Loyalty schemes do need to evolve but Amazon Prime isn't the answer for Tesco. So, what is?
A view from Clive Humby

Loyalty schemes do need to evolve but Amazon Prime isn't the answer for Tesco. So, what is?

The complexity of personalisation achieved by Tesco Clubcard for loyal shoppers still outshines even the most sophisticated of web operators, writes the scheme's co-founder.

In his opinion piece published in Campaign, Matthew Heath reviewed the Tesco Clubcard debacle, which saw a backlash over Tesco’s decision to restructure its rewards system for customers who love "Third Party" deals.

Heath outlined how the pioneering loyalty scheme was failing to build a deep level of engagement with today’s customers and that loyalty schemes in general need to evolve beyond a simple system of points and rewards. The crux of his argument is certainly correct.

The Clubcard, once a revolutionary idea that retailers scrambled to recreate, has become the norm, alongside a variety of other loyalty schemes, which remain largely transactional. Customers receive a financial reward based on their behaviour and Tesco has innovated to make these rewards "multiply" in other partner channels.

Nonetheless, the Clubcard is still a game-changer for Tesco in the world of physical stores, giving them access to powerful data that drives decision-making, and providing them with a dedicated communications channel to their customers. More importantly, the scheme links their customers’ baskets to help understand repeat purchase behavior and customer responses to promotions as well as new product development.

Today’s consumers are more aware of the value of their data than ever before and expect something in return for handing over personal information, no longer drawn in by transactional offers alone.

Heath argues, "loyalty schemes that balance discounts with non-transactional benefits are the most likely to boost customer engagement".

While he is right in this point, he is also failing to take into account the competitive nature of the modern retail industry. Clubcard rewards pale into insignificance when compared to the weekly budget for promotional discounts in fashion retailing.

Consumers have very divergent needs and one customer’s perception of value can be very different from another’s. A good example of this is the "10p per litre off fuel" discount, which is a key mechanic for grocers. Most consumers are hard pressed to squeeze more than 50 litres into their tank, thus saving them £5. This £5 is viewed by customers as having much more "value" than a £5 reduction on a case of wine or in a sale reduction.

Then there’s the example of Amazon Prime, which Heath named as a loyalty programme that offers more personalisation and better non-transactional benefits.

Prime is not a loyalty programme. As a prime member, I pay £96 per year but I don’t receive loyalty rewards; I receive exactly what I pay for. Certainly, some of Prime’s perks, like Amazon Video, Amazon Music, free delivery and 20% off family essentials like nappies represent great value for money (I reckon I get £400 of value from my subscription) and it certainly increases "stickiness" for the web giant. I don’t worry about paying 25p more for my pack of 12 AA Duracell batteries to get them the same day rather than taking the best price. However, that is not rewarding me; it’s charging me more for convenience. That might be fine for batteries, but when I can buy a Nikon camera £80 cheaper on a specialist website, that is a different story.

Amazon is reliant on a two-tier ecosystem: there is an overall service that consumers can utilise, but if you pay more, you enter into another level which offers a range of premium services. Airlines, like British Airways, also operate on two-tier systems, offering a separate check-in desk, faster queuing, priority boarding and more, all as a separate service, in their case for flying regularly.

I disagree strongly, however, that Prime delivers more relevant offers to consumers. The complexity of personalisation achieved by Clubcard for loyal shoppers still outshines even the most sophisticated of web operators.

However, can we truly see Tesco operating along similar lines to Amazon and British Airways, with products or tills available only to premiere card holders? This is not a solution that will work for multi-channel retailers with a bricks and mortar offering.

So, if not Amazon’s system, then what is the right loyalty scheme for major bricks and mortar retailers, in order to create deeper customer engagement?

My contention is that for low-emotion products, like grocery, price and value will always win for the majority of customers. Clubcard can certainly evolve to be a more compelling way of delivering the right offers to the right customers. In grocery, the retailer’s shopping behaviour data is very powerful; this is not the case for the majority of retailers, be it fashion, entertainment, or electronics.

The number of touchpoints that a customer has in a year does not give any understanding of the customer needs or behaviour. In these businesses, to be truly relevant to customers we need to look outside the organisation to better understand the customer and, in the exciting age of Big Data, a host of new sources will allow companies to understand their customers just as well as the web giants.

Clive Humby is chief data scientist at Starcount. With his business partner, Edwina Dunn, he founded global consumer insights business Dunnhumby, the creator of Tesco Clubcard

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