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Thursday, 31 December 2015

2016 - the year of cashback marketing ?

The UK loyalty programme market is thriving as most retailers, other than those pursuing a discount led strategy, offer some kind of loyalty programme to supplement their core proposition and to help them to understand their customers. In recent months we have seen the launch of new programmes from Waitrose, Morrisons, Pets at Home and M&S whilst mainstream programmes such as Tesco Clubcard, Boots & Nectar are used every week by tens of millions of consumers. These programmes are more or less the same today as they were when Tesco first launched Clubcard over twenty years ago - typically points based, requiring customers to remember to carry a plastic card and swipe it at the till and to carry paper based vouchers which they receive through the post or printed at till. There has been very little take up so far of digital enabling technologies from companies like Mobilize and Eagle Eye which offer significant cost savings to retailers and much greater convenience for customers. At some point this will surely change but the owners of these programmes so far have been highly resistant to change.

Meanwhile, under the radar and evolving from the world of online affiliate marketing, we are seeing the rapid growth of cashback programmes from Quidco, Top Cashback and, seemingly, just about every bank you can name.  What's going on ?

Well, for customers, cashback market leader Quidco delivers value that is in a different league from that on offer from the supermarket programmes. The average Quidco customer accrues around £70 per year mainly from their online shopping. The most savvy who use Quidco for online, instore and grocery shopping are earning £100's and sometimes £1000's per year. This is because Quidco provides cashback from over 5000 retailers and on average the typical retailer will give around 5% cashback per transaction. Quidco also provide cashback on leading grocery brands.

For retailers, Quidco provides access to millions of digitally savvy, affluent, high spenders who love to shop and who can be marketed to at a highly granular level based on their detailed shopping habits and reached at a much lower cost than through google. What's not to like about that ?

With banks its a slightly different story. After many years of silo based, shareholder centric, product and acquisition led marketing they are finally waking up to the benefits of customer centric marketing. Recognising that a surer way to create value for shareholders is to focus on serving existing customers better. A bank's best customers are typically those that are regular current account users as they have a much higher holding of higher margin products such as mortgages, credit cards and insurance. Hence the drive to acquire current account customers and reduce churn. Cashback programmes are emerging as the preferred option given the success being enjoyed by Quidco and others.

Our hunch is that we are going to witness significant growth and innovation in this space. Mainstream retailers will look to evolve their single brand programmes and offer their customers more choice and higher value. Banks will leverage their data assets to enable retailers to target those customers that matter most. More customers will accrue rewards instore by using their bank cards rather than a separate loyalty cards. Cashback on grocery shopping will grow significantly as fmcg companies continue to invest in direct to consumer marketing and seek to bypass the closed access programmes managed by dunnhumby and Aimia.  Speciality retailers, restaurants and service providers will switch marketing funds into those programmes that enable them to attract new, lapsing and loyal customers at low cost. Happy days.  

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