What’s Loyalty? Part One

This is the first in a series of blogs that take a deep dive into Loyalty. In this first piece we’ll be looking at the why, the types, the measurement and the redemption methods.

Over the next few weeks I’ll write a couple of follow-ups backed up with some numbers of the different schemes that we run as well as some examples from around the sector and beyond.

Summary

I’m involved in a lot of conversations right now about loyalty, it’s at the top of operators' agenda as they look to protect and hopefully increase revenue. It is no secret that you have to fight for your customer more today than you did a few years ago.

In hospitality, there’s an abundance of choice for the consumer. You may have competitors who are perceived better quality, have better incentives, more entertainment, more brand recognition, or they may just be more accessible on the high street. There’s more variation and of course we can always enjoy many of our favourite brands at home through delivery.

Right now, there’s more competition for disposable income and less disposable income. People picked up new habits during the lockdown (like entertaining themselves at home) and now, with the cost of living crisis, a lot of people are going out less (but spending more).

So, brands have to work harder to bring people in (and back in and back in and back in).

But before we get into this, I’m going to have a bit of a rant... I see everyday that businesses are not even completing the basics. They should first get a handle on their CRM and email marketing. You see, data today flows more freely than ever before, gone are the days of concentrated data collection campaigns (in my mind they are more relevant than ever). GDPR killed a lot of the clever stuff; not because it broke the new rules, but because everyone stripped everything back to start again because of fear.

Number One: what does your business want out of a scheme?

Before you embark on your loyalty journey, talk to your colleagues and challenge the business with the following questions:

1. What are the goals we hope to achieve with a loyalty scheme?
2. Who are our target customers, and do we know what they want?
3. How will we measure success?
4. How will it fit into our existing marketing and customer engagement strategies?
5. How much will it cost to implement and maintain?
6. How will we communicate it with customers (although this can come later)?
7. How will the scheme work with our current tech stack?
8. How will we train our staff to handle questions and concerns about the loyalty scheme?

By asking these questions and carefully considering the answers, you can ensure that your loyalty scheme is well-designed and effective in achieving your business goals.

What is loyalty?

Recently I was speaking on a panel about loyalty and I expressed that a ‘Loyal Customer' was one that visits more than the average customer. The next panellist thought that a loyal customer is one that visits more than once, even if that customer visits once a year or every two years.

I then asked the question at one of our recent product roundtable meetings. I received a couple of different replies. (I’ve also added our panel definitions.)

1. A loyal customer is a customer that visits more than the average customer.
2. A loyal customer is a customer that visits more than once.
3. A loyal customer is one that engages through social channels as well as visiting the store.
4. A loyal customer gives public positive feedback.

As it’s a hot topic, I also asked ChatGPT to define a loyalty scheme. ‘Loyalty schemes are programs designed by businesses to reward and retain customers who regularly make purchases or engage with their brand. These programs typically offer incentives such as discounts, free products or services, exclusive offers, and other benefits to customers who accumulate a certain amount of points or meet other requirements. The goal of loyalty schemes is to incentivise customers to continue doing business with the company, as well as to encourage them to make repeat purchases and refer friends and family to the business. Many loyalty schemes are based on a point system, where customers earn points for purchases and can redeem those points for rewards, although other types of schemes also exist.'

So between our own thoughts, that of our customers and the terrifying consciousness of ChatGPT, we can define loyalty as:

A loyal customer is a customer who has a strong affinity and commitment to a particular brand or business. Loyal customers consistently make repeat purchases or use the services of the same brand or business over an extended period of time. They have a positive emotional connection with the brand or business, and as a result, they are more likely to recommend the brand or business to others.

Generally, they’ll have the following characteristics:

1. Repeat purchases: Loyal customers make frequent purchases or use the services of the same brand over an extended period of time.
2. Advocacy: Loyal customers are more likely to recommend the brand to others, either through word-of-mouth, online reviews or social media posts.
3. Emotional connection: Loyal customers have a positive emotional connection with the brand, which can be based on factors such as quality, value, customer service, locality or shared values.
4. Trust: Loyal customers trust the brand to consistently deliver a high level of quality and service.
5. Engagement: Loyal customers are more engaged with the brand, and are more likely to participate in loyalty programs or engage with the brand on social media.

Loyal customers are a valuable asset to any brand or business. They can help drive repeat business, increase customer retention, and promote the brand or business through advocacy, social media and word-of-mouth.

The above is all great, but how do you harness these customers? Well, in part, that’s where your CRM and other channels come into play. Building ongoing digital engagement that keeps the conversation alive with your customers will assist in keeping you front of mind. Very simply, often it actually fulfils the promise of your loyalty programme or your value exchange (the VX).

What types of loyalty programs are there?

So, we’ve had a delve into what loyalty means, let’s next look at the different schemes available:

• Membership: Guests can sign up for the loyalty program either online or in store. Once they sign up, they are automatically enrolled and start earning points for their visits or spend.
• Points: Guests earn points based on the amount they spend. For example, they might earn 1 point for every £1 spent on a room, and 3 points for every £1 spent on food and drinks.
• Rewards: Once guests have accumulated enough points, they can redeem them for rewards. Rewards could include free dinner, free meals or drinks or a promo code for a gift card or experience.
• Tiered system: To encourage guests to earn better rewards, brands may offer a tiered system where guests earn more rewards as they move up through the tiers. For example, guests may start at the "Bronze" tier, where they earn basic rewards, but can move up to the "Gold" or "Platinum" tier if they earn enough points/visits, unlocking even more valuable rewards as they go. This can either be public OR work through ‘surprise and delight'.
• Special promotions: To keep guests engaged with the loyalty program, businesses can also offer special promotions and incentives. For example serving up a 50% discount on a birthday or as part of the welcome journey or providing something as value add.
• Subscription: Similar to Pret, an all encompassing subscription to a brand that allows for a certain amount of product free per period.

Overall, a loyalty scheme can be a powerful tool for hospitality businesses, helping to build customer loyalty, increase repeat business, and drive revenue.

How can it be measured?

Measuring the effectiveness of a loyalty scheme is important to determine its success and to make any necessary adjustments to improve its impact on customer loyalty and business revenue. Here are some ways to measure a loyalty scheme:

• Customer retention: The most obvious measure of a loyalty scheme's success is customer retention. You can track the number of customers who continue to return and use the program, as well as the frequency and value of their purchases.
• Revenue: Another key measure of a loyalty scheme's effectiveness is the impact it has on revenue. You can track the increase in revenue generated by repeat business from loyalty members compared to non-loyalty customers.
• Customer engagement: Measuring customer engagement with the loyalty scheme is also important. You can track metrics such as how many customers are signed up for the program, how often they log in to their loyalty account, and how much time they spend engaging with the program.
• Net Promoter Score (NPS): (My favourite.) NPS measures customer loyalty and satisfaction by asking how likely a customer is to recommend your business to others. You can measure the NPS of loyalty members compared to non-loyalty customers to determine if the program is having a positive impact on customer loyalty and advocacy.
• Cost-benefit analysis: It's also important to measure the costs associated with implementing and maintaining the loyalty scheme compared to the benefits it provides. This can help determine if the program is cost-effective and if any adjustments need to be made to maximise its impact on business revenue and customer loyalty.

By regularly tracking these metrics, you can determine if your loyalty scheme is achieving its goals and make any necessary adjustments to improve its effectiveness.

How is it operated?

So now we get to the crux of it. Loyalty is all well and good but if the operational use of it is flawed due to process or it causes any stress for the customer or team member then it's bound to fail.

We often talk about Boots or Tesco when thinking of examples of good loyalty schemes, they precede digital and in the case of Boots was launched 10 years after the debit card in 1997, people were already carrying many bank cards so another in the wallet didn’t meet resistance.

At a recent conference Greggs talked about using the pandemic to consolidate their customer touch points into a single app, importantly, not only so the guest had a better experience but so that the teams in Greggs knew how to put a voucher through the POS, or actually not needing to know how the voucher went through, just that it went through.

In my view, the Nirvana here is as follows: A member of a loyalty programme visits a participating business and makes a purchase. They use the digital wallet on their phone to make the payment. The wallet knows that they are a member of the program, applies a stored discount, applies a voucher (either product based or stored value), takes payment for the balance and awards new points. All this is done without the server being aware and without the customer needing to present anything but their phone (or possibly card - see below open banking).

The truth though is that this will probably never come to pass. Apple and Google are protective over the NFC aspect of the device and therefore control the wallet; it's possible to create new Wallets but out of reach for regular brands.

So… let’s look at some models for tracking loyalty use:

Card Linked

This has been around for a long while but not yet made any meaningful impact in hospitality. On sign-up to a scheme you enter your debit or credit card numbers and then when you spend at participating venues the spend total (but not basket) and date and time stamp are sent via API.

The downside to this is that you pay a fee per transaction for member customers so it gets pricy the more customers that sign-up. Card linked functionality is used by Lux Rewards and Dusk App as a couple of examples.

Open Banking

This is smarter but not yet mainstream. This is simply about using Open Banking when you sign up to link one or more bank accounts (so works for debit cards rather than credit cards). The customer connects their bank with your scheme and you can pull in the bank transactions. There’s some downsides but on the whole this will capture the most amount of customers.

Downsides: Customers need to reauthenticate after 90 days. You may not pick up location data from the bank statement. Likely there’ll be a future charge for open banking access.

If you want to see an example of this, sign up for Cheddar which is a cash back app.

Membership / Loyalty Number

Physical or more likely now digital, a unique identifier that links the customer back to the transaction. Membership can give a discount depending on the level, loyalty will link the transaction and likely store the points associated with the transaction.

Stamp Based

There’s a fair few of these around now and the benefit is that they are really simple to understand for consumers. The prevalence of paper cards in coffee shops means that the transition to digital is more widely accepted by the public. Most operators work stamps on spend or basket items. Take a look at Tortilla, Nandos and Turtle Bay for good examples.

Points Based

The biggest question here is about the percentage that you kick back into loyalty. The norm seems to be around 3% however recently I saw 6% given for order and pay at table to help drive up its use. The key though is that the customer understands what they get when, OR if it's not triggering a reward, how they can use their balance against a purchase. Again, to get cut through on the numbers, look closely at how generous you might be able to be.

Single Use Voucher (SUV)

A single use voucher is good because it can (when integrated) look into the basket and reward either through a discount or by adding value either based on spend or on a specific product. They are generally served up through a CRM or form process or triggered as the reward on a points based system.

Gift Card (Stored Value)

Issuing actual value using a gift card often generates more conversion because the customer has more freedom to choose.

That’s a wrap for Part One.

Next up I’ll be doing a deep dive into different schemes that operate in and outside of hospitality.