THE DIRECT APPROACH: EHS Brann's Terry Hunt takes a look at customer loyalty schemes

EHS Brann's Terry Hunt takes a look at customer loyalty schemes and argues that the best schemes are those that are made in the brand's own image.

I thought that I'd share some of this agency's hard-earned discoveries from a decade of winning customer loyalty for great brands.

In the beginning was Tesco Clubcard ... er no, actually. In the beginning was the Co-Op Dividend, the much-loved scheme that has run from the Co-Op's early days in the 19th century right up until today. By the end of the 40s, 11 million customers were members. The shoppers' unique "divi" numbers identify them and they build up value to be redeemed on future purchases. The customer dividend is a perfect demonstration of the Co-Op's ethical philosophy.

But customer loyalty is more than a points scheme. Of course it is, no-one said it wasn't. Yet critics insist that it is customer experience that produces loyalty, not promotional tactics. Loyalty, they say, is an emotional response based on empathy, not a rational response based on bribery. Far better to invest time and money in packaging or better service, to achieve genuine customer loyalty. That's great but they miss the point. A loyalty scheme is not an instead, it's an also. These schemes tap customer goodwill and turn it into an explicit commitment. They encourage customers to consolidate their spend, and drive incremental profit. But most of all, they create a torrent of individual information that transforms a company's ability to understand customer needs. Good quality customer data - rich, relevant and recent - is the essential fuel of any CRM strategy.

Essentially, a loyalty programme is a way for a brand to recognise and reward good customers and an enduring reason for those customers to prefer the brand.

Asking "Do loyalty programmes work?" is like asking "does advertising work?" Or "do magazines work?" Like any marketing technique, a loyalty programme has a good chance of working if it is well-conceived and smartly managed. It will succeed if customers value it, and fail if they don't.

Broadly speaking, a simple idea works, while a complicated one doesn't.

Why join Nectar? "Get bigger rewards quicker." Why join BA Executive Club?

"Free access to our lounges." Why join Tesco Clubcard? "Save on your shopping today." A common denominator of successful loyalty schemes is the brutal simplicity of their offer. As a rule, if you haven't got one straightforward killer benefit, forget it.

Loyalty works both ways. Even the most committed football fan will turn away from a club if it shows no respect for the paying supporters. Equally, the best loyalty schemes work as a mutually beneficial contract between the brand and the customer: "Let us know who you are and what you like and we'll reward you." In fact, loyalty schemes are as much about the brand showing loyalty to the customer as they are about the customer showing loyalty to the brand. Our work for Cadbury and Tetley has proven this time and time again in terms of building real brand value.

Another shared characteristic of the best schemes is that they are consistent and complementary to the brand. They take the brand's values and prove them through active service to customers. You can't just lift a programme off the shelf and expect it to work anywhere. The best loyalty programme is created in the brand's own image, shaped by its business dynamics and its relationship with customers.

It's significant that loyalty schemes are based on the idea that customers join them. When we join an organisation we agree to a relationship that is deeper than a one-off experience.

We become members. And membership has implications of shared benefit and commitment that offer great possibilities. Today most people desire a sense of belonging, the question is how can brands meet this need?

There's plenty of proof that an opt-in is much more effective than an automatic offer of benefit to customers. When BT introduced its "Friends and Family" programme, it turned a passive discount scheme that most customers took for granted into an active preferential-pricing scheme that customers loved. Similar cost to the business, but massively greater return on investment.

Be focused. You might aim to increase the frequency of visits, or you may need customers to consolidate spend, or you may want to shift transactions from phone to web. Loyalty schemes that set out to thank customers for doing one or two things are more likely to succeed than those that ask them to do too much or, indeed, those that ask for nothing in particular. The main challenge from the outset is to define what it is you want your customers to do, and reward them when they do it.

In a cost-pressured era, the temptation might be to let another company handle your brand's loyalty marketing. Sounds smart.

But before you decide, ask yourself these questions: "Who is loyal to whom?"; "Who owns the data?"; "Which brand benefits most?" and "What happens to our customer relationships if we pull out?".

Sceptics say it's all very well introducing a loyalty scheme to get the first-mover advantage. But what happens when competitors follow suit and customers end up carrying two or three cards? Isn't that promiscuity rather than loyalty? The short answer is: get real. Everyone has a portfolio of suppliers for different needs. All that a loyalty programme seeks to secure is a bigger share of customer commitment, share of mind and share of spend than it would normally achieve. If it does that consistently well it pays back royally, for customers and brands.

We all know customer loyalty is good for business, the challenge is how do we continually address the "what's in it for me?" with fresh, innovative, inclusive ideas. This will be the single biggest challenge to loyalty marketers and their brands in the future.