Loyalty cards and advantages for customers are costly. I explained many years ago that loyalty should not be “bought” because he destroys so much value and, above all, so much profits. Moreover “buying” your customers’ loyalty is a short-term strategy. It’s not based on deep-rooted customer satisfaction. Just on mere financial benefits.
What is really funny is to see how firms react when they eventually discover the hidden costs of loyalty cards. In today’s post let’s discuss the reaction of “La Halle”, a French retailer whose commercial director’s practices leaked to the press last week.
La Halle (formerly known as “La Halle aux Vêtements”) is a company of the Vivarte Group (1.8bn € turnover) selling afforable clothes, shoes and bags. It that has gone through various difficulties and unsuccessfuly tried to re-position itself in the upper segment.
The Vivarte group suffers from a very important debt that has led to cost cutting plans and the sale of several brands that had been losing money for years (hence the drop of turnover of the group from >3bn € in 2013 to 1.8bn € in 2017).
Forced loyalty strategy
The paper published in Le Monde revealed that La Halle had set the objective to have 75% of purchases made by loyalty card owners. All employees had been striving in the last 2 years towards that goal and obviously that percentage went up. The problem is that customers don’t accept to give their personal data in exchange of a loyalty card if there are no benefits. That benefit was a 20% discount on the 5th purchase in the store (see terms and conditions here)
Benefits for loyalty cards owners are designed to lose money
Upon closer inspection the terms and conditions of this loyalty cards are designed to lose money : you just have to make 4 purchases (no minimum amount) to qualify for a 20% discount on your 5th purchase. This generosity gas a cost that Charles Ruby, La Halle’s commercial director eventually discovered. In the message sent to Le Halle’s employees he asked cashiers to NOT inform proactively customers about their benefits (in an attempt to not give them the 20% discount they were entitled to). In his memo he also asked cashiers to apologize if customers would come back after their purchase asking for their discount to be applied.
This story pretty much sums up all bad practices that should be avoided.
- Loyalty is forced by too generous financial benefits and isn’t based on customer satisfaction
- Instructions are given to employees to engage in unfaithful practices that will lead to even less customer satisfaction and decreasing trust.