Loyalty programmes are so misunderstood

Loyalty programmes have been around for many years, with the Tesco Clubcard launching way back in 1994, but they still remain a greatly misunderstood tool.

Research from YouGov released this week highlighted this very fact as it trumpted its key finding under the headline ‘Loyalty card schemes not creating wide-spread customer loyalty for retailers’.

The survey found that only 17% of shoppers choose where to shop based on their participation in loyatly card schemes. At first sight this appears to be a very small number and casts real doubt on the validity of such schemes.
But this could be a mistake because all loyatly programmes are not made the same. If well designed then they are a tool to reward a retailers’ most loyal shoppers and not those who are promiscuous or deal-driven.

The reality is that retailers do not typically have many truly loyal customers (if any, for that matter). Many people would change shop for a few pence less price. So if loyalty cards are able to keep these most loyal shoppers coming back to a specific retailer’s stores then they have achieved their primary objective.

At Tesco one of the most interesting insights from analysis of the Clubcard (undertaken by dunnhumby) was that the most loyal shoppers account for a massive 50% to 60% of its profits and that these people represent a mere 20% of Tesco’s total customer base.

This figure is pretty close to the 17% quoted by YouGov as the number of shoppers who choose where to shop based on their participation in loyatly card schemes. So if Tesco has sucessfully targeted its 20% most loyal customers, as its primary aim is, and it retains 17% of them then its Clubcard is achieving exactly what it is designed for.

For other loyalty schemes not focused on loyal customers then it is probably a whole different result. There is no doubt, poorly designed programmes are what have made loyalty schemes so misunderstood.