Sunday, 29 January 2012

Frictionless Loyalty - Two biggest loyalty launches this year


In the last couple of months, two new massive loyalty initiatives have been launched - and nobody really noticed.

Together they cover over 16 billion purchases and almost 1 billion people. They come from two of the largest brands in the world, one of which is rated number 8 in the top 100 Best Brands for 2011.

It's probably no real guess that these two brands are Facebook and Apple. However, what might be harder to pinpoint is the loyalty initiatives that they have launched.

Loyalty doesn't always have to mean points = prizes. Instead, loyalty can be defined as

Any activity or treatment that gets customers to make ongoing choices in your favour, all things being equal

Using this definition, I think you can define Facebook Timeline and Apple iTunes Match as loyalty initiaitves and here's why.

Facebook Timeline - For those that haven't noticed, Facebook is changing your profile page so that your whole life (or at least from when you started using Facebook) is laid out for you in one long timeline. You can go back to any year, month or day and see the comments you made, the pictures you've shared or the videos you uploaded.

It's presented in a really engaging way and once you get over the initial privacy concerns, it's really interesting to see and explore, especially if you've been on Facebook for a few years.

So why do I think this is a loyalty initiative?

This solution creates loyalty because they have essentially taken your existing information and created a context around it, something only they can do. Within Google+ I can re-create my relationships or re-upload my photos, but this doesn't re-create the context. Only Facebook knows when those online relationships were first created, what was said and where I was when I said it, where that photo was taken and where I was when it was taken.

This is being further extended with applications that will allow me to track activities such as how many miles I've run, the movies I've watched, the news I'm reading or the music i'm listening to; leaning towards the trend of self-tracking. These applications are also automatic, sharing on my timeline as I do them.

Facebook CEO and founder, Mark Zuckerberg described timeline as:-

"Real-time serendipity in a friction-less experience"

This use of the word "friction" is really interesting. In the book "The Loyalty Effect" by Frederick F. Reichheld, he says:-

Just as friction steals the energy from a mechanical system, defection steals the energy and knowledge from a business system. [..] The opportunity to reduce friction in most businesses is immense"

By making it easier to share my information and activities; by taking my own data and creating a context around it, Facebook have suddenly created something useful, desirable and importantly, frictionless.

Previously my profile was just a collection of the last few days of my thoughts and "likes"; something easily replicable on any other social network. Now my profile is everything I've done or am doing - all my interactions (or at least those shared) - ever.

Now, given the choice to do an activity like upload a photo, I'm more likely to choose Facebook, even though Google+ is equally capable. When adding a friend I'm more likely to add them on Facebook as that's where "I" am.

That preference is loyalty. Facebook Timeline is a frictionless loyalty initiative.

Apple iTunes Match - So I spent a lot of time over Christmas ripping all my CD collection onto my mac. Those that have previously done that will know it's not something you really want to do again.

The reason I did finally do it though was for one thing - iTunes Match.

Now, using iTunes Match, I'm able to let Apple see my whole music collection and to simply (and almost magically), make it available via the cloud, to every Apple device I own - forever.

Tim Cook, Apple CEO is quoted as saying about their overall cloud strategy:-

"I see it as a fundamental shift [..], it is not just a product. It is a strategy for the next decade"

By letting me upload my music collection I become less attached to the physical product - the CD or the download - and view iTunes more as a streaming service. The clever bit though is it's streaming my content to every Apple device I own. Using content that I already own and content that I'm attached to Apple have managed to create a strong and ongoing relationship by making it available on all of my devices in a truly frictionless way.

It's no surprise then that the overall Apple iCloud initiative has been described as:-

As close to seamless and frictionless synchronicity as we have been able to come to thus far.

They have turned their music store inside out and let me put my own product on the shelves. Now it's not a store but a repository - it's an extension of my own property and something I can share easily across all the (Apple) devices I own. (It's no surprise I've gone from zero Apple products to over 7 in less than 2 years!)

Now that they have the thousands of tracks I already own, I'm more likely to buy my next track from them, even though Amazon is equally capable. Even though I love the new Kindle Fire (and it is a fantastic little device), I'm more likely to buy the next iPad to keep easy and seamless access to my music.

That preference is loyalty. iTunes Match is a frictionless loyalty initiative.

Finding ways of making it easier for your customers to do business with you, of reducing friction, can be a really powerful loyalty driver.

With brands like Facebook and Apple finding increasing challenges to their dominant positions (think Kindle Fire / Android / Google+), these kinds of initiatives do really provide a competitive advantage and help their customers make ongoing choices in their favour.

That's what i'd call loyalty.

Saturday, 21 January 2012

Tesco profit warning - how much was Clubcard responsible?

If they say a picture is worth a thousand words then the following graph is no exception.


Using Tesco market share data from TNS/Kantar Worldpanel, there seems to be an interesting correlation between changes in their market share and changes in the reward value of Tesco Clubcard.

With declining market share in 2007-2008, Tesco implemented the Double Points Promotion which gave customers a huge lift in loyalty value and in response, Tesco didn't just stem the decline in market share, they lifted it 5.5% from 2008 levels.

In 2010 the double points promotion was changed to make it less generous, reducing reward deals from 4x value to 3x. This still meant the reward value was higher than the original scheme, but it was much less than customers had been getting used to during 2009.

Despite this positive impact on market share however, Tesco decided to change strategy, moving from a loyalty focused approach to a price focused one. This took a huge amount of value out of the Clubcard programme and pushed it into £500m of price discounts.

At the time a Tesco spokesperson was reported to have said:-

"Our customers have said what really matters to them at the moment, is the price at the till"

This is no surprise - customers will always say that it's price that matters, whether it's boom or bust. What is a surprise is that Tesco listened to this feedback and then acted on it. With ASDA already having a price match promotion and Sainsburys quickly implementing their coupon at till Brand Match promotion, Tesco's big gesture around price was essentially neutralised. This also didn't go unnoticed by ASDA, who at the time said:-

"Yawn. We were 10 per cent better value yesterday. We're 10 per cent better value today. We'll be 10 per cent better value, whatever they do, come Monday."

In the process though Clubcard had taken a double whammy. Not only had they reduced the value of the scheme to it's lowest point ever, but by reducing prices in-store they had taken further value away of around 1.2%.

For an average loyal Tesco Clubcard customer who was shopping in-store, picking up Tesco fuel and using their credit card for purchases, this change amounted to a 40% drop in value from the high of 2009.

What did they get for this? Well just over 346,000 extra customers according to Kantar.

How many of these will stick around though is the more interesting question. As The Daily Telegraph said in it's article "The cuts that lost Tesco £5bn of its value"

"Though Tesco shoppers took advantage of the lower prices, they did not feel they were getting a bargain and failed to return for another shop"

It seems Tesco forgot how powerful loyalty could be and played straight into the hands of EDLP retailers like ASDA. Whilst publicly they are now focusing on their store offering as the new point of difference, it will be interesting to see if Clubcard once again takes centre stage.

Example Tesco Clubcard Reward Value








2x Points



3x Deals






Current (Adj)


Car Insurance£25£1.00£1.00£0.75£-£-
Credit Card£1,000£10.00£10.00£7.50£7.47£7.47
Monthly Reward
Annual Reward£535.20£823.20£617.40£499.16£495.50


  1. Supermarket / Fuel spend calculated as spend via Tesco credit card
  2. Current Burn rate average as 3x across wide range of deals
  3. Current (Adj) assumes 1.27% lower supermarket spend due to £500m discounts across £39.3bn food sales (2010)
  4. Car insurance no longer has any active Clubcard deals