How retailers are cashing in on customer loyalty
More and more consumers are buying into the idea of loyalty programmes — and it’s paying off for retailers in terms of valuable information, as well as increased revenues
You’re on your way home, but need to stop by at least one of two stores. One is more convenient to get to, but the other has a loyalty programme that allows you to accumulate points that will add up to some kind of discount.
Don’t be surprised if you find yourself making a detour to shop at the store with the loyalty programme just so you can get a few rands off the milk you’re buying.
Many of SA’s retailers are counting on you to do this: in a difficult economy in which growth is flat, retailers are increasingly leaning on these kinds of programmes to drive revenue.
The rationale is that by having incentive schemes in place, companies can build loyal followings while encouraging consumers to buy more, says Amanda Cromhout, founder and CEO of Truth, a consultancy that gives advice on loyalty programmes.
On the whole, says Cromhout, about four out of five South Africans who are economically active — those with a household income of more than R10,000 — use loyalty programmes regularly.
Getting consumers to buy into these programmes has been a major success for local retailers. "How many marketing activities get a 75% response rate?" Cromhout asks.
It’s meant feet coming through retailers’ doors at a difficult economic time. Increases in interest rates and fuel prices, along with below-inflation wage increases, have put consumers under pressure over the past year.
Cromhout says loyalty programmes can increase sales incrementally by between 2% and 6%. This might not sound like much, but in an industry where volumes are high and margins thin, it can make a significant difference. A 2% rise in Clicks’ revenue, for instance, would have added R584m to its R29.2bn revenue for the 2018 financial year. This is against December retail sales of 1.4%, says Stats SA.
Loyalty schemes also play a part in getting members to spend more.
Dis-Chem loyalty cardholders spend an average R315 on a basket, against the R183 that non-loyalty members spend"
Dis-Chem CFO Rui Morais told the Sunday Times in October that members of Dis-Chem’s partner loyalty programmes — the Discovery group’s Vitality, for example, and high-end rewards programme Legacy Lifestyle — spend more in stores, with an average basket size of R405. For their part, Dis-Chem loyalty cardholders spend an average R315 on a basket, against the R183 that non-loyalty members spend.
These incentive schemes also give retailers insight into who their customers are. While retailers know how much is spent in their stores, they don’t know who is doing the spending. Loyalty programmes solve this.
Clicks, for example, knows that 76% of its ClubCard customers are women, and 68% of them are in the 25-49 age group. It also knows that about 50% of its loyalty programme customers come from households within 5km of a Clicks store.
Woolworths also uses its loyalty schemes to profile customers. "The WRewards loyalty programme in Africa and rewards programmes for [Country Road Group] brands enable us to gain deep customer insights, drive customer acquisition, frequency and spend, and reward customers with compelling benefits," it says in its latest annual report.
The importance of loyalty programmes to the bottom line is evident in how much retailers have put into upgrading them. Most no longer require even a loyalty card, as retailers have invested in app-based loyalty programmes.
They’ve also made it easier for customers to cash in their rewards. Smart Shopper, for example, no longer requires customers to redeem discounts at a Smart Shopper terminal — they can simply cash in their discounts at the checkout point.
When one looks at how much money retailers have paid out to consumers, it’s easy to understand why loyalty programmes have such broad appeal. Clicks paid R442m to ClubCard members in its 2018 financial year; and Pick n Pay offered R2.4bn in personalised discounts to Smart Shoppers in the six months to end-August (it’s unclear how many of these were cashed out).
Though these programmes are gaining traction, the "SA Loyalty Landscape 2018/2019" report, compiled by Truth, notes that, to be considered true successes, the programmes have to be punted by members to friends and family.
"A loyalty programme alone does not create customer loyalty," it says. "The true reflection of customer loyalty is how likely its customers are to recommend its brand and, in this case, its loyalty programme."
What it means
Four out of five South Africans who are economically active use loyalty programmes regularly