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Loyalty versus loyalty schemes – the paradigm

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Over the past few years loyalty has become a tricky subject for brands.

Once, a customer loyalty scheme meant just that – a promotional mechanism that encouraged a consumer to stick with a brand for the long haul. However, nowadays there is increasing evidence to suggest that consumers will flit between these ‘loyalty schemes’ depending on what’s on offer at any given time.

According to new research by research company fast.MAP for its ninth annual fast.MAP Marketing-GAP report – partnered by the Institute of Promotional Marketing (IPM) – one fifth of shoppers will happily switch their usual product when offered a competitive loyalty programme by a rival brand.

On top of this, a third of consumers add that they often use loyalty schemes now to purchase brands that they wouldn’t normally consider.

So what does all of this mean for the future of brand loyalty? In this cash-strapped climate, is there increasingly no such thing anymore? Do brands need to accept that the loyalty ‘lifecycle’ is nowadays just much shorter than it was? What do consumers look for in a loyalty scheme these days – do price promotions and regular money off deals beat customer service offerings?

The results of the 2013 fast.MAP Marketing-GAP report are telling.

It found that over the past year retail or loyalty schemes tempted more shoppers, more frequently than other offers aimed at getting them to use a different brand.

The survey also found that eight out of 10 shoppers had used all different types of promotion mechanics to buy brands other than the ones they would normally purchase. And more than half of the different types of promotions had been used by nine out of 10 consumers.

Meanwhile, a third of shoppers stated that they ‘often’ use reward or loyalty schemes and send away for free-with- purchase gifts offered by brands other than their usual one.

The fast.MAP Marketing-GAP survey also found that three out of 10 shoppers are tempted by a free sample to swap brands, and a staggering 96% were tempted to use a different brand by a price promotion, with 31% claiming they do this ‘often’.

A quarter of shoppers have ‘often’ used a different brand because of one of the remaining promotions. The exception is gifts or discounts given at events, which were ‘often’ used by 17%, though “sometimes” used by a further 70% – presumably because their use is limited by the number of events visited.

In total, between five and seven out of 10 have ‘sometimes’ tried something different because of each of the promotions listed. But, as if that wasn’t worrying enough for brands, the survey also found that marketers underestimated the brand-switching power of BOGOFs by 100%; a 10%+ price cut was underestimated by 150%; and an a price cut of up to 10% was misjudged by almost 200%.

The harsh reality is that we are now reaping the dubious rewards of the rampant price discounting that went on at the start of the recession. It seems that the consumer has now got used to and, worse, expects price promotions and is happy to consider brand switching to get a deal.

What this all means is that loyalty is becoming something that no brand can take for granted.

Yet the most worrying thing about the results from the report is that there appears to be a fundamental disconnect and that brand marketers are seemingly completely out of touch with their consumers in terms of understanding what it is that they are actually looking for.

The IPM has been arguing for the past few years that the obsession with price discounting – often forced upon FMCG brands by retailers – is damaging to brands in the long-term. Judging from the fast.MAP Marketing-GAP study, one key area where this is happening is loyalty.

If brands want to create real loyalty through promotions, then they should be looking at value-added offers, rather than getting involved in a price war.

Published on Thursday 14 November by Editorial Assistant

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