CAMPAIGN DIRECT: Rivals join forces as customers wise up to the loyalty game - Multi-company operations can offer greater access to data at a lower investment level, Richard Cook writes

By RICHARD COOK, campaignlive.co.uk, Friday, 28 August 1998 12:00AM

The trouble with loyalty cards is the trouble with loyalty itself: it can be something of a moveable feast. Advertisers, essentially, are looking for the kind of devotion the former US president, Lyndon Johnson, demanded from his staff: ’I want real loyalty,’ he used to say about prospective aides. ’I want him to kiss my ass in Macy’s window at high noon and tell me it smells like roses.’

The trouble with loyalty cards is the trouble with loyalty itself:

it can be something of a moveable feast. Advertisers, essentially, are

looking for the kind of devotion the former US president, Lyndon

Johnson, demanded from his staff: ’I want real loyalty,’ he used to say

about prospective aides. ’I want him to kiss my ass in Macy’s window at

high noon and tell me it smells like roses.’



What advertisers frequently get, on the other hand, is loyalty of a less

committed kind. They get savvy consumers who are prepared to experiment

with a range of different cards, read the fine print and find the most

attractive and relevant offers. More than half of Tesco Clubcard

holders, for example, also have a Sainsbury’s Reward card. Loyalty is,

it seems, as loyalty does.



Certainly the industry, which started with the launch of Barclaycard’s

Profile Points scheme in 1986, is finding it has to become more

sophisticated and flexible in an attempt to woo consumers.



According to the latest Loyalty League table, commissioned by GM Card,

one of the loyalty market’s leading practitioners, and compiled by

Professor Steve Worthington of Staffordshire University, consumers are

becoming ever more loyalty literate.



’Consumers have become more discerning in their choice and look for

schemes that offer the best overall reward package,’ Worthington says.

’Programmes with an attractive reward proposition are destined for

success, while those with low payback are more likely to fail.’



According to his own figures, the card with the most attractive reward

proposition is the Bradford & Bingley scheme. It has been in place since

1995 but is scheduled to be replaced next year. It offers a 4 per cent

earnings rate. The Advantage Card from Boots, another non-payment card

with a 4 per cent earnings rate, was also a strong performer in the

loyalty league table. The card, which was only launched last year, now

has 8.7 million customers and generated pounds 60 million of extra sales

between September 1997 and March this year.



The link between real financial benefit and a successful scheme would

appear to be borne out by the fate of one of the league table’s lowest

ranking schemes: First Direct’s credit card-based offer, which had an

earnings rate of just 0.4 to 0.5 per cent, was withdrawn because of a

lack of consumer interest.



But there is more to the success, or otherwise, of loyalty schemes than

the size of the cash inducement offered by the advertiser.



’It’s actually a daft way of comparing schemes if all you look at is how

big the earnings rate is,’ Terry Hunt, the creative director of Evans

Hunt Scott, says. The agency is responsible for one of the larger

loyalty programmes, the Tesco Clubcard. ’What companies want to do is to

discover how little they can give to achieve the effect they want.

Spending pounds 5 to achieve an extra pounds 5 of sales is not just

illogical, it’s commercial suicide.’



But then companies are not starting from a level playing field. Not

every company in every category is equally well-placed to administer its

own scheme. ’The best-placed companies are clearly going to be those

that report high levels of repeat purchases, but even within that group

not all of them are equal,’ Hunt says. ’The utility companies have high

levels of repeat business but they are just not perceived as glamorous

in the way that supermarkets are - which is why we are seeing more

linking up with others.’



Many people in the industry argue that the real point of loyalty schemes

is the data that can be gleaned from them and how that data is used. The

schemes themselves are not sufficient loyalty building devices but what

is important is that the information derived from them is used to offer

new customers what they really want. As companies start to accept this

fact, the number of solus schemes is certain to fall.



’There are at least 150 loyalty programmes at the moment. We think

that’s far too many. There will definitely have to be some

consolidation,’ says Gary Anderton, the manager for Shell Smart Card,

whose loyalty scheme has done precisely that. ’There has to be more

scope for companies to work together. This gives them greater access to

data as well as a bigger pool of potential customers for a lower

investment. We think up to 30 companies could work together. Any more

than that and you lose exclusivity in the various product areas and it

becomes more difficult to administer.’



Tim Bonnet, a director at Tequila London, says that with multi-company

schemes, the operator of the scheme is not so much trying to increase

customers’ spend but to find out where they are spending the money.



’It’s a great way of increasing your own customer numbers by using some

of your competitor’s. But it’s also important that you add to the

currency of your own brand once you have the chance to talk to new

customers. And for that it’s important that schemes add real value

rather than just offer discounts if you really want to build your

brand,’ Bonnet says.





PAYMENT CARDS: TOP FIVE PROGRAMMES IN ORDER OF REAL RATE OF RETURN ON

MONEY SPENT

CARD/1ST ISSUED/                                            PTS PER

MEMBERS            PAYMENT TYPE      ANNUAL FEE             POUNDS

                                                            100 SPEND

Bradford &         Credit,Visa,      None                   4 points

Bingley            Mastercard

1995               480,000 outlets

GM Card            Credit,Visa,      None                   3 rebate

1994               Mastercard                               points

680,000            480,000 outlets

BA Diners Club     Charge card,      pounds 75              10 - 20

1996               Diners Club                              Air Miles

                   175,000 outlets

Tesco Clubcard     Debit             None                   200 points

Plus               Tesco stores and

1996               petrol stations

220,000            640 outlets

American           Charge/credit     Charge pounds 37.50    100 points

Express            Amex              Credit pounds 20

1993               200,000 outlets   Rewards pounds 23.50

CARD/1ST ISSUED/   VALUE FOR      VALUE FOR      EXAMPLE OF REWARD ON

MEMBERS            POUNDS 100     POUNDS 10,000  POUNDS 10,000 SPEND

                   SPEND          SPEND

Bradford &         pounds 4       pounds 400     pounds 400 cash back

Bingley                                          on completion

1995                                             of new mortgage

                                                 (maximum level rebate)

GM Card            pounds 3       pounds 300     pounds 300 off a

1994                                             new Vauxhall

680,000

BA Diners Club     pounds 2.27 -  pounds 264     Return flight for two

1996               pounds 2.64                   to Paris, adults &

                                                 four children

                                                 to cinema, one-hour of

                                                 recreatopm skiing

Tesco Clubcard     pounds 2       pounds 200     pounds 200 off Tesco

Plus                                             shopping

1996

220,000

American           pounds 1.60-   pounds 202     Return flight from

Express            pounds 2                      London to

1993                                             Copenhagen on SAS

NON-PAYMENT CARDS: TOP FIVE PROGRAMMES IN ORDER OF REAL RATE OF RETURN

ON MONEY SPENT

Boots               Boots stores         None         400 points

1997                1,300 outlets

8.7 million

Safeway ABC         Safeway stores and   None         100 points

1995                petrol stations,

8 million           Toys R Us,

                    515 outlets

Co-operative

Wholesale           CWS stores           None         N/A

Society             650 outlets

1998

1.7 million

WHSmith             WHSmith stores       None         1000 points

Clubcard            500 outlets

1997

3.2 million

Shell Smart Card    Shell petrol         None         100 points

1994                stations,

4.2 million         Select shops*

NON-PAYMENT CARDS: TOP FIVE PROGRAMMES IN ORDER OF REAL RATE OF RETURN

ON MONEY SPENT (continued ...)

Boots               pounds 4    pounds 400    pounds 400 worth of

1997                                          selected free items

8.7 million                                   from Boots

Safeway ABC         pounds 1    pounds 300    pounds 300 off specific

1995                                          items on your shopping

8 million                                     bill or special

                                              family offers

Co-operative

Wholesale           pounds 2    pounds 200    pounds 200 rebate in

Society             average                   cash or goods

1998

1.7 million

WHSmith             pounds 2    pounds 200    pounds 200 rebate on

Clubcard                                      goods purchased

1997                                          at WHSmith stores

3.2 million

Shell Smart Card    pounds 1    pounds 100    pounds 100 off Tesco

1994                                          shopping

4.2 million

* John Menzies,Vision Express and Hilton Hotels nationally. In Scotland,

the aforementioned, plus Dixons, Currys, The Link and Victoria Wine.

2,000 outlets plus 150 partner outlets in Scotland.



This article was first published on campaignlive.co.uk

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