Loyalty Marketing

Loyalty schemes can be very valuable and profitable in the right kind of business.

We all know that it costs much more to attract new customers than it does to get existing customers to return.  How much more will depend on what you’re selling and who you’re selling to, but the principle holds true across most markets.

Here’s the basic premise of a loyalty scheme, just so we’re on the same page:

Let’s say that a £50 marketing spend typically delivers 10 new customers to you; your customer acquisition cost would be £5 per customer. Now, once you’ve brought the customer in once, it’s easier to bring them in for a second time (they know you exist, how to find you, like what they bought first time etc etc) so you might only have to spend £2 to bring them in again.

On that basis, if you had £10 to spend on marketing, you’d be better off spending it to bring in 5 existing customers, rather than just 2 brand new ones.

On top of this, there is a great deal of evidence that says that in most businesses, returning customers spend more than first time customers. So it’s a double-whammy. Cheaper acquisition cost and more revenue. That’s why loyalty marketing has the power to explode your profitability.

Tesco and Boots are unlikely to both be wrong! The Clubcard and the Advantage card are Britains two biggest loyalty schemes.

Although they all offer rewards to the consumer, these loyalty schemes are designed to be minefields of information for the businesses that operate them.

For example, if a customer uses a Clubcard then Tesco will know if they have children or if they’ve just had a baby. They can tell whether someone is a ‘Finest’ shopper or a ‘basics’ shopper. They can tell if customers are going on holiday.

Do you think that all this information might help Tesco to encourage their customers to spend more money?

Of course it does. It means that they can send highly targeted offers to Clubcard users, and then track to see whether those offers have been used.