The Loyalty Card is Dead

Friday January 03 2014 - , , ,

MP900422348[1]One commercial practice I suspect we will be seeing much more of this coming year is companies offering fixed cost shipping over a period of time. The first obvious example of this is Amazon Prime, where customers pay £49/year to get ‘free’ next day delivery on most items. Over a year it would not be difficult to break even. I have also heard unconfirmed rumours that ASDA is piloting a similar scheme with its online grocery shopping service, where customers pay £5/month for ‘free’ home shopping deliveries (subject to the usual minimum order of £25 of course).

I believe this is a response to the futility of loyalty cards. Tesco started the loyalty card gold rush in the UK but the other supermarkets quickly followed suit, rendering the whole thing a complete waste of time, money and wallet space.

This new trend is interesting because I think it will promote a much stronger sense of brand loyalty. Psychologically, people worry much more about missing out on something than getting a few ‘bonus points’. Once a customer has signed up for a fixed-price delivery scheme, there will be intense psychological pressure to get as much as possible out of that deal. If I had Amazon Prime, for example, I’d be much more likely to buy an item from Amazon than eBay, even at a few pounds extra, because of the ‘savings’ on shipping. The ‘saving’ of course is something I’d already have paid for and I’d be letting that investment decision adversely affect my buying decisions. It is a clever gambit and almost (but not quite) irresistible.

Amazon made the mistake of offering me a 30-day free trial of Amazon Prime. I quickly cancelled it after several items I purchased didn’t qualify. Giving the free trial might be a mistake for Amazon, and issues like this may undermine Amazon’s efforts if they are not careful, but supermarkets such as ASDA will likely have no such issues as they have a simple minimum order threshold and the ‘buy-in’ price is much more affordable than Amazon’s. I’d baulk at paying £50/year up front but I’d be happy to pay £5/month even if it is a fixed 12 month contract. The latter somehow seems a better deal even though some simple arithmetic will show it to be otherwise.

MP900390552[1]Meanwhile, interesting developments in shopping habits in the crucial Christmas shopping frenzy. Debenhams lost its nerve and broke cover, slashing prices before Christmas and paid dearly for its miscalculation, forcing them to slash prices even further in the January sale, while John Lewis and others held their nerve and cashed in on the upsurge in shoppers using click-and-collect services. It seems that its not all about the lowest prices after all, but the convenience of shopping from home and avoiding the lunacy of the game of sardines on the high street is winning shoppers over. Where do all the people come from at Christmas? Where are they all for the rest of the year? That mystery aside, this year’s trends strongly indicate a new level of confidence in online shopping, at least in the UK, as people figure out how to avoid the crush and the postal delays normally associated with the festive season.

Another practice that I’ve noticed more in the last year is the cynical manipulation of delivery times by some online retailers in an attempt to extract more money out of us in the form of ‘premium shipping’ charges. You buy an item and select the 5-day free delivery option, and the item doesn’t ship for 4 days, then arrives by next day delivery. I have no direct proof but it almost seems like those items are being deliberately held back. A decade ago, people were still suspicious of online retail, and the delay between buying and receiving the goods put the online retailers at a disadvantage. Now that trust levels have soared and prices have dropped and online retailers are perhaps in the majority, the delivery delay is viewed as a fair trade-off for the potential money savings. I suspect that some retailers are manipulating the delivery times in an attempt to milk a little extra profit out of every sale. This is something that would probably have killed their business a decade ago.

2014 could be an interesting year on the high street as the various players jostle for position and dream up new ways to win our brand loyalty in the new world of hybrid online/in-store retail.

2 comment(s)

Very interesting article, brand loyalty is something that has taken a back seat in the mind of many so called "marketing consultants" but yet it is quite often the deciding factor in a businesses success or failure.

The idea of paying a small fee in advance in order to make savings further down the line, seems a very interesting concept and is already being used successfully by companies such as Costco.

Personally I think it could be some time, before the larger stores give up completely on loyalty cards, but your article has highlighted some of the key reasons this may not be the case.

Time will tell how long loyalty cards actually last, but they seem to me, to be one of the precursors to the vast majority of us, being only to happy to divulge every increasing amounts of personal data to corporate and government organizations. This however is probably an article for another day?

You make some good points Patrick. I hadn't considered the aspect of loyalty cards that lets the stores identify shoppers, although when shopping online, being logged in is a prerequisite and therefore a shopper's identity is always known. Stores that have no online component, or no delivery service, might continue to benefit from loyalty cards although I think they will increasingly be in the minority.