All businesses know it costs more to find new customers than to retain old ones, so a growing number are investing heavily in loyalty schemes. Sandra Danby asks if the approach could be viable in the voluntary sector.
Commercial companies today spend millions on retaining existing customers and encouraging them to spend more. From Nectar to Air Miles or the Tesco Clubcard, schemes reward customers for spending more, with the goal of increasing customer spending and profit.
The best-known loyalty schemes are huge. Air Miles has 6.5 million customers collecting one air mile for every £2 they spend. Nectar, which has signed up more than 50 per cent of households and claims to be the UK's largest loyalty programme, covers 40 per cent of an average UK household's expenditure.
Commercial loyalty experts are sceptical about whether charities could run such schemes themselves, but charities can certainly benefit from existing corporate schemes and make use of the database marketing aspect of loyalty cards. Some fundraisers also see the potential of adapting the model for the charity sector - but more blood donor card than clubcard.
Data and trends
So what lessons do these commercial beasts have for charities? For a start, there's the theory behind the loyalty card scheme - relationship marketing. Commercial loyalty schemes track transactions to gather customer data and identify trends and customer needs. Andy Wood, who founded the Homebase Spend and Save loyalty scheme, is now managing director of Total DM, a database marketing and loyalty specialist. "Should charities carry out database marketing to better target their donor bases?" he asks. "The answer is, naturally, yes."
Charities can also benefit from existing loyalty schemes. "A large supermarket chain and a charity could work together to provide a financial incentive for the customer," says Wood. "The consumer could have a choice between receiving money-off vouchers or making a gift to the associated charity."
Children's charity NCH did just this two years ago when it signed a deal with Nectar to become the scheme's sole charity partner. "It was something that our collectors wanted - to have the opportunity to donate their points for charity," says Richard Campbell, marketing director of Loyalty Management UK, which runs the Nectar scheme.
The original deal had two tiers: a substantial donation to NCH by LMUK was topped up with donations by Nectar collectors. Two years on, the scheme is under review. Campbell says NCH is pleased with an income he describes as "adequate", but adds that initial collector enthusiasm was slow to turn into donations. "We said at the start that we'd have a rethink after a couple of years," he says. "We're now looking to expand the charitable offer."
Being dynamic and proactive is key, says Melissa Littler, a senior client partner at Arc Worldwide, which runs a loyalty scheme for business users of Intercontinental Hotels. She says charities, like commercial companies, need to keep things fresh. "People are realising that they're paying for these loyalty schemes in the prices they pay for products," she says.
"You need to spend thousands to get enough points to get anything worthwhile.
So giving it to charity could be an easy decision."
But Campbell says it's not that simple. "Nectar collectors are normal consumers," he says. "Some will donate their points to charities, whereas others will think it's a good thing but when push comes to shove they won't do it - they'll buy an iron instead."
According to Littler, there are four key points to consider for a charity thinking of becoming involved with a commercial loyalty scheme. First, choose a company that fits the charity's brand values. Second, ensure the starting level at which points can be redeemed is low - 200 rather than 2,000, for example. "I think there is pressure for companies to offer a charity option to their collectors," she says. "But companies will be wary. It's in the charity's interest to get that point as low as possible."
Littler's third rule is to take every opportunity to make participation as cost-effective as possible - she suggests taking advantage of existing marketing initiatives rather than starting from scratch. Finally, charities should think about whether they have a large enough profile in the scheme.
"You should maximise your commitment within a scheme because you want to raise awareness of the issues you're facing," she explains.
Campbell agrees the charity must be proactive. "The charity has to make itself of interest to collectors," he says. "It has to be a reciprocal arrangement because you're in the commercial marketplace."
Charity loyalty scheme
But could charities go the full distance and launch loyalty schemes of their own? Loyalty expert Andy Wood thinks not, deeming it "crass and inappropriate" for a charity to launch a loyalty scheme based on the commercial model. "What would the reward be?" he asks. "Giving more to a charitable organisation should not mean receiving more points, surely."
Public relations expert Jane Herbert, managing director of the Pilot PR consultancy, isn't convinced that loyalty schemes and charities go together. "Consumers and donors both give money to organisations but, apart from that, they are very different animals," she says. "Donors realise that activities costing money reduce the impact of their donations - and, although they often recognise the need for such expenditure, they don't like it.
"Donors do understand the need for charities to market their activities to attract new donors. But they will not understand a charity that spends part of their donation on a scheme which, in effect, gives back part of their money in an attempt to attract further donations. The appearance of refunding a donation and asking for it to be redonated is why charity loyalty schemes will not work."
There is also the question of the cost of actually setting up the scheme.
"Loyalty schemes don't work for charities because the costs are far too prohibitive," says ARC Worldwide's Littler.
Martin Field, director of fundraising and campaigns for the Children's Society, is more open-minded. "Charities would be foolish not to look at ideas in the commercial world and adapt them," he says. "There are no new ideas in the world, just new ways of applying those ideas."
The blood donor card scheme is a case in point. As with loyalty schemes, donors can ask for a card - but rather than collecting points, the card comes in silver, gold or platinum to show how much blood the person has donated. The theory, presumably, is that holding the silver card and working towards gold motivates people to keep on giving.
"A loyalty scheme could work," says Field. "But I don't think it would look the same as a Nectar card - that's not the sort of relationship people are looking for. But there are things that charities could do to show their supporters what their donations have bought - people seeing what their money goes towards has been very productive for charities." He cites the success of Christmas 'give a goat' gifts.
Field is particularly interested in the benefits of individual database marketing, which allows charities to learn the interests of each donor - he points out that Clubcard gives Tesco market information on what people are buying and what they want. "Individual database marketing could allow donors to be more active about where their gifts are going, and could give charities a stronger indication of what consumers want," he says.
"It passes personal power to the donor."
Total DM's Wood remains to be convinced, however. "Database marketing, yes," he says. "But self-run loyalty schemes - no way."
At the moment, it seems unlikely that any charity is ready to run a fully funded loyalty scheme. But loyalty by the third-party route is an increasingly attractive option, and database marketing is increasingly being used by the larger charities. Field's adaptation could yet take off.
loyalty /loi'l-ti/ - feelings of being loyal to a person or organisation, etc
loyalty card - a machine-readable plastic card issued by retailers, enabling customers to accumulate points or credits to be redeemed for goods or cash