Nearly everyone in the UK is signed up to at least one loyalty scheme, according to the Competition and Markets Authority (CMA). But the shift from a points-based reward system to a membership that offers reduced pricing at the point of purchase strong-arms consumers into signing up, irrespective of want or need.
Following high inflation over the past two years that has seen prices rocket, many consumers are trying to cut their costs. The sizeable discounts on offer for those signed up to loyalty schemes are a welcome gesture for many consumers, but some may feel they do not have a choice.
Others may feel the exchange of data for discounts is justified, but this new approach is shifting loyalty from earned to transaction.
Mind the values gap
It could be argued that when brands offered rewards, they gained trust, goodwill and loyalty from consumers. But this transactional approach makes it almost impossible for brands to build authentic, two-way relationships that would perhaps keep consumers coming back regardless of the rewards or discounts on offer.
Granted, in crowded categories, rewards can create churn amongst consumers who decide to switch brands because products are on offer, and in the process they try something new that they prefer.
Strong relationships are typically built through high quality customer interactions and experiences, but given the current economy, where many consumers are trying to cut costs, brands are more often focusing on the quick wins by offering discounts.
Short-term approaches may deliver results, but long-term, focusing on customer experience (CX) will win out — and result in lower acquisition costs and a loyal customer base that won’t be lured by offers from competitors.
Not only does ‘forced loyalty’ impact a brand’s long term relationships with customers, it has the potential to create a divide between brand and consumer values. More than two in five (43%) shoppers consider it unfair that loyalty scheme members pay lower prices for some products, and while it does not put them off signing up, it does suggest dissatisfaction and frustration with the shopper experience, creating apathy towards retailers.
The risk of digital exclusion
This unfairness between customers is even more pronounced when it comes to vulnerable consumers. In the same way that older consumers and those with learning difficulties prefer to make payments via physical means — either cash or card — they also find it much easier and less confusing to use a loyalty card, rather than an app.
Yet, almost all retailers are opting to move to app-only loyalty schemes.
While operating a digital-only loyalty scheme is acceptable to many consumers, especially when AI and machine learning offer greater personalisation, it can result in digital exclusion of others.
Only two-thirds (67%) of consumers over 65 have access to a smartphone, which means a third of pensioners are unable to access the best deals from retailers despite being some of the most financially vulnerable consumers.
Even for brands whose audiences skew younger, there is still a risk of excluding those with learning disabilities – and while there is a drive to appear inclusive, the focus on app-delivered loyalty schemes brings the authenticity of those initiatives into question. Brands must consider who their app is for, and whether it delivers true value for all consumers.
The latest developments are even more concerning. Some brands are trialling systems by which consumers cannot even enter a store without having an app downloaded, which means that those who do not have a smartphone will be excluded from the store itself, as well as the best discounts.
Forcing loyalty may be counterintuitive
While companies are securing customer data by all but forcing consumers to sign up to their loyalty schemes, the loss of the reward experience is only increasing brand switching. If a competitor starts undercutting on price, many consumers will switch without a second thought. Why? Because they have been given no other reason to stay and irrespective of loyalty it’s the price that will always win through for them.
Customer experience should be at the heart of brands’ loyalty strategy. Consumers’ value choice, and yet the focus on transactional loyalty restricts their options. Instead, brands should focus on giving consumers’ a wider choice of how they interact with the brand, ensuring that those from vulnerable groups are not excluded — and then give them reasons to keep coming back, whether that is through exceptional customer service, rewards or shared values.