As cash-strapped shoppers chase the best deals and lowest prices some say loyalty has gone out the window. Yet, as Joanna Perry finds, the right loyalty schemes can still be useful to retailers

Five major retailers either launched or relaunched loyalty schemes in May alone. At a time when industry analysts have said price, convenience and quality are all more important to consumers than a loyalty scheme, is this madness, or is there method to this thinking?

HMV head of customer relationship management Matt Button has been heavily involved with the launch of the entertainment retailer’s pureHMV reward scheme. He says the timing was right to roll it out as the scheme offers unique entertainment-themed rewards that money can’t buy.

Button explains: “We wanted to be able to further understand our customers across all channels and to forge a stronger relationship with them.” He adds that while HMV learnt from sister chain Waterstone’s loyalty scheme, the two are different.

He thinks the reason why the HMV scheme will work despite the economic situation is because it will offer rewards that consumers will value rather than simply getting money off products.

Button says: “Anyone can offer a discount – but does that really always help build loyalty? PureHMV is unique in the market and it could only come from HMV, as we have such strong bonds with record labels, film studios and games publishers.”

Homebase marketing and strategy director Ajay Kavan talks about the DIY chain’s recent move to join the Nectar loyalty scheme and move away from its own Spend & Save programme, which it had run for about 18 years.

Kavan says: “It is a generalisation to say that in recessionary environments customers are more interested in promotions and price – but we do believe we have to keep working on our customer proposition and Nectar is one element of that.”

He adds that whatever the economic environment, there is a base level of loyalty that customers will display, and so retailers can always use loyalty schemes to try to benefit more than their competitors from whatever level of loyalty exists.

Homebase says that it joined the Nectar scheme because that’s what its customers wanted. The retailer’s customers, and even customers who were prolific users of the Spend & Save scheme, told Homebase they felt Nectar adds value. Kavan explains customers perceived Nectar points as having a high value and also liked the simplicity of the loyalty programme.

About 4.2 million customers had used Homebase’s Spend & Save card in its last year of existence, compared with 10.5 million who have been active recently with a Nectar card. Homebase’s initial priority has been to convert its Spend & Save cardholders to Nectar cardholders, but it also expects the scheme to drive incremental spend.

With the costs of being part of Nectar similar to that which was spent on Spend & Save, Kavan says the move is a win-win situation. “We have been able to do something that is genuinely better for our customers, the company and our 17,000 staff.” He adds that as staff also find Nectar easy to understand, they are able to represent it better to customers.

As well as encouraging customers to buy more, Nectar will allow Homebase to do more with direct marketing and also give it access to greater customer insight. Kavan says that a good loyalty scheme will see retailers taking advantage of all these three facets.

And for HMV the customer insight generated through its scheme is also crucial at a time when it faces a vastly different market to just a few years ago. Button explains: “The scheme enables us to better understand the tastes and preferences of our most valuable customers, whether they shop in-store, online or both. In what is an increasingly multichannel world – where media is more diffused and the mass market is gradually being replaced by informed one-to-one customer relationships – personalised and engaging direct marketing is likely to play a more critical role than ever. PureHMV will be at the very heart of this process for us.

“We will use insights wherever we can to improve the service we provide to customers and to make those relationships valued and profitable.”

Meanwhile, Kavan thinks that Homebase will generate more insight from Nectar than its previous scheme because it is more valued by customers and so they are likely to use the card for a higher proportion of their transactions.

“Cards with real value get swiped a lot,” he says, explaining that where any retailer’s loyalty card has a high penetration rate – that is where cardholders use them at a high level of transactions – then the insight that can be derived from the data is significantly improved.

Within a month of launching on Nectar, Homebase had registered 2 million swipes of the cards in its stores, which it believes shows the strong customer support the scheme is receiving.

HMV says it is too early to talk about the sign-up rates that it has achieved, though it is on course to achieve the volume and revenue targets it has set. The success that its sister retailer Waterstone’s has seen – nearly doubling its three-year target with the number of customers it has signed to its scheme – shows the traction that is possible.

The one development that could become a spanner in the works for all the recently launched schemes is the impending arrival of Barclaycard’s loyalty programme, which will go live within the next 10 months.

Barclaycard director of payment innovations Dan Salmons says the scheme will have many firsts. “It will be the most widely available – at tens of thousands of smaller retailers – and provides pounds not points.” The scheme will also work across channels, so customers are rewarded whether they purchase from stores or online.

Welcome Real-time chief executive Francois Dutray – who is providing the IT infrastructure to run Barclaycard’s system – says it will work without slowing down transactions in stores and will use a simple interface to connect to retailers’ own systems.

Shoppers may have less money to spend, but their wallets still bulge with all the loyalty cards they carry. Whatever your view on the relative loyalty of customers right now, there is too much going on to ignore the trend.

Latest loyalty launches

Tesco has seen more than 1 million Clubcard members take advantage of its double-value voucher offer since it relaunched the scheme in May. It has invested £150m in the relaunch with the intent of attracting 1 million more customers to sign up.

Barclaycard is sticking to its timeline of March next year to have its multi-retailer loyalty scheme up and running. It has not yet announced any big-name retailers that will participate in the scheme, but will offer those that do access to a ready-made credit cardholder base of 12 million consumers.

Play.com launched a credit card in partnership with MBNA in May that offers customers reward points for use both on and off the site. The points can be redeemed for 8 million products.

Marks & Spencer also chose May as the month to launch its own take on loyalty – with the M&S Premium Club for customers who have a M&S Money credit card. The scheme costs £10 a month to join, but members get 3 per cent cashback on shopping as well as worldwide travel insurance and free hot drinks in its cafe.

Waterstone’s has signed up 2.8 million customers to its reward scheme, more than its goal of 1.5 million within three years. It claims the loyalty scheme has contributed to its growing high street market share and the 60 per cent growth in sales it has witnessed on its website over its most recent financial year.

Homebase launched as the newest recruit to the Nectar scheme about seven weeks ago, closing its previous Spend & Save scheme at the same time. More than 50 per cent of UK households have a Nectar card and 10.5 million of them had been active in the three months prior to Homebase launching on the scheme.

HMV launched its pureHMV reward scheme, which costs £3 to join, also in May, after successful trials at stores in the West Midlands and East Anglia that began in October last year. Rewards include a Mean Streets poster signed by director Martin Scorsese and a signed Paul McCartney CD.