMCG businesses also helps recoup costs.

Supporters believe that loyalty is a ‘thank you’ business. Recognition that the customer is valued and rewarded with relevant and meaningful offers that demonstrate an understanding of his or her brand preferences, and that this will lead to long-term and sustainable repeat business. They claim that detractors come at it from a short-term payback point of view because they are not consumer led.

However, at a recent Clarity event one chairman said that consumers now take these schemes for granted and questioned whether they still generate loyalty or just market “noise”.

Also at the event, a leading chief marketing officer felt that in order to drive real brand loyalty, retailers need to create an emotional connection with customers and this is where greater ability to personalise offers will be key.

Boots appears to understand this well – the Advantage Card is one of the most popular and seems to be genuinely valued by members who enjoy local events as well as relevant offers, most of which are linked to the retailer’s own high-margin brands, thereby offering high perceived value.

This is critical because Boots is unable to compete consistently on price with supermarkets and value players.

However, everyone we spoke to at the event agreed that no matter how good it is, a loyalty scheme cannot sustain a poor customer proposition, although it can prop it up in the short term.

Unless the right product mix and service elements are in place, customers will desert in favour of better range, quality and availability elsewhere.

  • Fran Minogue, managing partner, Clarity