Forget store points — The future of loyalty is affiliate marketing

By Dr Mark Howland — Chief Data Scientist

As many traditional customer loyalty models appear to be petering out, could affiliate marketing be the future of loyalty?

Traditional loyalty marketing is changing. The model from the 1990s that peaked ten years ago is fading. In its heyday, Tesco issued 1% base rewards and liberally showered bonus points on customers who chased points issued via the tentacles of its wine store, telco and bank.

These bonus points were worth four times the value when redeemed out of store. Many Pizza Express meals came via this route. The economics were great for the highly engaged 5% of customers and the casual dining sector, but not so good for Tesco. The fountain of bonus points has become a trickle.

Two of Tesco Clubcard’s main rivals have faltered. In its prime, Nectar was a coalition of Barclaycard, Debenhams, BP and Sainsbury’s and was sold for $775million. In recent years, major sponsors have departed the programme, such as Homebase, British Gas and Whitbread. Sainsbury’s cut the earn rate from 1% to 0.5% and bought the programme in a fire sale for £60 million in January as it ran down the contract with Aimia. Now, the number of active Nectar members looks like it will decline.

Moreover, Avios (formerly Air Miles) shut down this year. For a time, the Air Miles programme was a big deal and ten years ago, it had 8 million members. Avios never managed to get a solid grip on high street spending and ran its course. It became credit card and BA focused, losing the mass appeal it once promised.

The once rich credit card interchange fee, which fund reward card benefits, are only set to fall. Even American Express is moving on interchange to try to counter the perception that it is not accepted anywhere.

Where does the future lie?

Cash is king. Earnings have been stagnant since the 2008 global financial crisis and consumers are looking more to cashback over loyalty points. Money Supermarket, Uswitch and Compare the Market refer consumers to credit cards that give 1% cashback. Many banks run merchant funded cashback programmes, such as Lloyds Everyday Offers. This can be an attractive acquisition option for retailers with an infrequent purchase cycle, who may have been attracted to Avios or Nectar in the past.

However, the goldmine for consumers are affiliate marketing programmes that pay merchant funded cashback. Shoppers who visit a retailer’s website, arriving via the websites of TopCashback, QuidCoand Utility Warehouse, can earn 12% cashback on a package holiday bought from Expedia, 3% on Boots and 8% on Holland and Barrett, on top of all other discounts, Nectar, Advantage and Rewards for Life Points issued.

Affiliate marketing cashback, layered with “£5 off when you spend £40” on a discounted product and coupled with loyalty points paid for on your rewards credit card (with free delivery), is there to be grabbed.

This transaction is unlikely to be profitable for the retailer, but very few of them have a full view of the profitability when the full repertoire of discounts are factored in. When customers withdraw cash from the likes of Quidco, there is yet another option to claim extra value and converting the balance to an Argos, M&S or Amazon gift card can yield another 5+% top up.

Starcount can help your business understand how the full range of discounts and returns layer together to give a rounded, customer view of performance. Are those eCommerce transactions really as profitable as you think they are?

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