Beyond Discounts: How Loyalty Card Schemes Are Shaping the Future of Retail

Written by 
Dee Set Staff
7 June, 2024

Asda Rewards security change - how are your supermarket loyalty card points  protected? - Which? News

It could be due to the cost-of-living crisis or even the fact that consumer loyalty is hard to establish in these turbulent times – whatever the cause, it’s clear that loyalty card schemes have increased in popularity over the past few years. 

For a while now, shoppers have been challenged with rising costs everywhere, including higher mortgage and fuel rates. As a result of this, many are now relying more on discounts and offers when doing their weekly shop, just so they can have a little extra cash that can be utilised for other pressing matters. 

Because of this, consumer behaviour has shifted. Long gone are the days when shoppers remained exclusive and committed to their favourite big-name supermarket - these days, more shoppers are focused on buying from the retailers who will save them the most money, even if that means visiting a few different stores. Many shoppers have even turned to discount retailers to make significant savings. 

In a recent poll by Pricer, it was discovered that 90% of shoppers had chosen to switch to discount supermarkets due to cheaper prices available at the likes of Aldi and Lidl. However, 19% cited more choice of own-brand and value ranges being available at these stores.

We aren’t the only ones who have clocked on to this shift - the retailers are seeing it too! 

Consumers these days have the huge benefit of choice. Big brand stores end up competing with each other, specifically on price, quality, and range. Retailers are aware that in order to keep their customers as loyal as possible, they have to keep their prices competitive. 

In this blog, we chat with our Group CEO Greg Phillips, who shares his insights into why loyalty cards are fundamental in this current climate and why they seem to be consistently growing and evolving. 

Q: How are loyalty card schemes revolutionising the retail landscape? 

Greg: It’s clear that the introduction of loyalty card schemes has shaken up the retail world since their arrival. Thanks to their ability to enhance customer engagement and help retailers with personalising the shopping experience, loyalty card schemes encourage shopper loyalty, as well helping to boost overall sales. 

These ‘schemes’ provide retailers with detailed insights into consumer behaviour, which consequently allows for tailored promotions and targeted marketing efforts. 

Brands and retailers who consistently offer good value products, meet the consumer demand of discount labels, and deploy savvy promotional tactics are businesses who will be sure to navigate this challenging landscape.

In Mintel’s 2023 UK customer loyalty report, they stated that it is essential for retailers to highlight value whilst creating that personal connection, keeping customers from switching in a time where the focus on value is at its peak.

With so many retailers looking to dominate with their loyalty card schemes, the battle to offer customers an innovative incentive to keep them loyal is a hard one. Tesco were recently reported to amp up the experience factor on their loyalty card scheme by utilising the use of AI. They introduced ‘Clubcard Challenges’, which will see individually personalised points challenges rolled out to 3 million Clubcard holders, offering the opportunity to earn up to £50 in Clubcard points. Adding to this, Sainsbury’s was recently reported to ‘slash’ prices on more than 1,000 popular products in a bid to attract more shoppers to their Nectar card scheme. Similarly, Aldi were also reported to commit to beating the £380m they invested in price cuts during 2023.

Mintel reported that these days, the majority of shoppers hold memberships at between two to five different loyalty schemes, with 14% holding six or more. Because of this, retailers have to constantly consider new ways to innovate, as well as offering more lucrative offers than their competitors.

The supermarket loyalty card trap has gone too far

Q: What do loyalty card schemes reveal about consumer preferences and habits? How do retailers benefit from this insight?

Greg: Modern loyalty card schemes enable retailers and brands alike to gain access to a treasure trove of valuable insights into consumer preferences and habits. This data enables them to track consumer purchasing patterns, how often they shop for a certain product, and which brands they tend to choose. This data also reveals which products are popular, as well as giving further information on peak shopping times, and individual customer preferences. 

Retailers can gain insights into how they can tailor their retail marketing campaigns to the right consumer. They can also optimise inventory management by understanding the demand of a particular product, offering personalised promotions to specific shoppers. This targeted approach enhances customer satisfaction, increases sales, and fosters stronger customer loyalty, ultimately leading to more efficient and profitable retail operations.

But what do shoppers actually think about these loyalty card schemes? 

If retailers actually make an effort to give consumers the rewards that they want, loyalty schemes can be proven to be a beneficial tool for helping stores maintain customer loyalty. 

Consumer insight specialist Kate Hardcastle stated that “It costs retailers a lot more to acquire a customer than it does to keep a customer - they are reminding you that if you are loyal, they are literally treating you differently as a customer. They want a narrative that they are the best and the cheapest."

Unfortunately, some shoppers remain slightly sceptical about how useful loyalty card schemes actually are. Recently, CMA announced that they would review loyalty pricing by supermarkets in January this year following claims made by 56% of shoppers who believe that discounts in supermarket loyalty price schemes are made to look greater than they are. 

Despite potential scepticism surrounding supermarket loyalty discount prices, customers may increasingly perceive signing up for each retailer's loyalty scheme as the only viable option, especially in today’s cost-of-living crisis climate.

Q: How are supermarkets adapting to changing consumer expectations? How could these schemes evolve in response to technological advancements and shifting market dynamics?

Greg: Retailers who want to stay ahead should be embracing technological advancements and utilising them in a way that benefits both themselves and their consumers.  The benefits of doing this includes enhancing overall convenience for shoppers, as well as improving sustainability efforts. More recently, we’ve seen the rise in many supermarkets implementing online shopping platforms, offering delivery and click-and-collect services and integrating mobile apps for seamless shopping experiences.

Personally, I think we can expect to see many more brands and retailers incorporating the use of AI and machine learning to provide even more personalised offers and recommendations. Blockchain technology could also be embraced to help many retailers with improving their data security and transparency, whilst augmented reality (AR) could offer interactive and immersive shopping experiences.

Tesco launches Clubcard Challenges loyalty points campaign | The Grocer

“Today, if customers want convenience, they will have to pay for it with either their data or money”.

The savings appear substantial. For instance, at Tesco, using a Clubcard can slash 19% off the cost of a shopper's basket of seven branded essentials, amounting to a £5 discount on a £26 purchase, as per data gathered for the Telegraph by Assosia. Similarly, Sainsbury’s Nectar card holders can save 18% on their basket, including items like Heinz baked beans, Anchor butter, and Andrex toilet paper, when they swipe their cards.

Whilst customers may find solace in the fact that they are likely to make significant savings in their shop, they may not realise that retailers are benefiting from their perceived loyalty also gaining insights into the treasure trove of their personal data.

Commenting on the use of consumer data, Greg states “The challenge for retailers and businesses will be to reassure their shoppers that these schemes are not invasive. Equally, consumers need to be more open to the fact that if they want everyday low prices, then they need to comply in some sense.”

With loyalty card schemes, retailers can gain valuable data from their customers, which includes how much they spend, what they spend their money on, their most-sought out products and how often they purchase these items. The more data supermarkets have, the more they are able to forecast demand on the basis of past customer behaviour, and the better able they are to manage their stock. 

Supporting this, Tesco and Sainsbury’s recently came under fire for reportedly selling consumer data for an estimated £300 million a year to give other businesses insights into what typical people might want to buy in stores.

Despite this, some shoppers have reported preferring brands who offer personalisation in their loyalty schemes, as this factor has the potential to enhance their customer service experience. Supporting this, Pymnts recently reported that 4 in 10 consumers prefer cards with personalised rewards, as these programs provide economic incentives to increase customer loyalty. This data allows retailers to understand their customers better and create targeted marketing campaigns and offers tailored to each person. 

Q: Should brands be focused on delivering data-driven personalisation over protecting consumer privacy?

Greg: I can understand the concern that some consumers may have when it comes to their personal data. In that sense, brands and retailers do have a responsibility to ensure that they are deploying certain measures in order to gain a level of trust with their consumers. Brands and retailers ideally need to find a middle ground in balancing data-driven personalisation with protecting consumer privacy to build and maintain customer trust. 

Transparency is key, and clear communication on what data is collected and how it’s used is vital. Additionally, retailers need to ‘up’ their data security practices by implementing robust measures to protect consumer information, and they should also adhere to privacy regulations like GDPR or CCPA.

Overall, it’s important that the shopper gains a sense of intrinsic values from signing up to these loyalty card schemes. Retailers should ensure that their attempts at personalisation actually provide tangible benefits and retail rewards for consumers.

Q: What are the hidden benefits of loyalty card schemes for both retailers and consumers? Do you feel they have long-term value beyond just savings?

Greg: As mentioned previously, for retailers, these schemes provide detailed data on customer behaviour, enabling better stock management, personalised marketing approaches, and enhanced customer experiences. By adopting a data-driven approach, many retailers can benefit from increased customer retention and loyalty, as well as more efficient business operations.

For consumers, they can of course make significant savings, which is so useful for them - particularly in the current economic climate. Through loyalty cards, shoppers can look beyond the cost savings and  gain easy access to exclusive offers, early access to sales, and special promotions tailored to their preferences. Additionally, these programs can create a sense of belonging and appreciation, as consumers feel recognised and valued by the retailer.

In the long term, loyalty card schemes foster stronger relationships between retailers and customers, driving sustained engagement and repeat business. This mutual benefit suggests that loyalty programs have significant value beyond just immediate financial savings, contributing to a rewarding shopping experience for all.

Q: How do loyalty card schemes facilitate collaboration between supermarkets and brands? 

Greg: With the data gained from loyalty card schemes, supermarkets can share their insights with brands to help them gain detailed consumer purchasing data. Together, this will help them to gain a comprehensive understanding of buying behaviours and preferences. With this actionable data, they can create insightful and personalised marketing techniques to create better offers for loyalty card members. 

Both parties can work together on co-branded marketing initiatives, leveraging each other’s strengths to attract and retain customers. Brands can also use loyalty data to ensure their products are well-stocked in stores where they are most popular, optimising inventory management and reducing waste.

Overall, loyalty card schemes create a data-driven environment that benefits both supermarkets and brands through enhanced collaboration and improved customer engagement.

The deployment of loyalty card schemes is also a great way to increase customer satisfaction. Retailers' customer loyalty programs smoothly blend different ways of shopping. Customers can browse products online, buy them in-store, and use rewards across channels. This omni-channel approach makes shopping easier and more enjoyable, boosting satisfaction.

Customer loyalty cards can also be a great tool that retailers use to help them fulfil their sustainability commitments. A great example of this could be rewarding customers for choosing reusable bags or purchasing sustainable products. One company who are currently doing this are H&M with their green loyalty programme. H&M members can earn points when they make sustainable choices, which includes bringing their own bag, donating unwanted textiles and opting for a climate-smart delivery. It is worth noting however, that many brands have been called out for ‘greenwashing’.  In this case, it is important for brands and retailers to maintain transparency in order to avoid misleading consumers. 

Q: How can supermarkets use loyalty card schemes to promote eco-friendly practices? 

Greg: Supermarkets could potentially use loyalty card schemes to promote eco-friendly practices by rewarding customers for sustainable purchases and actions like using reusable bags or recycling. Retailers could also consider introducing an educational aspect to teach members about sustainability through program communications, offering exclusive deals on green products. 

Additionally, supermarkets can allow customers to track their carbon footprint and reward reductions. These strategies encourage and incentivise eco-friendly behaviours among shoppers.

Lidl Plus: Big on Shaking up Grocery Loyalty - The Wise Marketer

Q: The future of loyalty: What lies ahead for loyalty card schemes in the ever-evolving retail landscape? 

Greg: As retailers embrace technological advancements alongside looking for innovative ways to retain their shoppers, we can expect to see a significant transformation to loyalty card schemes as we know them. These programs will likely become more personalised and data-driven, utilising AI and machine learning to offer tailored rewards and recommendations. Enhanced data security measures (possibly leveraging blockchain technology), will ensure consumer trust and privacy.

I also expect to see a digitalisation of loyalty programs, making them convenient and easy to access. Additionally, adding AR will help to make shopping more of an interactive experience. 

Whilst loyalty card schemes continue to evolve, it is important for retailers to bear in mind that they should be making these platforms and apps accessible to all shoppers. Grocery Gazette recently reported that older and more vulnerable shoppers who do not have access to such devices are missing out on the ability to make significant savings. The migration of physical loyalty cards to smartphone apps will be an important discussion point for many retailers. Ideally, they should ensure that they are offering access to all demographics.

Unlocking the Benefits of Loyalty Card

We expect that retailers will work even harder to encourage consumers to sign up to their loyalty card schemes, by leveraging lucrative price cuts and innovative marketing strategies. The effects of the cost-of-living crisis are likely to be felt for a long time. As a result, consumers will turn to these schemes in order to gain their many benefits. 

Here at the Dee Set group, we help brands and retailers to improve their sales, product availability and promotional compliance with our data-led approach. We’re proud to offer in-store and end-to-end solutions within our service capabilities, aiming to improve the stature of any retailer that works with us.So, why not talk to us and see how we can tailor our services to optimise the customer experiences and maximise your sale?

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