Loyalty has once again become a marketing buzzword, following a golden era in the mid-90s. Today's schemes are offering rewards in travel and leisure, but will these incentives be enough to restore the popularity of the loyalty card?
In the past four weeks, loyalty has been big news: Marks & Spencer announced plans to launch its first ever loyalty scheme; Tesco seized the Air Miles rewards brand from Sainsbury's; and Sainsbury's began talks with the Air Miles co-founder Keith Mills to launch a new scheme backed by a [pounds sterling]20m consumer marketing drive. Today (Wednesday), Somerfield announces a scheme, called Saver-card, that offers cash instead of points.
There is even talk of a groundbreaking loyalty scheme collaboration between Sainsbury's, Boots and Marks & Spencer, in an attempt to match the might of Tesco's loyalty programme.
This is the resurgence of a marketing tool that has experienced highs and lows since it emerged in the 80s. Research at the 1996 Marketing Forum revealed that 56% of senior marketers planned to spend considerably more on loyalty schemes in 1997 than the previous year.
But as consumers' wallets began to bulge with an array of largely unused plastic, marketers became more sceptical. New concepts such as focus groups, brand experience and the internet replaced loyalty schemes.
In May 2000, Safeway axed the ABC loyalty card -- the third best-known scheme in 1997, according to Carlson Loyalty Monitor. The decision signalled a nadir in the industry's confidence in the loyalty concept.
So what has triggered 2002's renaissance in loyalty schemes? A significant focus on travel and leisure appears to be the emotional key.
Tesco is rubbing its hands with glee at getting Air Miles. Sources reveal that competing and similarly high-profile travel incentives are at the heart of the budding rival schemes.
But why do retailers believe travel is so important to the future of loyalty?
"Part of the reason is history," says Steve Grout, managing director of Carlson London, a specialist in frequent- flyer and similar programmes.
"Travel was there at the birth of the modern loyalty scheme. In 1980, American Airlines launched Advantage, the world's first frequent-flyer scheme, which broke new ground by the fact that it was run electronically."
The UK took longer to catch on to the potent combination of travel and loyalty, but when it did, British marketers were quick to spot the mutual interest of retailers.
When Keith Mills founded Air Miles in the late-80s, he recognised it was a great way for British Airways to shift nine million empty off-peak seats, without resorting to brand-damaging rock-bottom prices. He also realised those free flights could be a powerful loyalty motivator for retailers. Sainsbury's, NatWest and Shell bought into Air Miles and based their loyalty schemes around them. In turn, BA filled more seats.
"In terms of one-off incentives for customers, the most effective is undoubtedly a large amount of cash, followed by a car," says Grout. "But when it comes to ongoing incentive schemes, holidays and travel are the best. We have tested this many times and nine out often times travel comes out on top," says Grout.
One leading loyalty consultant to large UK retailers says: "The problem with cash-based programmes is that once consumers have zero balance, the attraction subsides. If someone comes in with a better offer, people simply switch. But saving up for travel encourages people to set a goal. Going on holiday is an emotional purchase, a treat. So behaviour really does change and this is the holy grail for a successful loyalty scheme."
Value for retailers
"Travel has a very high perceived value among consumers," agrees Terry Hunt, chairman of ehsrealtime and a key influence on Tesco's Clubcard since its inception. "And yet retailers can buy it surprisingly cheaply from the travel companies that rely on selling all their seats at different pricing levels -- in other words yield management. …