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If there was one buzz word which defined 1997 for marketers, it was

loyalty. No marketing director was content until he had launched a

loyalty scheme. We all learned that it is much cheaper to keep an

existing customer than to acquire a new one, and we read Don Peppers

until our eyes ached.

Maybe the new year is a good time to step back and think about whether

the headlong rush into loyalty schemes has gone too far. In our

enthusiasm to embrace the idea of ’customer loyalty’ with cards, points

and prizes, are we not in danger of forgetting that loyalty can’t be

bought - that it has to be earned?

As late as November, at Marketing ’97, loyalty was the main theme of

many of the conference papers. One of them contained a pithy definition

of just what a loyalty scheme is. According to professor Steve

Worthington of Staffordshire University: ’A true loyalty programme is a

card-based scheme that links a consumer and an organisation in a

long-term, mutually beneficial relationship based on an exchange of

information and rewards.’

Interestingly enough, in a survey which Marketing commissioned from NOP,

we discovered that 59% of Britons have at least one of these cards. I

have plenty myself - I am the Viscount Althorp of the supermarket aisles

- and that’s true of many users of loyalty cards. We pick them up, we

may even use them, but we’re not loyal in any true sense of the

word.

In fact, that same survey suggested that only 26% of those who have

loyalty cards for stores visit them more often.

So I’m at odds with professor Worthington. True customer loyalty has

nothing whatsoever to do with plastic cards. Let’s forget all that

marketing stuff for a second and think about what real loyalty

means.

To do that, we need to forget marketing for a moment and go back to an

age when our culture’s ideas about loyalty were being formed.

In the tenth century, a small band of Saxons fought a pitched battle

against Viking raiders at Maldon in Essex, just half a mile from where

Marketing is printed. They were local men, called out in defence of

their homes by their lord. He was killed early in the battle, and from

that moment, every Saxon on the field was doomed to die, because it was

the greatest disgrace to return alive if your lord was killed.

One of the oldest warriors, Byrhtwold, gave us the lines of Old English

poetry that summed up the idea of loyalty which prevailed in Britain

until the advent of the plastic loyalty card. In the poem written about

the fight, The Battle of Maldon, he is quoted as calling out, while his

comrades died around him: ’Courage must be the firmer, hearts the

bolder, spirit the greater, as we grow fewer.’

Great words. Now which of us would willingly die for our grocer? The

fact is that loyalty has become a debased currency.

Loyal customers are only ’loyal’ as long as you deliver the goods. That

isn’t to say that some sort of loyalty does not exist among regular

purchasers of a product or service, but it certainly isn’t the

unquestioning loyalty that some marketers would like to believe is

possible.

Stand by your brand

Loyalty in the marketing sense may not mean giving up your life, but it

surely must mean sticking with a brand you trust even when it’s more

convenient or cheaper to go elsewhere.

I drive past a Sainsbury’s store to get to my nearest Tesco. My decision

to do that isn’t based on convenience, or price - I have loyalty cards

for both stores - but on a perception that the experience of shopping at

Tesco is more pleasant that it is at Sainsbury’s. The points I collect

are an added bonus, but they’re not the deciding factor.

A card only works if this sort of loyalty (with a small ’l’) has been

built up first. And you can’t buy that with discounts - you have to earn

it. How?

Anglo-Saxon Poetry is not what you would usually expect to read in

Marketing, so let’s come right down to earth with a shiny new acronym:

KERF. It may not be as good as SMERSH or SPECTRE, but it’s short, and it

does at least encapsulate the loyalty process.

First, you need to build up a customer’s Knowledge. You can’t expect

people to become loyal to a brand about which they know little, so that

is where good old-fashioned marketing communications comes in -

everything from TV ads to direct mail, to customer magazines. Does the

customer know enough about the brand to choose it over others?

Second is Experience. Is the experience of using the brand pleasurable

enough to make you want to return? All the plastic cards in the world

aren’t going help if the reality is tatty carpets and a spotty

17-year-old behind an armoured-glass screen. But if, once a customer

knows what benefits your retail brand brings, his first visit or use of

the brand is good, you’re halfway there.

Third comes Relationship. Is the contact between the brand and customer

frequent and powerful enough to constitute a relationship? You cannot be

loyal to someone you do not feel connected to. Here is where the card

comes in. At its best, a loyalty card is a terrific way of building a

relationship through regular mailings and the two-way exchange of

information and benefits.

If all those are in place, we can move on to the final phase: Faith.

Based on all of the above, does your customers’ knowledge of, and

relationship with the brand engender the faith that future product

offerings will be excellent, and that mistakes will be put right?

If you have reached this stage, you can even afford to make a major

mistake, like Persil Power or Classic Coke, because if you put it right

your customers will forgive you. They may even become more loyal because

of the way you handled the problem. Once you are here, you don’t need to

blush when you say you have loyal customers.

When a customer has passed all these stages, they will continue to buy

from your company. This is the time when that plastic card really starts

to deliver, as you use it to help build up a relationship in which you

reward those loyal customers, communicate with them and receive their

comments and advice.

A weak hand

The card itself cannot make people loyal. What it does is let you profit

from the loyalty that already exists. Loyalty card poker is an expensive

game to play, and that’s what you end up doing if the card is your means

of keeping customers.

If you are relying on rewards to keep customers, and a rival raises his

offer of points or prizes, you raise yours or lose customers. But if

your customers are loyal because of the excellence of your core

offering, they’re not going to move unless the offer from your rival is

so generous as to cut his margins to the bone.

It comes down to what is at the heart of all marketing: quality, value

and service. If you do not offer these, all the cards in the world will

not get you out of trouble.

’Loyalty’ and ’scheme’ simply are not words which should be coupled

together.

Think of loyalty as something you earn, and a scheme as something you

put in place to reap the benefits of what you have already

developed.

Let’s break out of the loyalty card gridlock and think creatively about

engendering real loyalty, not the plastic kind.

But just in case we get too carried away with the subject, forget the

poetry and remember the words of Alan Sugar: ’Marks & Spencer loves you.

Securicor cares. IBM says the customer is king. At Amstrad, we just want

your money.’

This feature also appears on our Web site, Marketing Online, at

http://www.marketing.haynet.com. If you would like to comment on the

issues raised, you can do so in our online discussion forum. Just follow

the links at the end of the feature. Should your interest in Old English

poetry have been aroused, you will even be able to find out more about

The Battle of Maldon.

THE FUTURE’S STILL IN THE CARDS BY TERRY HUNT

No, loyalty’s not all about cards - it never has been. And the maligned

professor Worthington never said it was. He said that loyalty in a

commercial sense - and let’s run through it again - is ’a long-term,

mutually beneficial relationship based on an exchange of information and

rewards’. That doesn’t sound too daft, does it?

Loyalty is not one-way. Whether it is between a noble thane and his

grizzled serfs, or a supermarket and its fragrant regulars, there has to

be some sort of mutual advantage in a loyal relationship (unless of

course you’re a Burnley supporter).

A customer demonstrates loyalty to a company by buying lots of stuff,

lots of times. The company reciprocates by recognising the customer as

an individual and treating them better than before.

It’s worth the customer’s while consolidating their spend; it’s worth it

to the company to protect its sales. The customer gets a reward, the

company gets data, and so on.

In fact, it is the ’mutually beneficial’ bit that the critics of loyalty

marketing seem to forget.

A loyalty scheme (dread phrase, but still handy) is not only about a

customer showing loyalty to a company, it is also about the company

showing loyalty to a customer. And that’s where the card comes in.

Because, at least until someone invents something better, a unique,

numbered, electronically recognisable plastic card is by far the best

way for a big company with millions of customers, and many more millions

of transactions, to fulfil its part of the loyalty bargain.

To hijack Mike’s own felicitous acronym, KERF, a loyalty card, linked to

a customer database, enables the company to build Knowledge, Experience,

Relationship and Faith in its customers.

Just by asking for a name and address when the customer joins the

scheme, a company achieves heights of customer knowledge that most mass

marketers had never dreamt of before.

Heavens, they now know where their customers live! And they’ve got a

simple way to recognise and remember them in the future!

Then there is the extraordinary insight that you get when you experience

a customer’s behaviour over time by analysing pure transactional data

recorded on the card - rather than that thin, filtered stuff you get

from traditional market research.

You can hardly have a relationship with someone you know nothing about

(well, you can but you know what I mean). And when you know who your

most committed customers are - who plays the field occasionally, and who

is promiscuous - you can be a lot less naive about who you put your

faith in.

Nobody ever said that the loyalty between a customer and a favoured

company was all about cards. It is just that without those humble bits

of plastic most big companies would not be able to come close to any

sort of long-term, personal relationship with individual customers.

Terry Hunt is executive creative director of direct marketing agency

Evans Hunt Scott.