"La client n'a jamais tort" – "the customer is never wrong". The mantra coined by hotelier Cesar Ritz back in 1908 has never been more relevant than in today's market – one in which UK companies have poured £3.6bn into an entire theory of marketing which aims to take this mantra to its logical conclusion and place the customer at the very centre of everything else.
Consumers may not have heard of Customer Relationship Management, but more than ever before they are fully aware, as they brandish their loyalty cards, that their data is being collected, used to measure spend patterns and aid more informed and therefore more profitable decision-making.
However, as Peter Batchelor, head of direct marketing at Triangle Communications, explains: "Outside of the grocery sector, the loyalty card approach does not always work, because visit frequency and average spend is not high enough to warrant customers carrying a card around with them."
And as consumers' wallets bulge with ever more loyalty card offerings, the proportion of consumers who would prefer lower prices to points or incentives has risen by 15% over the last four years.
Has collection fatigue set in? If so, how can marketers retain consumers' custom and loyalty? Given the extent to which trust in a brand and loyalty to it are intertwined, it's a sticky subject.
The three success stories of the loyalty card game – Tesco, Nectar and Boots – certainly fit the frequency bill. Two of the three are of course multi-partner schemes. The third, Boots' Advantage Card – one of the most successful loyalty schemes in the world and probably the best-loved with 18m members – has recently announced that it is looking for partners.
"The future is undoubtedly in multi-partner or coalition type programmes," says Mike Atkin, managing director of loyalty specialists MJA Associates and European network partner of Colloquy Magazine, ‘The voice of the loyalty marketing industry'.
He adds: "The more places a customer can collect and redeem points, the better. Equally, more participants means more opportunity to share the operating costs, thus creating a win-win situation."
Loyalty schemes are notoriously expensive to run. Even back in the late '70s, Tesco stood to save £20m upon abandoning Green Shield stamps.
Nectar's plan for the future is certainly to continue recruiting partners, with the aim of representing around 70% of household expenditure according to Brian Sinclair, client services director at Loyalty Management UK, the company that runs Nectar.
But the power of coalition schemes is tempered by the fact that shoppers don't necessarily consciously choose to shop in an affiliated retailer. And while working with partners is one route, most are driven by a key player – in Nectar's case, Sainsbury's.
Those forging loyalty collaborations must also pay close attention to the brand fit of the partners involved to ensure a consistent message, according to Simon Seward, client services director at Touchdown Brand Affinity Marketing.
"Consumers are very brand savvy – they know which brands to put together and will see through something that hasn't been well constructed," he warns. "We use various tools and methodologies to profile our client's brand and match them with other brands. If you translate that through to building a loyalty programme, the combination of brands within that programme needs to be right, otherwise consumers will notice."
For example, when telecommunications giant Vodafone aligned itself with Nectar it was criticised at the time by senior telecoms analyst Dario Betty, of Ovum Research, who called it "a boring move," taking the brand "towards becoming as boring as a grocer or a bank." But Nectar's success, in Seward's eyes, lies in securing a partner from each area of frequency purchasing.
"Nectar have made their programme relevant to consumers' day-to-day lives as the utility dimension to it is very strong," he says.
"But it's about getting partners to work together to provide something new as a result of being part of Nectar. There needs to be strong rationale behind these programmes, and brands need to be careful because you need to work them [loyalty schemes] very hard to get what you want out of them."
In fact, so-called "soft benefits", such as invitations to special events, are now seen as more valuable to increasingly loyalty-savvy consumers. International trends agency Trendwatching.com has labelled this phenomenon "massclusivity".
Director Reinier Evers explains: "There is consumer apathy when it comes to loyalty cards and schemes, as we now officially live in an age of abundance. Most consumers now only have wants, not needs. To promise consumers yet another coffee machine, or a 20p saving is stale."
He predicts marketers' focus turning to new incentives "that make consumers feel special and make them stand out, whether it's limited edition goods or better or more luxurious versions of what they already have."
"The more access consumers have to outstanding quality goods and services, the more they want exclusivity and status of a different order. This ‘exclusivity for the masses', or ‘massclusivity', can be an instant add-on," he claims.
One could argue this only holds true for a certain type of consumer – not the typical Asda mum, who, as we are reminded by Sharon Osborne, never tires of watching the pennies.
Frequent flyer programmes, however, seem to be hitting a chord with a wide range of customers. Evers attributes their continuing success to the fact that "consumers can definitely see and feel the difference between a seat in economy and a seat in first."
Nigel Grimes, customer insight director at AirMiles, says the power of travel as a reward is very motivating, claiming that "a large proportion of our collectors has formed an emotional attachment to the AirMiles brand. As a reward for loyalty, travel is seen as something special, much more so than an everyday reward."
But consumers' emotional affinity with a brand does not exist in isolated connection to the loyalty programme benefits they receive, however luxurious. Customers, it seems, also want to see their loyalty rewarded in the form of a back-to-basics approach to customer service, and to be understood as individuals.
Hence, the buzzword in CRM and loyalty has become "holistic". Sheridan Thompson, client service director at Catalina Marketing, the company behind Somerfield's loyalty scheme, credits Tesco's success to adopting this mentality.
"CRM is something the whole company has to take on board – you can't improve loyalty just by printing a coupon," Thompson insists. "The reason the Tesco scheme has worked so well is that it has embraced it into the whole company culture. Tesco is the gold standard which we are trying to build on."
Jackie Ronson, newly appointed director of customer experience for UK & Europe at Prudential, knows better than most that the bigger the organisation, the harder this is to achieve.
"We are such a vast organisation that tracking a customer through all the different ways they touch us is unbelievably difficult," she explains. She describes the 26 non-integrated systems which hold customer data at Prudential, claiming it is a key investment decision to get those systems integrated to form a single view of the customer base.
But in terms of building loyalty, Prudential echoes the need for a holistic approach: "The right customer experience is what's going to build a sense of loyalty and retain our customers, rather than saying ‘here's a card and we are going to give you some points'. We are finding consumers don't trust these different loyalty schemes and incentives," says Ronson.
However, she admits that routes to loyalty depend on the product.
"With general insurance, people are looking around for the lowest cost – although it's hard to compare benefits on a like-for-like basis – but direct response ads do work well with incentives. But with really important decisions in your life such as investments, how you are going to live when you retire and buying a house, people want a brand they know and trust."
Trust is a crucial aspect of the loyalty game, but companies could be missing a vital trick. A survey of the UK's top 1,000 companies revealed the call centre to be the second most important medium in customer touch points, yet call centres are not always seen as a customer relationship management opportunity.
"Companies often focus on developing the skills of the relationship managers, but you have to skill up the people who answer the phone," insists Jackie Smith, director of Speak First, which specialises in CRM training.
This is a philosophy which branchless bank First Direct has at its core, hiring its staff based on their communications skills rather than banking knowledge, to ensure each customer has a positive experience every time they call.
"Customers are impressed when an organisation is honest and says ‘I don't think this fits your needs'. The customer then often enters a dialogue with the company and buys something else or will remember this and come back to them," says Smith.
Speak First have developed a research tool called Deep Insight – a customer service profit chain which links company profits to customer retention; customer retention to customer loyalty; customer loyalty to satisfaction; satisfaction to a positive experience with the organisation; that positive experience to happy employees and finally, happy employees to a belief in the organisation and trust in how it handles them.
Enjoyment and pride
So, at the heart of customer loyalty lies staff loyalty and trust.
"Investing in your employees is absolutely critical," says Smith.
Perhaps unsurprisingly, this sentiment is echoed by Virgin. Its telecoms brand, Virgin Mobile, enjoys the lowest churn in the industry, at under 20%.
"It's a mantra you'll often hear from Richard Branson – keep your staff happy first," says its corporate affairs director, Steven Day. "People should enjoy coming to work and that sense of enjoyment and pride is then reflected to the outside world. The customer notices and it matters. It's a holistic philosophy which starts internally.
"The way people perceive us is not about making sure we have the best loyalty programme or making sure we are part of Nectar or Air Miles or whatever it is, but the way we approach service."
One small but perfectly formed aspect of Virgin's approach to customer retention is the much-publicised 333 "dialling under the influence" service, allowing customers to put an all-night block on the number they don't want to drunk-dial. It's currently available with Virgin Mobile in Australia and is due to be launched in the UK shortly.
"Virgin customers get quality, reliability and value but they also get the fun stuff," says Day.
The key to Virgin's success, according to Day, is that "we don't consider CRM an appendix.
Some companies offer poor service and plaster the wound with a CRM programme or standard loyalty scheme."
Research shows consumers are more loyal to their mobile phone provider than to stores with which they hold a loyalty card. Customer service is the second most important consideration in choosing a network after price.
In the sector, both Orange and O2 are currently promoting the fact that the same rewards are available to their existing loyal customer bases as to newcomers – but in this message lies a risk; a bit like McDonald's telling us their Chicken McNuggets now feature real chicken. It begs the question: "What were you up to before?"
The success of Orange Wednesday's two-for-one cinema promotion lies in providing valuable real time data, as well as a personal dialogue between Orange and the consumer – encouraging customers' loyalty to be taken to its most positive and beneficial extreme and for the customer to become brand evangelists and communicate Orange's message to their friends.
But not everyone wants their loyalty rewarded – certainly not if it takes the form of intrusive data collection. There are still plenty of loyalty refuseniks out there and not just the folk in the queue to rent Super Size Me, or with their noses stuck in a copy of Naomi Klein's brand-busting book No Logo.
One gentleman who'd made a T-shirt emblazoned with the slogan "No I don't have a f****** loyalty card", inadvertently made himself a hero when he was persuaded to advertise said shirt in Private Eye – and received hundreds of orders from everyone from vicars to EU bureaucrats.
Increased publicity surrounding issues such as the National ID card and Radio Frequency Identification (RFID) have brought these concerns to the fore. Yet 2004 research shows those who don't participate in the loyalty game are less worried about Big Brother-type monitoring than other concerns, such as filling in application forms or remembering their card.
There has also been a raft of bad press surrounding store cards. MJA Associates' Atkin admits: "A big failure in loyalty programmes is in the store cards market, where members may be given a 1% reward in return for taking out a store card with an APR of 29.9%."
It's something that hasn't gone unnoticed by consumers. There has been a steady decline in the number of store cards held.
Marks & Spencer's "&more" card is the most popular on the market, but even that has witnessed a fall in numbers since the days of their Chargecard. M&S got into hot water with the Office of Fair Trading over automatically replacing store cards with the credit card, unless customers specifically objected. The "&more" card is unusual in that it allows rewards on purchases from rival retailers and allows consumers to "double dip" and collect two lots of points simultaneously.
Those planning the launch of John Lewis' Partnership Card were concerned not to make the same mistake as M&S' Chargecard and risk jeopardising the genuine customer loyalty the brand commands or offending loyal customers. Customers were upgraded only after having been asked nicely and John Lewis invested heavily in a dedicated UK call centre team to deal with queries.
Chris Coyne, marketing manager for the Partnership Card, explains: "Trust is integral to brand loyalty; how you do things is often as important to trust as what you offer and we have been taking great care to market the card in the right way."
Triangle's Peter Batchelor says: "The key to the effectiveness of any customer programme lies in understanding the customer perspective. When brands get the relationship equation right, it's a joy for the recipient."
For this feeling of joy to be translated into genuine loyalty towards, and emotional connection to the brand, it must be nurtured. The principles of CRM, disseminated throughout the entire organisation and combined with the right loyalty offering, have the power to nurture the right customers – before they up and leave.
Years of loyalty–how the game unfolded:
1958 The Green Shield Trading Stamp business is founded by Richard Tompkins
1960s and 1970s Consumers receive green or pink stamps with their shopping, and glasses with their petrol
1965 Co-op launches dividend stamps
1977 Tesco abandons Green Shield Stamps
1980 Banks use new technology to foster "relationship banking"
1988 AirMiles Travel Promotions founded
1993 Sainsbury's Homebase launches Spend & Save card Boots begins planning a loyalty card
1994 Asda introduces limited loyalty card scheme
1995 Tesco launches Clubcard – dismissed by David Sainsbury as a return to GreenShield stamps Sainsbury's introduces Reward card Safeway enters market with ABC card
1996 Tesco creates a student Clubcard and a card for mothers
1997 WHSmith launches Clubcard Boots launches Advantage Card Tesco adds full range of financial services McDonalds launches its first card – the McExtra Card
1998 Tesco offers electricity and telecommunications The CWS Dividend Card replaces Co-op's stamps
1999 Asda discontinues loyalty scheme to focus on Rollback campaign Boots launches Advantage loyalty credit card in conjunction with Egg "Advantage Point" goes into Boots stores Tesco launches Clubcard Deals, which enables customers to use their vouchers to obtain discounts on travel and leisure products
2000 Safeway drops the 7m-strong ABC card, saying: "Our customers don't want a relationship with us."
2002 Nectar card launched by Air Miles founder Keith Mills Somerfield pilots Saver Card
2003 Vodafone joins Nectar Barclaycard's switch from Air Miles to Nectar points causes complaints 50% of UK households have a Nectar card (11m out of 22m) 85% of UK households have at least one loyalty card Marks & Spencer falls foul of the Office of Fair Trading (OFT) over the launch of its &more credit card.
2004 Somerfield launches Saver Card Debenhams store card adds credit card facility, attracting the attentions of the OFT Waitrose and John Lewis launch Partnership Card.
What you need to know about CRM
The first word in CRM is ‘Customer'! Everything you ever wanted to know about CRM but were afraid to ask: The concept of CRM was introduced during the technology boom of the late 1990s. It promised a brave new world in customer management, driven by expensive back-end software and delivering improved operational efficiency and deeper insights into your customer base. By knowing your customers, you could build their trust, extract their loyalty, and increase your grip on their hearts, minds and wallets.
"Customer relationship management has now evolved from something of a buzzword to a maligned concept," says David Bulman, technical and operations director at Broadsystem, which specialises in the infrastructure behind CRM.
"CRM strategies have come under severe pressure and scrutiny because many companies, having spent millions, are still unable to show a clear return on investment."
There has been a flood of doom and gloom studies backing up the view that most CRM projects will fail. "These make depressing reading and are in stark contrast to the over-inflated research of the late 1990s that touted CRM as the miracle cure for all marketing dilemmas," Bulman comments.
"The CRM dream may have been overstated, but there is nothing wrong with the principle of gaining a better understanding of customers' wants, needs, profitability and potential."
Plugging a fancy new computer into your customer database wasn't quick, easy or cheap but even if it had been, any computer – however sophisticated – is only as good as those operating it. For this reason, companies now recognise CRM as a corporate philosophy which must be integral to their business model.
Most experts agree that it's not about collecting more data but using what you've got properly. This year's Tesco customer plan backs up this view, stating that "while 75% of companies capture customer data, only 21% act on it."
"A successful scheme depends on a combination of clear objectives and significant investment in both quality thinking and expert people," says Bulman.
"It isn't rocket science."
What makes marketers loyal?
Once they've taken their marketing hats off and become plain old consumers, what inspires loyalty in the experts?
"I recently chose to have a 10- hour stopover in Bahrain, en route to Australia with Gulf Air. When I got to the transfer desk they said: "You're staying more than eight hours, here's a complementary hotel stay, including breakfast." I could have taken the plane in two hours, but it was my choice to take the later one and look around Bahrain. When I got back to the airport, they asked how I liked the hotel, and if I had the chance to explore the area. Those personal touches made a real difference." - Jackie Smith, director, Speak First
"The loyalty methodology that appeals to me is the auto recommend system pioneered on Amazon – it identifies other titles bought by customers who've purchased the same books as me. It's a simple, cost effective way of helping me find more of the books I want and it results in them getting more sales!" - Sheridan Thompson, client service director, Catalina Marketing UK
"In terms of loyalty schemes, more disappoint than excite and it's not often you come across something and think ‘wow!' One thing I do have is frequent flyer cards and I have been very loyal to both BA and Qantas at the expense of cost. They were fabulous schemes to begin with and they were very successful, but by putting so many restrictions on them, such as taking the points away at the end of each year, they run a real risk of ruining that loyalty, and I am certainly becoming disillusioned." - Jackie Ronson, director of customer experience, Prudential, UK & Europe
"I think Hotel Chocolate (www.hotelchocolate.co.uk) has got its customer communications right – it's a great respecter of personal space and manages to never overtly sell to you, while recognising and acknowledging your custom and appearing to personalise its offerings in light of your purchases. It makes you feel you are in charge of the relationship and is really flexible in terms of what and when you can buy – and everything is beautifully presented." - Greig McCallum, founding partner, WCRS Personal.