Barclaycard's announcement of the forthcoming launch of its Freedom loyalty scheme is a reflection of the increasing use of such initiatives by UK retailers. Loyalty programs can act as important footfall drivers and the data derived from them can allow for important consumer insight. However, it is important that their use is made attractive to consumers and retailers alike.
Barclaycard has announced plans to reward customers that use its credit cards with cash discounts at selected retailers. The new scheme, Barclaycard Freedom, will see the bank's eight million UK customers earn around GBP0.01 for every GBP1 they spend in participating retail outlets and restaurants - with this earned currency eligible for use as a discount on any future purchases from these companies.
Barclaycard has thus far approached more than 30,000 outlets to be part of the new scheme - although it has yet to identify which businesses have signed up to be involved. With many of the UK's largest retailers already operating their own loyalty schemes, Verdict believes that Barclaycard will struggle to attract the UK's largest retailers. However, as the bank is planning to invest a significant amount in marketing the new venture, it may be an attractive option for smaller retailers.
The past decade has seen retail become increasingly competitive, at a time of unprecedented space expansion and the growth of e-retail. The development of loyalty schemes has become an essential part of retailers' armory to both drive footfall and develop a more detailed insight into their core customer. Tesco, the UK's largest retailer, was particularly pioneering in the development of its Clubcard loyalty scheme. Since its inception in 1995, the grocer has continued to place great emphasis on Clubcard as part of its wider promotional activity, and the scheme has also been rolled out to Tesco's overseas operations to positive effect.
A number of other retailers have developed similar schemes, with the Nectar card one of the most prominent - utilized by retailers such as Sainsbury, Homebase and Argos, and other companies such as BP and the AA. Elsewhere, loyalty schemes at retailers such as Game and Boots have proved successful, as have loyalty and store cards at major UK department stores.
More recently, the recession has fostered a heightened sense of austerity among consumers and loyalty schemes have been an essential prong of the retail sector's response. The use of such schemes has been particularly prevalent in the UK food and grocery sector, with Sainsbury and Tesco heavily utilizing their schemes throughout 2009 and in the run-up to the fiercely competitive festive trading period.
For example, in the latter half of 2009, Tesco implemented a double Clubcard points campaign, and mailed out advance vouchers intended for Q1 2010. Meanwhile, Sainsbury rolled out a coupon at the till scheme across its portfolio, targeting Nectar card users with money-off coupons for products relevant to past purchases, and non-users based on what was in their baskets that day. Both grocers experienced positive trading over the festive period. Tesco achieved an impressive 5.1% uplift in UK like-for-like sales which can be attributed, in part, to the grocer's investment in Clubcard.
Another benefit of operating a loyalty scheme is that retailers can gain consumer insights based on how the cards are used. This allows retailers to more effectively tailor marketing campaigns to meet consumer demand. Indeed, Tesco's Clubcard is operated by majority Tesco-owned Dunhumby Limited, which analyzes data on behalf of Tesco and its major suppliers.
Therefore, in terms of attracting support from participating companies, an important driver of Barclaycard Freedom's future success will be how useful the consumer data derived from the cards are, and how forthcoming Barclaycard is in sharing this information. If successful, the card will have the advantage of providing the level of consumer insight not available from a single-brand loyalty scheme.
The card's success will also depend on how attractive the rewards are to the consumer. For example, while gaining traction in recent years, the Nectar scheme struggled in its infancy due to the comparatively limited rewards on offer. However, Tesco's Clubcard and Boots' Advantage card have been successful due to the substantial rewards they offer and have thus acted as a marked driver of long-term loyalty.
The development of Barclaycard Freedom has the potential to boost smaller retailers, and help them to compete more effectively with larger rivals. However, it is questionable how much of a boost the introduction of such a scheme will be, considering that a customer's typical volume of transactions at a smaller retailer will be significantly lower than that at a larger player. Furthermore, with many of the larger, big name retailers already operating similar schemes, it is not clear how widely Barclaycard Freedom will be embraced.
Source: Verdict Research