“Get closer than ever to your customers. So close that you tell them what they need well before they realize it themselves.” – Steve Jobs

Steve Jobs’ empowering quote gives us an understanding of what the core of every business really is: Customers. Nowadays, it is known that getting a new customer is 6-7 times more expensive than keeping a current one. Hence why we find loyalty schemes everywhere in our lives. Most businesses offer some sort of reward systems to keep you engaged. The most popular ones regard the food industry, together with the airline one and last, supermarkets. Most supermarkets in the UK have developed massive loyalty card schemes, with the main intents of collecting data from consumers and keeping them shop at their stores regularly.

I am going to use both secondary and primary data sources in order to come up with some recommendations for supermarkets. However, first of all I am going to analyse what lays at the core of the loyalty concept, together with the psychological side.

What is customer loyalty and how is it measured?

The Business Dictionary defines customer loyalty as the  “Likelihood of previous customers to continue to buy from a specific organization. Great attention is given to marketing and customer service to retain current customers by increasing their customer loyalty. Organizations employ loyalty programs which reward customers for repeat business.” (Business Dictionary, 2015)

Although loyalty is an intangible matter, therefore hard to measure, Bob Hayes, author of Measuring Customer Satisfaction and Loyalty, breaks it down into 3 measurements: Retention, Advocacy and (RE)Purchasing.

Each of the three can be defined by simple questions.

• Retention: “How likely are you to switch?”
• Advocacy: “How likely are you to purchase other products from us and recommend them?”
• (RE)Purchasing: “How likely are you to (continue)(increase)(purchase different) products from X Company?” (mTab, 2015)

What is the psychology behind loyalty?

Subconsciously, for the majority of us loyalty is often related to integrity, which  refers to coherency between your principles and your actions. As a consequence, loyalty means to defend your ideals and it is strictly related to this principle. (Dr Hurd, 2014).

From a neuroscientific perspective, a conflict develops in the brain between the desire for an immediate, yet small gratification and a greater, delayed reward. Although people are more often inclined towards the first one, when it comes to loyalty schemes customers can overcome the problem by enjoying immediate points and the later more satisfying compensation. (David Carrithers, 2014).

                    (Retail Customer Experience, 2014)

As portrayed in the picture above, Maslow Hierarchy can be summarized into three major sections that humans undertake during their lives.

According to Bryan Pearson, the three R’s of loyalty, Rewards, Recognition and Relevance can be associated to the pyramid’s categories.

The reward exchange, like Maslow’s first segment, reflects the transactional loyalty that helps deliver upon customer expectation of fair value. Recognition is linked with the “succeed” section, where the organisation establishes an understanding of where it stands relative to its peers or other shoppers. Finally, when working to deliver a relevant experience, we are actually aiming at fulfilling the underlying needs of the consumer. This feeling of sharing the same purpose leads customers to become preachers for the brand. (Bryan Pearson, 2014)

What are the pros and cons of loyalty cards?

It is appropriate to take a dual approach to this question by considering both the customers’ and the supermarkets’ point of view.

Consumers can benefit from their loyalty cards in several ways. They get satisfying rewards, such as points, cash-back and vouchers, but conversely they lack of instant gratification. The ‘sign-up’ process is usually rather straightforward, however customers should always carefully read contracts because they may be misleading.

Furthermore, from a supermarket perspective, by implementing their programs they can improve sales and deliver more effective marketing campaigns, even if it can be very time consuming. Obtaining new consumer data, both demographic and behavioural, can improve their marketing campaigns and the promotion design. However, this can sometimes turn out to be a waste of money and competitors can easily take advantage of your own ideas and overtake the scene.

(MageSolution, 2013)

SECONDARY DATA ANALYSIS

• As reported by GI Insight, a market-research firm, almost 95% of British citizens are member of one or more retail loyalty schemes, and 9/10 own at least one supermarket loyalty card. (The Economist, 2014)
• Supermarkets such as Tesco and Waitrose have realised that their loyalty schemes, respectively Tesco Clubcard and My Waitrose, are starting to damage severely their annual profits and the huge amount of money spent on the program ($800m for Tesco) spent on the programs is no longer generating enough sales or data on consumers. (The Economist, 2014)
• A survey found out that one in three customers forget to bring their loyalty cards along, thus not getting any benefit from the scheme (Telegraph, 2013).
• 75% of consumers stated that loyalty programs should be linked to their credit/debit card used to be rewarded straightforward from their purchases (Telegraph, 2013).

“How often do you use your loyalty cards?

I've got a wallet full of loyalty cards, but never use them 4.05%  (59 votes)

I've got a wallet full of them and use them often 49.31%  (718 votes)

I use my loyalty cards occasionally 28.3%  (412 votes)

I don't have any loyalty cards 18.34%  (267 votes)

Total Votes: 1,456

(Telegraph, 2015)”

The secondary data collected shows that most people have more than one loyalty card and use them regularly. However, these schemes are damaging the supermarkets, which are starting to spend more money than they receive.

PRIMARY DATA ANALYSIS and RESULTS

In order to gain a broader view of the topic and come up with more personal conclusions, I have decided to conduct some primary data analysis through questionnaires and interviews. One of the reasons is that the information that I have found on the Internet is reliable and relevant, however not 100% accurate.

I have conducted an online 15-question questionnaire with a mix of close questions such as multiple choice and yes/no. I gathered 123 responses. The reason why I chose this type of format is because I realise people can’t be bothered filling in questionnaires, hence why it is simple, quick and there are no open questions. The issue with my questionnaire is that people might not take it seriously enough and lie regarding some of their answers. Additionally, some questions might have been perceived as ambiguous, but unlike the interviews couldn’t be further clarified. This might lead to misunderstandings, therefore unreliable results.

As far as I am concerned, the most relevant points are the following.

As we can gather, most people (62%) do believe in loyalty cards. Indeed, 48% of people who completed the questionnaire stated that they have between 1 and 3 loyalty cards. However, as we can see from the first chart, 25% of customers still value price over loyalty cards schemes.

Furthermore, I have interviewed several people in front of a Sainsbury’s in my area. The interviews were semi-structured and simple. I felt like people were more likely to tell the truth, therefore the data gathered can be considered more reliable to some extent. Thank to the nature of the semi-structured interview process I could understand the candidates feelings and thoughts better. However, the sample size was much smaller than that of the questionnaires.

You can find below the transcript of a sample interview.

Semi-structured interview with Camilla

1. How old are you?

I am 20 years old.

    2)   What country do you live in?

Uk now. I am originally from Italy.

    3)   What is your occupation? Are you a student, are you employed?

I am a student, I am studying Fashion Business and Marketing at Marangoni.

  4)   How do you choose your supermarket? Is it for the distance, price, quality or loyalty scheme?

My first point is the quality, but because I am student sometimes I have to choose to price and because some supermarkets offer the same product at a lower price I choose those.

   5)   How many loyalty cards do you have?

I have two at the moment, but I would like to have a third one.

   6)   Which ones do you have?

I have Tesco’s one and Nectar card for Sainsbury’s.

  7)    Which one do you use the most?

This year it’s Sainsbury’s because it is very close to my house.

  8)    So, distance means a lot to you?

Not really, but sometimes if I am in a rush or I am too lazy

  9)   Do available points influence where you shop at?

Not really.

 10)   Do you make use of vouchers from supermarkets?

Not really, but I would if there sent directly to me.

  11)   Do you prefer loyalty cards that give you instant rewards such as free coffee or cake or those where you build up points?

I prefer instant rewards because I don’t really like collecting points, because I am a student I would like to go there and get a free coffee every morning.

     12)   How long does it take you to travel to your closest supermarket in minutes?

One minute only.

    13)  Do you believe loyalty cards are beneficial and why?

Yes, because with loyalty cards I feel more connected and I feel more independent and I like it.

LINK TO AUDIO RECORDING:

https://drive.google.com/file/d/0BxMeuwsMYgt-M3ZHam1ZVUpzWGs/view?usp=sharing

This interview shows once again how people appreciate the idea of loyalty cards and how they make customers feel (connected and independent).

Last, if we compare secondary and primary data we can gather that there is no particular contradiction and both agree that consumers enjoy loyalty cards schemes and take advantage of their benefits.

The ultimate question then is: How are supermarkets going to maximise a win-win environment and ensure their values are perceived correctly?

One aspect that I am going to explore within the context of customer loyalty is gamification.

“Gamification, in a business scenario, is the process of taking something that already exists – a website, an enterprise application, an online community – and integrating game mechanics into it to motivate participation, engagement and loyalty”. (Bunchball, 2015).

In order for customers to feel more engaged, industries have to consider some essential elements of human behaviour, such as motivation and desire (Gregory Ciotti, 2013).

<What is it that produces desire and makes people motivated to keep shopping at a certain supermarket?>

Here it is where the concept of gamification comes in the picture. Most loyalty schemes are perceived as basic reward programs, thus producing a negative psychological impact on individuals. They complete an action only when they are sure of the consequent reward. This is the dark side of loyalty schemes. Very often industries tend to shift the customers’ focus on frivolous benefits, forgetting that what they should aim at is to highlight the value that the products add to their lives.

Gamification Guru Tony Beresford suggests that competitiveness is the element that makes the big difference. Customers must be actively engaged by a measurable scoring system. It is not anymore about a basic reward scheme where they collect points and get some cash back at the end. This time each one of them is gathering points with purpose. Customers are all in the same game, competing against each other and depending on their score they are able to choose a tangible prize. It could be a coffee, a slice of cake or some money. It must be more customized. Clients want to feel special and, to achieve this, industries must be able to follow the change of customers’ trends (Vaughn Highfield, 2014).  

“The way to a customer’s heart is much more than a loyalty program. Making customer evangelists is about creating experiences worth talking about.” – Valeria Maltoni

Tesco, Sainsbury’s, Asda, Waitrose etc. should let customers choose their own rewards. People do believe in loyalty cards schemes. The only drawback is that they don’t always capture the real value they can get. If they could choose between instant rewards and points, they will be more likely to choose instant reward.Having a more in depth understanding of customers’ perspective is essential to supermarkets. I believe that in future people are going to purchase certain products because of what that company stands for. Supermarkets must spread their vision and make this a priority.