In this paper, the case for the economic benefits of using a loyalty scheme as opposed to a discount incentive is examined.
In terms of loyalty to a brand, sports organisations have an unassailable advantage over other commercial entities, such as supermarkets, for the simple reason that a sports brand delivers an emotive relationship, where a supermarket simply retains a commercial one.
However, maintaining commercial loyalty internally at a sports club is still a challenge as the off- pitch attraction of club-related commercial activity to a fan or customer is not as strong as the on-pitch interest. Therefore, loyalty still requires work to maintain its success.
TeamCard is undoubtedly one of the most powerful tools available to protect the clubs internal commercial profits whilst keeping the fans coming back for more, let’s examine the case;
Discounting incentive:
- The following transaction describes the age-old method of discounting:
- A fan spends £100 in the club shop and is offered 5% off.
- The fan pays £95; the £5 saved puts a smile on his face temporarily.
- That £5 discount cannot be backed-off to the club’s supplier therefore it was a direct hit on profit.
- The fan will leave the club shop with that £5 cash in hand and undoubtedly spend it somewhere outside the club.
Net result is, that the club lost £5 of profit and the opportunity to incentivise repeat business
Loyalty incentive:
Now examine the same transaction under the TeamCard loyalty scheme:
- The fan spends £100 in the club shop and is offered 5% in the form of TeamCard points (500 points).
- The fan pays £100, and is awarded £5 in the form of points to spend, added to his/her TeamCard account.
- The £5 value in points has yet to be redeemed; it’s had no impact on profit other than retaining it.
- The fans’ perception of a saving or benefit has been satisfied through the £5 award of points
The club has created an incentive for repeat business at some point in the near future when the fan decides to redeem his awarded points on another purchase.
The real benefits of points over discounts are a financial reality that has a dramatic effect on the profitability of the clubs commercial activity:
- Profit margins were unaffected by the award of points.
- The fans perceived value as a TeamCard carrying member matched the discount version.
- The £5 worth of points can only be redeemed back at the club, thus motivating a further purchase whether it be for merchandise, tickets or otherwise.
- It is a fact; that sales associated with the redemption of points typically result in the purchase of items at least 4 times the value of the points redeemed.
- The club can creatively encourage the redemption of points through exclusive offers, e.g.:
- Points redeemed for a stadium tour – the club profitability won’t be affected by another three or four people joining a planned tour.
- “Money can’t buy offers”: meet a player, access to training sessions, exclusive invites to kit launches etc.
Each exclusive offer is “paid for” by the fan in TeamCard points at a level set by the club, reducing the points balance but delivering a valuable perceived benefit for the fan.
Conclusions:
There have been many academic studies on the subject of retail loyalty. The Reichheld and Sasser study published in the Harvard Business Review is one of the better known. It concluded that through well-constructed loyalty schemes: “Companies can boost profits by between 25% and 85% by retaining customers by just 5%”.
A bold statement open to conjecture, however, the ongoing importance placed on loyalty schemes in the air-travel and supermarket sectors, would suggest that it has merit.
The case for the application of a loyalty scheme is self-evident, but creating a successful scheme does require effort, otherwise it may not yield the expected results if left to its own devices.
From an accounting and profitability perspective, the diligent reinforcement of the loyalty scheme should be a prerequisite at every sports club to make the most of the gift that is “emotive loyalty”.
About the Author: Randal McLister has over 20 years’ experience in creating loyalty schemes in a number of sectors which include, fuel retailing, Town & Regional schemes and of course: TeamCard in sport.