In 1994 Tesco had an idea that would revolutionise customer loyalty all together. This being, the introduction of the now well known, Tesco Clubcard.
Loyalty cards were nothing new at this point of time, but what made Tesco a pioneer in this game was not about trying to get customers to change their brands, but but rewarding loyal customers at the till. Not only did this this give the customer a sense of appreciation for committing more to the Tesco brand, but more people put items in their shop and returned to the store over other rivals to get more points on their card.
There wasn’t speculation about the promotion working before the launch; but rather what will happen if all customers do it and the industry be less profitable. Despite this setback, they went ahead with the issues of:
The amount of data to handle with the basic technology at the time
Printing the plastic for 20 million cards
This changed the strategy of Tesco and demonstrated the importance of frequency of shoppers. By allowing a direct marketing channel to consumers, Tesco was able to have access to more data and in turn run the business better.
So why did this make such a big impact?
Terry Hunt, formerly in charge of Tesco’s direct marketing agency at the time, said “It was the first time a mass retailer could talk to individual customers on a personal level”. Since the release, every major food retailer in the UK gives their own equivalent of the Clubcard, thus showing how it reformed consumer loyalty.
Disruptive brands are innovators who have identified gaps in the market, allowing customers to have what they really want. Companies such as Airbnb and Deliveroo are well-known examples of the success that can follow. An important aspect is that they don’t start by improving existing products, rather offering an entirely different value proposition appealing towards customers who the dominate companies in the industry didn’t value or have ignored. These are brands with such potential that it fulfils unmet market needs.
New technology enables disruption, allowing companies to take risk in ever growing and developing industries. Disruptors have the ability to move fast, with companies who have been prepared to take a risk. It often solves an issue with sometimes unconventional perspectives.
What is important to remember is that disruption is generally for the benefit of the greater public. It changes integration between companies and the customer and should be embraced.
A key disruptive factor of Netflix was initially it didn’t go for the core customers of their competitors, like Blockbuster who offered services Netflix didn’t provide. They targeted consumers who were overlooked by competitors and gave an alternative service at a generally lower price.
With the rise of streaming videos, Netflix was able to appeal to Blockbuster’s core customers by proving a larger amount of content, that was more convenient for a lower price. Blockbuster collapsed- allowing Netflix to rise quickly. Another reason for this growth was Blockbuster overlooking them and even refusing to acquire them for just $50 million (2) back in 2000.
In a decade Spotify transitioned from a small Scandinavian start up into a global music streaming service with over a 100 million users and an estimated valuation of $8.5 billion. What set the company apart from its main competitor, Pandora, when it first launched was the fact that it allowed listeners to choose the songs they want to play and create their own playlists. It also gave users the option to use the service for free with ads, and paid subscription being an option. In the final quarter of 2018 Spotify had 96 million premium subscribers (3).
Click here for Marketing Week’s top 100 disruptive brands for 2016 and 2017.
A study asked 200 people to rate chocolate chip cookies. In one jar there were 10 and in the other there were 2. The cookies from the jar with 2 in received higher ratings- despite the fact they were exactly the same. Demonstrating how scarcity plays a role without people even being aware of it. Other research from the University of Nebraska confirmed that individuals with personality traits such as competitiveness and a need for uniqueness are more susceptible to scarcity marketing.
In social psychology Scarcity Principle is the urge to obtain something that a person feels that they will not be able to get in the future. Part of this is our survival instincts, but we also tend to value things that we cannot have and allows people to feel in control, as it shows an ability to control the environment around us.
Airlines, Amazon and Groupon use this principle well. Booking.com even have red font notifying how many times a hotel has been booked in the past 24 hours, if it’s in high demand and even when they run out of rooms:
Scarcity does not work in all contexts as it simply does not appeal to all customers. To understand what impact scarcity marketing can have, it is vital to understand the psychological traits of their intended audience and what motivates them. Measuring the target audience is needed to understand the techniques to use in a marketing strategy, as by just understanding the psychological traits of customers you are in a better position to resonate with the target audience and predict the effect of a campaign before its launch.