The Hanifin Loyalty Blog suggests we’ve reached a tipping point with loyalty rewards. Because there are so many loyalty programs that take too long to accumulate points, shoppers are devaluing them.
While this may be true with some retailers, such as those on the shopper’s margin, it is not true for all. Here are some reasons why:
1. There is a big difference between frequently and infrequently used retailers. For the average shopper, the utility of points owned at a bookstore pales compared to points earned at a grocery or big box retailer. The same is true for points earned on, say, American Express.
2. There is a big difference in value of points to regular versus irregular shoppers. More regular or “loyal” shoppers will more quickly accumulate points and have more reasons to redeem them.
3. There is a big difference between leaders and also-rans. Consider the strategic benefit Tesco derives as contrasted with a loyalty program that simply presents two-tiered pricing.
Brian Woolf of the Retail Strategy Center describes how Tesco defied conventional wisdom and doubled the rate at which shoppers earned points. Analysts estimated a drop in margins due to higher costs. Instead, Tesco margins and sales actually increased.
Tesco has (1) become a frequently used retailer (adding stores, adding e-commerce, and adding department store items and banking services); (2) differentiated how it rewards its most valuable shoppers; and (3) increased the distance between itself and other retailers.
From Tesco’s Half Year Report in October: “whilst loyalty has been declining across the industry as a whole, Tesco has…widened the gap with its key competitors.” And “Tesco enjoys the highest level of customer loyalty among the major supermarkets…Despite low levels of industry like-for-like growth, Tesco grew sales faster than the market as a whole.”
Successful retailers know when customers choose which company to do business with, rewards just don’t matter like they used to. The size and fit must be right for the shopper.