Are loyalty schemes a marketer’s best weapon given consumers’ rising costs?

McDonald's recently launched its new loyalty programme, MyMcDonald's Rewards as a way of rewarding consumers with points to spend in-store. As the cost of living increases, it seems that loyalty schemes may be on the rise as a way of getting customers to continue spending despite falling on hard times.

Is this a marketing ploy aimed at easing economic hardship or a tactical method to regain brand loyalty and continue brand spend? And how successful can a brand loyalty scheme actually be; what are the best ways to measure its performance?

We spoke to a number of industry insiders to hear their thoughts on the rise of loyalty schemes.

Daisy Ross, associate director, MediaCom

Loyalty schemes can certainly help people stand out from the crowd during difficult economic times, however, never underestimate how smart and savvy consumers are. Brands that will succeed are those that are consumer-led, and whose marketers are asking: how do people really want to save? Asking people to spend above their means to get a free carrier bag won’t fly. People want low effort, high reward, and choice.

That’s why the Tesco Clubcard is so successful – it puts the power back into consumers’ hands, allowing them to determine what will benefit them most. They can do this by collecting points for a range of worthwhile rewards, from money off at the till to collecting points to treat their family to a day out.

Measurement and ongoing conversation with customers are key to evolving long-term schemes. Are people engaging with, and redeeming the benefits you’re offering? Looking at this data will help guide whether your loyalty scheme is actually adding value to your customers’ lives.”

John Blight, senior strategist, New Commercial Arts

If anyone is viewing loyalty schemes as a way of easing economic hardship they are delusional.

But what loyalty schemes may do is brighten someone’s day a little bit when they can claim that reward. Perhaps that’s where we should focus our attention.

I think the best weapon right now for all marketers is empathy. An acknowledgement that for the reported six in ten households who have had to dip into their savings or use a credit card for essential shopping, things are tough and are probably going to get tougher.

Maybe with an understanding of what a lot of us are going through and will go through, marketers can communicate or market what their product may bring in the current climate.

The once everyday meal deal may now be the weekly indulgence.

The new pair of jeans may be the trousers that have to work that bit harder over the next few months (okay years).

A Happy Meal may actually live up to its name. Yes, a loyalty scheme may sometimes get you to choose McDonalds over a Burger King or whatever is discounted on Just Eat, but it can't get someone to choose McDonalds over a food bank.

Oliver Waterstone, strategy lead, The&Partnership

In 2013, Waitrose started giving free coffee with every shop to its MyWaitrose card holders. By Christmas that year it was the second largest provider of coffee in the UK behind McDonalds. The queues were infamous. Covid finally did away with the scheme.

This is when loyalty schemes work. I do my shop, and Waitrose gives me a free coffee. It’s a tangible, predictable reward.

Contrast that with Pret, who allow their staff to randomly give one free coffee a day to someone who makes them smile. Random rewards are addictive. You’ll know this if you’ve ever played Fortnite, or opened a mystery box in Fifa.

McDonald’s knows that combining predictability and randomness is the key to a successful loyalty scheme. Their new points-based scheme offers tangible, predictable money-off rewards. And their promotions, like the unbelievably successful Monopoly promotion, offer unpredictability.

Is it going to help consumers manage the cost-of-living crisis? No. They’ve got low prices for that. Will it make them love the brand a bit more during incredibly difficult times? Most definitely.

Since dropping the free coffee scheme, Waitrose has lost market share.

They’re planning on bringing it back.

Charlene Charity, head of strategy, Digitas

Given the predicted hardship, although many brands are hoping loyalty schemes will secure a share of shrinking wallets, this will only be the case if brands:

Know their customers: Understand the impact of cost of living on their audiences and what levers they need to pull to keep them coming back. For Tesco and McDonald's, the significantly reduced 'Club Card' price and the McDonald's points equals 'free food' value exchanges are relevant and attractive to their customer base. Similar approaches wouldn't be as successful for higher-end and luxury brand consumers, who react better to personalised and exclusive experiences.

Know what they stand for: Brands need to be clear on where they sit in a time of hardship. At Digitas, we use frameworks to ensure that brands are perceived in the right way, as well as understanding how different consumers will react to your brand in difficult times and what you need to do in return.

So, as with all things in life, it depends how much you know and what you do with that knowledge.

Brad Gilbert, senior communications strategist, VCCP Media

During recessions, brands may struggle to maintain loyalty as consumers downgrade or abandon categories. However, one brand’s loyalty loss can be another’s gain e.g. a champagne brand’s loyalty loss can be a prosecco brand’s gain. A loyalty scheme may limit that but cannot overcome harsh economic realities alone.

A recent example of loyalty success in hard times is Tesco’s Clubcard efforts that helped push their market share to a four-year high. Recent changes made it a win-win-win proposition for customers (prices), Tesco (data and sales) and suppliers (targeted advertising via Tesco).

However, Tesco’s market share remains below its 30% share a decade ago. Conversely, discounters Aldi and Lidl have quadrupled their combined market share to around 16% in the same period using a penetration strategy e.g. more stores, broadcast reach etc.

We know across categories and markets the ‘Law of Double Jeopardy’ persists i.e. brands with less market share have fewer customers that are less loyal. Related to that we know in general, brand growth strategies should emphasise penetration (e.g. Lidl & Aldi) over loyalty.

So, loyalty schemes are often necessary weapons in a marketer’s arsenal but are unlikely to be the best one even in harsh economic environments.