Introduction to Loyalty Program
Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behavior — behavior which is potentially beneficial to the firm.
In marketing generally and in retailing more specifically, a loyalty card, rewards card, points card, advantage card, or club card is a plastic or paper card, visually similar to a credit card or debit card, that identifies the card holder as a member in a loyalty program. Loyalty cards are a system of the loyalty business model. In the United Kingdom it is typically called a loyalty card, in Canada a rewards card or a points card, and in the United States either a discount card, a club card or a rewards card. Cards typically have a barcode or magstripe that can be easily scanned, and some are even chip cards. Small keyring cards (also known as keytags) which serve as key fobs are often used for convenience in carrying and ease of access.
By presenting the card, the purchaser is typically entitled to either a discount on the current purchase, or an allotment of points that can be used for future purchases. Hence, the card is the visible means of implementing a type of what economists call a two-part tariff.
Application forms usually entail agreements by the store concerning customer privacy, typically non-disclosure (by the store) of non-aggregate data about customers. The store — one might expect — uses aggregate data internally (and sometimes externally) as part of its marketing research. These cards can be used to determine, for example, a given customer's favorite brand of beer, or whether he or she is a vegetarian.
Where a customer has provided sufficient identifying information, the loyalty card may also be used to access such information to expedite verification during receipt of cheques or dispensing of medical prescription preparations, or for other membership privileges (e.g., access to a club lounge in airports, using a frequent flyer card).
Boots bang on Loyalty Card
Boots the Chemist is the U.K.'s leading health and beauty retailer.
Ninety percent of the U.K.'s 60 million population visits a Boots store at least once a year.
The company has an annual turnover of around 3 billion Sterling pounds from a network of some 1,300 stores.
In the early 1990s, when the retailing sector jumped on to the bandwagon of loyalty cards, Boots initially kept a watching brief. Boots' reasoning was "...We took time developing our scheme to make sure it was different to other schemes, but more importantly, so that it fitted in with our brand image and it was right for the company, our customers, and shareholders." Many retailers, seeing the emergence of Tesco's highly successful Clubcard program, felt that they had no choice but to take the plunge.
Boots first began planning a loyalty card in November 1993, but what they built is much more than a loyalty card; it is a very full CRM program. From humble beginnings, and with an investment in excess of 30 million Sterling pounds, the Boots Advantage Card is the largest smart card retail loyalty card scheme in the world. It is also the third-largest retail loyalty scheme in the U.K. in terms of cards issued. The Advantage scheme currently has 12.3 million cardholders, and more than 40% of transactions in-store are now linked to the card.
Prior to the national launch, Boots ran two trials in two cities. The trials provided Boots with invaluable information and allowed them to fine-tune the program to maximize its financial contribution to the business before the decision was made to roll it out nationally.
By analyzing the information provided through the Advantage Card, Boots gained meaningful insights into its customers' shopping behavior. It found that Advantage cardholders shop more frequently than non-cardholders, and on average spend 50% more than non-cardholders.
The target market for the Advantage Card is females (83% of Boots' customers are female) aged 20-45. Research led Boots to create a positioning for the program of "Pure Indulgence". The personalized card enables customers to treat themselves to something special, instead of reducing the cost of their normal shopping. The basic reward rate for the Advantage Card is 4% (four points for every 1 Sterling pound spent). This is a very generous rate of reward compared to the other retail sectors. The major supermarket discount cards reward only 1%, and the high street stationery retailer W.H. Smith rewards 2%. There is no minimum spend, so a spend of 24p will still earn one point. Cardholders get to treat themselves from a selection of over 10,000 different items and services as rewards, including a range of health and beauty treatments. Redemption can be made at the checkout in any Boots store, as opposed to some schemes that require redemption at the local store only.
The program is supported by regular mailings, offers and double-points promotions, which have helped to push membership to its current level.
The Advantage Card now represents one of the largest loyalty card schemes in Europe. It continues to be an integral part of the Boots marketing effort, with Boot's own-brand opticians stores being added to the scheme. Two million cardholders now receive a quarterly Health and Beauty magazine, making it the largest-circulation female interest magazine. This has created a medium for Boots to demonstrate its expertise in the health and beauty market.
In September 1999, Boots launched "The Advantage Point" in stores. These are interactive kiosks that enable cardholders to view personally tailored offers and incentives by inserting their Advantage Card into the terminal. This creates a real feeling of interacting with the program, as well as another reason to visit the store.
The Advantage Point is taking this type of program to another level. Instead of Boots deciding which vouchers to send to the cardholder, it is left to the customer to decide which ones are relevant at the time they are in-store.
Also in September 1999, Boots announced the launch of its Advantage credit card, in conjuction with Egg, the online financial services company. The card is the first of its kind in Europe, using smart chip technology such that a single card can manage the Advantage Card loyalty scheme, Europay, Mastercard, and Visa (EMV) payment simultaneously.
"The launch of the card extends the Advantage Card proposition beyond Boots stores", comments Steve Murphy, head of Advantage credit cards at Boots. Richard Duvall, chief marketing officer at Egg, comments: "The card offers consumers great interest rates and special deals on balance transfers, combined with the benefits of a proven loyalty scheme from one of the U.K.'s leading retailers. This is the first initiative of its kind in Europe and we anticipate that it will be a great success."
In a few short years, there is no doubt that Boots has built one of the most successful CRM programs we have seen. It waited, sensibly, to see what the high street competition did. It then researched the program with its customers, and ran a trial to fine-tune as necessary before the final massively successful roll-out.