Loyalty programmes need to connect with customers

Dubai: To have a loyalty programme or not — that's a question local retail groups have been contemplating for some time. And the results so far have been a mixed bag.

"At some point or other during the last three years, we did consider launching our loyalty initiative… but the decisive step was never taken because we are still unsure about the cost-benefit equation," said the group general manager at a leading luxury retailer.

"We have not shelved the plans, though right now it's not at the top of the agenda. I think the market — and consumer expectations — need to mature a little more before we put out a loyalty initiative.

"Right now, as we see it, we need to go in for a greater deal of subsidising with any loyalty programme to make it work. In the luxury retailing space that we specialise in, I don't think it will help us a great deal."

On the face of it, this sentiment flies in the face of the conventional thinking. One would have thought a loyalty programme would fit right into the local marketplace's consumer driven ethos.

Successful initiatives

There are many instances in which some of the leading retail operators here are running hugely successful loyalty initiatives.

"Retailers involved in successful loyalty programmes can use all manner of means to keep customers happy and they don't necessarily affect the profitability of the company," said Tim Jones, chief operating officer for the Arabian Centre and Lamcy Plaza.

The group's AirMiles loyalty programme has around 750,000 members and is one of the most successful of its kind.

"Increased sales and frequency of visits to stores more than offsets the costs involved in running a loyalty programme."

He has a point. Be it on its high streets or in malls, luxury shops or fancy restaurants, the UAE already lays claim to a sizable consumer base to make loyalty programmes work for its promoters.

By signing them up for loyalty programmes, they can be induced to spend more and have more repeat visits to the shops and other establishments where a membership would work.

So goes the conventional thinking. But it's never as simple as that, is it?

"The gains generated by loyalty programmes are directly proportionate to the value they add to the customer experience," said Nicholas Paillart, managing director at Sherazade OneEmpower, a loyalty solutions provider for the F&B industry, and chief executive officer of Dine Dubai.

"Often irrelevant rewards or rewards impossible to understand or redeem by the consumer make them lose interest, and in turn the loyalty programme loses momentum. There are many such examples in the market.

Buying trends

"It is important that loyalty and CRM programmes understand their consumer's buying behaviours and spending patterns and take these into account when rewarding them."

Also, some merchants believe loyalty programmes have come to mean nothing more than offering a year-long discount for members. Paillart understands where this comes from.

"There is a reluctance on the part of some merchants because giving discounts on close margins does not improve revenue share until or unless there is a direct correlation to the increase in footfall," he said.

"This can be done when discounts are teamed up with unique value propositions."

Certainly, retailers and other merchants planning loyalty initiatives will have their work cut out. But to pitch any such programme as a sugarcoated all-year discount offering is destined to make it doomed.

UAE residents already have all the discount offers they need on a day-in and day-out basis from the many group-buying portals in town.

They will not want to mix this with the loyalty schemes from their brick-and-mortar merchants.

If merchants make an attempt to do just that, that will only end up buying their customers' disloyalty.

Know what you are shooting at

Dubai: Apart from trying to bring on board a sizable — and committed — consumer base, there are spin-off benefits from having a loyalty programme.

"Understanding your customer's behaviour across business silos and industries allows you to analyse the transactional and behavioural data to streamline your marketing and communications operations," said Nicholas Paillart, managing director at Sherazade OneEmpower.

"Customer Relationship Management (CRM) turns marketing from machine gun marketing to sniper marketing, if you know who you are shooting at."

According to Tim Jones, chief operating officer for Arabian Centre and Lamcy Plaza: "Loyalty programmes are becoming increasingly important for retailers as it is essential for them to know as much about the shopping habits of their customers as possible.

"With a really engaging programme, retailers are seeing very good results. On the contrary, if retailers are not participating in any scheme, they will ultimately lose out to their competitors."

But isn't it the case that, with the exception of Saudi Arabia, the relatively small sizes of the populations of other Gulf countries — and by extension their shopper base — could be one disadvantage for retailers with loyalty programmes?

"There are definitely enough residents in the GCC to make loyalty schemes work well… as long as they are run properly and keep their members fully engaged in the programme," Jones said.