Studies across a number of industries have revealed that the cost of keeping an existing customer is around 10% of the cost of acquiring a new one. So, it is good practice to budget for loyalty schemes. In recent years the maxim ‘Cash is King’ has held true as consumers valued every penny during the recession and responded well to cash-based loyalty schemes. More recently, the upcoming European Parliament cap on credit and debit card transaction fees, which could mean the death of cashback credit cards, has prompted various industry sectors to review how best to improve customer loyalty, rethink their cashback schemes and consider enhancements.
While cashback credit cards are coming under pressure from the retail cap, cashback loyalty schemes that are not related to card transaction fees remain a valid approach to fostering consumer loyalty. However, some organisations may benefit from supplementing or replacing cash rewards with more segmented and targeted loyalty schemes that may generate greater loyalty. It is time for digital marketers to consider engaging consumers differently.
The scrapping of some major cashback credit cards in response to the cap on transaction fees has created a real opportunity for keen marketers to capture new customers. Customers using the likes of the Capital One cashback card or NatWest’s Yourpoints card, which offered rewards from store vouchers to holidays for points earned by spending on the card, are now reconsidering how to spend their money. People who used their card to collect points will be looking around to find alternative rewards for spending.
Get the rewards right
Online retailers have blazed a trail when it comes to effective segmenting and targeting of the consumer to create customer loyalty. That includes segmenting customers according to where they are in the purchasing lifecycle or according to spending level and targeting in terms of the types of rewards offered. B2B marketers and those operating in other industries would do well to take a lead from retailers who make very effective use of demographics to support loyalty. Yet, as the price war continues, even with highly targetted communications, many retailers are not getting the rewards side of the loyalty equation right.
Not all customers generate the same profits and an effective reward scheme should reflect that. A PWC report ‘Loyalty analytics exposed: What every program manager needs to know’ found that rewarding the top quartile of loyal customers may account for 60% of the profits generated. Digital marketers are keenly aware that the aim of driving customer loyalty is to change behaviour so that new customers are encouraged to move up the ladder in increments and become high value loyal customers. Marketers may have designed a sophisticated scheme to interact with consumers at different stages to drive loyalty but this will be wasted effort if the rewards offered do not appeal to the consumer.
Discounts and rewards related to your own products may be of limited interest while some loyalty schemes, even those run by major retailers, are overly complex. Alternatives include loyalty marketing solutions which are able to provide bespoke on and offline loyalty rewards, including gift cards, points based accounts that deliver merchandise or travel rewards, and discounts in the form of cashback on everyday shopping. Prepay cards are an increasingly popular option. People still very much prefer to spend using cards – payment card spending increased in March, up by £406 million on February, reaching a milestone of £50 billion value spent within a single month. As part of a loyalty scheme prepay cards may be packaged by sector, a fashion prepay card, for example, or an electronics prepay card and offer rewards that can be redeemed in related stores.
Millennials are leading the way when it comes to prepay card adoption, according to a survey by TD Bank. It found that one quarter of respondents either currently use or have used a prepaid card in the past two to three years, but among millennials (ages 18 – 34), this proportion jumps to one in three. Additionally, the survey found that of millennials who don’t currently use a reloadable prepaid card, 60 percent would consider using one, compared with 49 percent of the overall population.
Regular tactical rewards should supplement ongoing incentives to remind customers of the ongoing scheme and continue to drive interest in products and services. A single organisation might run multiple equitable reward schemes to attract and retain different customers, some of whom might respond well to a points-based rewards system while others prefer traditional voucher schemes.
Avoid creating a negative impact
It is key that any loyalty scheme does not inadvertently result in upsetting customers and having a negative effect on loyalty. Cashback card suppliers hit by the transaction fee cap will be particularly concerned to make sure that any replacement scheme works well and is fair and transparent. The cost of running loyalty schemes can be hard to estimate as the level of uptake is not set in stone – people may register to collect points but then never redeem them, for example. It is possible to partner with a third party to underwrite the cost of a short-term promotion and this is a good option for many marketers looking to control their consumer rewards budget and ensure that, in the worse case scenario, rewards do not exceed the lifetime value of the client.
As 2015 turns to 2016 and consumers start to fully appreciate the impact of cancelled cashback schemes through the festive season, customer churn looks set to go through the roof and the focus will be on digital marketers to help win the battle for market share. A smart combination of loyalty schemes supported by the right rewards will reap dividends.
By John Sylvester, Director at P&MM.
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