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  • Samantha Steadman

Loyalty Schemes in Retail: Unveiling the Pros and Cons of Customer Rewards Programs

Updated: Apr 5


In the realm of retail, customer loyalty stands as a coveted asset. Retailers in various sectors have turned to loyalty schemes as a strategic tool in the quest to build lasting relationships with consumers. By offering a range of perks and rewards, these programs aim to keep customers coming back for more. However, as with any strategy, loyalty schemes come with both advantages and drawbacks and finding the sweet spot for these schemes to please everyone is a delicate balancing act. From the undeniable allure of exclusive discounts and personalised experiences to the potential pitfalls of oversaturation and rising consumer scepticism of the scheme, this blog aims to explore the dynamics of the loyalty program and provide a balanced perspective on how these schemes influence consumer behaviour and contribute to the overall retail experience.


With food prices remaining high customers are looking to loyalty schemes in a bid to save cash with special bonus deals and slashed prices for members. However, research published in September by consumer choice organisation, Which? suggest supermarkets could be using deceiving tactics to give the impression of savings being better than they really are.[1] The organisation tracked 141 Clubcard and Nectar price offers for 6 months until the end of June and found that 29% of the member-only promotions across both supermarkets were at their regular price less than half the time.

For example, the Nectar price of Nescafe Gold Blend was dropped to £6, from the regular price of £8.10. However, this had only become the standard price just two days before the Nectar price launched – prior to this the regular price was £6. Similarly, at Tesco, Heinz Salad Cream had a Clubcard price of £3.50 from a regular price of £3.90 – however, the regular price was £2.99 for several weeks before increasing to £3.90 just 22 days before the Clubcard promotion. Following this research, Which? called on supermarkets to make sure every non-member price was genuinely reflected so savings are meaningful and accurate.


Retail specialist Phil McMahon agrees the findings raise valid concerns and that supermarkets may need to review internal processes. Sainsbury’s have responded to the claims saying any price rises have come as a result of inflation and Tesco stated that Clubcard price promotions follow strict rules and all deals are compared against prices at other supermarkets to represent genuine value and savings. McMahon comments, “While inflation might explain some of the price increases, it does not necessarily explain the timing of these increases in relation to member-only price schemes and so the supermarkets might find it prudent to ensure that ‘regular’ prices have been in place for a widely acceptable minimum period before items qualify for member-only price schemes.” However he believes these are “genuine oversights rather than malice on the part of Tesco and Sainsbury’s” and states, “shoppers would be unlikely to forgive any proven price-gouging during an economic crisis and there are plenty of other supermarkets to switch to.”


GlobalData associate retail analyst Joe Dawson comments that the findings are unlikely to have substantial effects on Tesco or Sainsbury’s customer bases as “they still manage to maintain price matches with most other supermarkets that do not have as comprehensive a member prices scheme.” Transparency and communication with customers on the criteria and intricacies of their membership schemes and items which qualify would help the brands build trust with their customers and get ahead of any accusations of disingenuous offers.


Which? also raised concerns that the mechanisms of loyalty schemes can be intrusive and exclude certain groups. For example, a minimum age of 18 years old is required to be a member of Asda, Iceland, M&S, Lidl, Sainsbury’s, Tesco and Waitrose’s loyalty schemes. This age restriction creates challenges for the younger demographic such as teenage parents, or school children buying lunch who have no access to discounts.


Another issue raised by Which? is the fact that the general loyalty scheme model aims to gather customer data, ultimately excluding those who do not wish to share their data from signing up. Joe Dawson states, “As long as consumers understand what they are signing up to, it should not be an issue. It is true that for those unwilling to share their data with supermarkets it will be more difficult to find low prices, but supermarkets have been under great pressure to cut prices and have often take on losses to do so, so it is understandable to expect something in exchange.” Again, transparency with the customer is key here on how customer data is used and shared upon sign up, so all parties are aware of exactly what they’re signing up to.


Despite potential issues raised, it is unlikely that shoppers will turn away from discounts offered by loyalty schemes any time soon, particularly during a cost-of-living crisis. With many retailers refreshing and rejigging their schemes, the loyalty programme remains a vital part of the supermarket tool box in retaining customer loyalty. Let’s take a look at some of the ways stores are employing and reshaping their schemes in recent months…


Marks & Spencer Abandons “Sparks Prices” Trials[2]


Marks & Spencer have recently announced they will be abandoning their trial of exclusive discounted prices for members of its loyalty scheme which commenced last Summer coined “Sparks Prices”. CEO Stuart Machin states their customers would “much rather have great products at everyday trusted prices.” However, they have noted that other features of its loyalty programme have resonated well with its 18 million members, one in particular being this year’s Christmas 12 Days Of M&S – a digital advent calendar offering daily gifts to shoppers, so plans to expand and develop the scheme continue.


Co-Op Drops Reward Scheme[3]


Similar reviews and rejigs of loyalty schemes are taking place with other retailers, with Co-Op also refreshing their loyalty programme, dropping its reward scheme in favour of member exclusive prices and deals. Their initial rewards initiative on branded food, with 2p back for every £1 spend ended on 24th January 2024 and was replaced by members of the scheme benefitting from “price reductions on branded as well as own-brand foods for the first time”, as well as two personalised offers weekly. Co-Op believes that “member pricing is financially more rewarding [to the customer] than the rewards available via the previous mechanism” and plans to invest over £240 million into its membership model in an aim to aid shoppers struggling with the cost-of-living crisis. Customers who still have rewards to use will have until the end of December 2024 to spend or donate their rewards to local charities.


Tesco Double Points Event[4]


Tesco have also pushed forward with their Clubcard Membership Scheme offering double Clubcard points to customers every time they shop for 7 weeks from the 8th January – 25th February. This double points event is the first of its kind in over a decade and will benefit over 20 million members scanning or tapping their Clubcard while shopping in store, online and filling up at fuel stations or cafes. Tesco Chief Commercial Officer, Ashwin Prasad commented on the move, “Many of us could do with a little boost in January so we are delighted to bring over 20 million Clubcard members the added joy of double points…It’s the best value at Tesco with some extra on top. Whether you want to save up your Clubcard points to use towards a special moment like a holiday or simply money off your shopping or fuel, its our extra thankyou to Tesco Clubcard members for shopping with us.”


As we draw this blog to a close, it's clear that these programs wield both benefits and challenges for retailers and consumers alike. The pros, including customer retention and the allure of exclusive rewards, underscore the effectiveness of well-designed loyalty initiatives in building lasting brand-consumer relationships. However, it's crucial to acknowledge the cons and highlight concerns raised by the schemes, in order for retailers to progress and develop their programmes in a way that is suited and comfortable across the board. Loyalty scheme inclusivity, the risk of diluting brand value, and consumer scepticism are valid concerns that require thoughtful consideration and require retailers to strike the right balance between providing enticing rewards and maintaining a genuine connection with their customers.


While loyalty schemes remain a powerful tool, their success hinges on a nuanced approach with retailers continually reviewing and adapting their programs to align with consumer expectations, and transparency and communication with customers can aid with this. Loyalty schemes are ultimately designed to be beneficial for both the customer and the business and the relationship fostered between the two will undoubtedly shape the future of customer engagement. Transparency, relevance, and genuine value builds loyalty that goes beyond mere transactions, creating a mutually beneficial dynamic that withstands the test of time.


 

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