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Sticky business

Loyalty schemes have been around since time immemorial, with Fly Buys leading the pack since its launch over 20 years ago. But there’s change afoot, and Jai Breitnauer has the lowdown on what retailers need to know.

By Jai Breitnauer | August 17, 2017 | News

In September 2016, it was announced that Airpoints and Fly Buys would be splitting after a six-year partnership that saw numbers of both schemes grow wildly.

At the time of the announcement, Fly Buys had 2.5m members and Airpoints 2.2m – the latter having doubled in size since 2014. Collectively, they were the biggest loyalty scheme in the country, but their amicable separation has heralded a new era, a shake-up of loyalty schemes, that affects not just what’s available, but the membership benefits to the retailer and the whole raison d’ être of the schemes themselves. 

Keep ‘em coming

‘Sticky’ has been a business buzzword almost as long as loyalty schemes have been around. The secret of how to keep customers coming back for more is hotly pursued by any retailer worth their salt, and a loyalty programme offers two key ways to get closer to the treasure we seek.

Firstly, there’s the value proposition. Whether it’s a free coffee for every 10 purchased, a buy-one-get one free offer on bras or 20 percent off at the fuel pumps, loyalty schemes all aim to offer a customer a little bit more for their spend, with minimal changes to their behavior.  

“Loyalty programmes work because they provide tangible reward and recognition to customers for participating with the retailer,” says Juanita Neville-Te Rito, retail specialist and managing director of The Retail Collective. “Essentially shoppers are shopping, shopping more often and/or spending more with the retailer thereby consolidating their behaviour to get a benefit. This also should mean for the shopper that they are treated better for being an exclusive member of the retailer’s tribe [with] VIP events, special launches, exclusive benefits – opportunities that represent value to the shopper.”

The word value here is quite important, as the true value of loyalty schemes to the consumer has been questioned by Consumer NZ. An NZ Herald report last year pointed out that the retail value of the personal brewing kit offered for purchase on Fly Buys for 41,560 points equates to $1.04m (with the average point worth $25 as an example). But many would be quick to point out that if you’re spending anyway, and you happen to find yourself with enough points to splash out on something you wouldn’t normally buy with cold hard cash, that’s a win in the consumer’s mind.

Secondly, loyalty schemes assist retailers in improving the overall customer experience.

“Loyalty programmes should provide retailers with valuable insights and data about the people who technically should be most engaged with them,” says Neville-Te Rito. “Knowing what characteristics of cluster shoppers look like helps define your audience in a way that has behaviour and attitudinal characteristics. As a result, the marketing strategy should become a lot easier to deliver”.

Neville-Te Rito also points out that this data can assist merchandise strategy by identifying what is important to your high-value customers.

“You are only limited by the quality of your data, the ability to use it and clear objectives from the insights. Your clear drivers still should always come back to the unique positioning of your brand and ‘What problem am I solving for my shopper that no one else can do the way I do?’”

Being part of a loyalty scheme that provides you with feedback about your customer base can offer you invaluable insights to improve your business, and that’s where the bigger coalition schemes really come into their own.

What’s out there and who is it for?

Many stores run their own loyalty scheme. Farmers, of course, has its own card that offers points for purchase, seasonal rewards and member-only discounts. Other stores have similar owner-operated loyalty schemes. My children love collecting stamps at Smiggle. Once you have filled your card with stamps, you can exchange it for a free gift – usually something that is not available for purchase.

City Chic, my clothing boutique of choice, offers a digital scheme similar to Farmers’ that allows you to collect points for discount against your phone number. This also gives you exclusive offers and collection previews, and ultimately makes you feel a bit special – something woefully absent in the larger-size clothing market. City Chic has improved on the Smiggle offering, because as well as offering value for loyalty, they’re also able to collect data around spending patterns which they can use to attract customers and tailor their proposition to be most effective.

The larger collaborative schemes use a similar model to City Chic and Farmers, but across multiple businesses. Fly Buys was until recently the biggest scheme in New Zealand, with 75 percent of the population using it to some extent. Launched in 1996 by Loyalty NZ it now has 1500 participating stores in New Zealand, and a total of 50 businesses, including energy company Genesis, BNZ and Liquorland.

“The key to Fly Buys is that as a coalition we provide most businesses with exclusivity in their category,” says Hamish Mitchell, chief strategy and growth officer for Loyalty NZ. “We expect active participation from our partners. A clear understanding of what you’re trying to achieve and active use of the assets and programme of the business to benefit the customer, and the whole network.”

Ian Sutcliffe

The Fly Buys programme is unique in the sense that it gives consumers a huge amount of choice over how they are rewarded, from store discounts to holidays.

“The vast majority of New Zealanders are Fly Buys people. Being a mass market shopping programme, it appeals and is relevant to everybody,” says Mitchell. “We have 4500 products in the Fly Buys store and we’ve introduced fuel discounts and bonus points at Z Energy through Fly Buys Pumped and preferential pricing at New World stores with New World Clubcard.”

AA Smartfuel is the other major player in the loyalty landscape. It was launched seven years ago as a local programme in Palmerston North and grew quickly after the team partnered with AA New Zealand. It’s now the biggest scheme in the country based on membership.

“It’s basically a card that represents the cumulative value of discount dockets,” explains Ian Sutcliffe, one of the founders of the scheme and the current director. “But whereas you can only use one docket or voucher per purchase, you can choose to use your AA Smartfuel discounts how and when you want.”

Sutcliffe says the mission of the scheme is to provide your average Kiwi with tangible, everyday discounts that make life easier.

“We’ve given away $95m over the last 12 months to Kiwis. That’s real dollars in pockets,” says Sutcliffe, who notes AA Smartfuel’s scheme isn’t about saving for a special occasion or purchasing luxury products, but about making a practical difference.

“We’re right in heartland New Zealand. We know what the average income is, and if we can give people $20 off fuel then they can buy a slab of beer or a packet of nappies,” says Sutcliffe. “We’ve got 3.5m cardholders, with 1.1m of those active on a monthly basis.”

AA Smartfuel can be used at BP or Caltex, and the scheme has a variety of local and national business partners including Countdown, which it teamed up with at the end of last year, plus an app to help consumers keep track of their savings.

Air New Zealand’s Airpoints scheme offers card holders the chance to save points in exchange for flights with them or a Star Alliance partner. Until recently it was partnered with Fly Buys, and is the third biggest scheme in the country with 2.2m users and partnered with 50 stores. If your customers are frequent fliers, or saving for a special holiday, they may benefit from this scheme.

Goody Card is the newest kid on the block, having launched in 2015. It’s deliberately targeting small businesses and service providers which may not have been able to buy into larger, more expensive schemes in the past. The Goody Card team wanted to offer small retailers the chance to have a loyalty programme that provided them with useful data and a sticky offering, without a hefty price tag. Using smartphone technology, Goody Card is an app-based scheme with half a million members and a network of 730 merchants nationwide, including McDonalds’ McCafe chain. 

What’s changing?

Until Goody Card launched in 2015, very little had changed in loyalty for a while. Goody Card is still a small player but it has given SMEs a chance to have the same perks as bigger enterprises, and in the interest of future-proofing, some of the larger schemes have had to catch on.

“We’ve always been open to small and local businesses,” says AA Smartfuel’s Sutcliffe. “That’s where we started, and we still have many SMEs on board today.”

With AA Smartfuel, you can set your own rewards using their online dashboard.

“It’s like a banking system, it’s the same platform,” says Sutcliffe. “You can set the value of your rewards in real time and respond to data with promotional pricing or offers.”

AA Smartfuel is very responsive – one of its major points of difference.

“We’re a small team and that allows us to be nimble,” says Sutcliffe. “If an oil company comes to us with a 10c offer, we can turn that around in a couple of hours, reaching 1.3m members by email. You can’t book air time with the networks that quickly.”

Another point of difference for AA Smartfuel is that it doesn’t clip the ticket on unused promotions.

“For other schemes, that’s part of their funding model. The retailer buys the value of the promotion and that money has gone,” says Sutcliffe. “For us, if we are offering a 30c discount and it doesn’t get used before the expiry date, that 30c gets returned to the retailer.”

This not only makes the scheme more appealing to small business, but it enables AA Smartfuel to negotiate very attractive offers for its members. Now it is the fuel provider for Countdown’s Onecard, it’s seen a 30 percent increase in membership, and it’s still growing. Its small in-house data team can provide insights for retailers, and its communications team is constantly refining the way they reach their members.

Fly Buys has experienced a series of changes in the last 12 months that are set to alter the scheme extensively. It started in August 2016 when Green Cross Health took its 1.2m card carriers and decided to go it alone. Fly Buys’ separation with Airpoints in October has resulted in further changes to its business partner line-up.

For example, Mitre 10 recently announced it would be switching to Airpoints as an exclusive partner. The introduction of the New World Clubcard means the consumer can now choose between Fly Buys and Airpoints when they spend.

So what’s Fly Buys doing to stay relevant? Well, for a start it’s choosing its new partners carefully, seeking those which will be very actively engaged in leveraging the benefits of the network. Its recent switch from Contact to Genesis as its energy partner was a result of this strategy.

“We are undertaking ongoing work around bringing new participants into the programme and helping retailers bring more customers in. We recently brought on Genesis Energy, Yellow and Helloworld, and we will be announcing a few new participants over the next month or two,” says Fly Buys’ Mitchell.

Hamish Mitchell

It is also working to expand its rewards and make them more relevant to the consumer. But the biggest and most exciting development is the introduction of the SME programme.

“We’ve got a pilot running for SMEs in Wellington with 15 merchants; cafes, bars and restaurants,” says Mitchell. “We will be looking to take that nationwide later this year. It gives customers an opportunity to participate on a day to day basis, getting them engaged for coffee or lunch, being rewarded in more places.”

Mitchell says this strategy will increase customer engagement in the Fly Buys programme and attract them to bigger partners. It also has huge benefits for the Fly Buys network in terms of the type of data that can be collected, and also benefits the small businesses that previously couldn’t afford to be part of the Fly Buys scheme.

“For the retailers themselves, we’re giving SMEs the opportunity to participate in a large scale programme, and get access to customer data you’d normally associate with bigger retailers,” says Mitchell. “This helps SMEs understand their customers better and communicate with them better.”

Market fatigue

But isn’t all this dynamic change a bit exhausting? Isn’t the consumer getting tired of having to figure out which loyalty card to use when? First Retail Group managing director Chris Wilkinson thinks so. He points out that currently, there are twice as many loyalty cards in New Zealand as people.

“The need to have that card or that app open is a step too far for people and it may be for many cases they have realised that it's not giving them the benefits they'd hoped for anyway," he said in a recent interview. "Consumers get tired of things; no matter whether there's a real benefit for them or not."

Mitchell disagrees. He notes that in America the average consumer is a member of 29 different loyalty schemes.

“There’s perhaps a little more scepticism these days than in the first 20 years. Everyone’s got a loyalty scheme from cardboard coffee cards to the big coalition programmes,” he admits, but points out the consumer also understands the value of loyalty schemes.

“There is a growing expectation from the customer that if they participate and provide their personal data the service is going to improve, and they’re going to get a better experience,” says Mitchell. “Loyalty schemes like Fly Buys are responding to this greater customer need for better experiences and higher expectation. They are a key part of delivering good experience, and so they have to change to meet the need.”

Neville-Te Rito is a big fan of loyalty schemes, but admits in the current climate, they need to step up to stay relevant.

Juanita Neville-Te Rito

“I love Airpoints, and I get an incredible return on my investment with the brands I choose to shop with that earn me rewards,” she says. “Behaviour will still be driven by a number of choice attributes including access, experience, price, product and service. Shoppers are valuing different things now and we have seen the bar been raised by those doing a great job. The next phase of programmes needs to step it up and needs to be compelling, seamless and personalised in a way they have not to date including rewards based on my personal tastes and preferences.”

Sutcliffe believes the current competition in the market is healthy, providing both consumers and the scheme themselves with good outcomes.

“The loyalty sector is over-serviced, but isn’t that the same for all of New Zealand? We’re over-indexed in every category,” says Sutcliffe. “It keeps us competitive, and thinking about what the consumer really wants.”

He believes the key to the future of loyalty cards is locked up in the value to the consumer. He notes that AA Smartfuel is growing by 20-30,000 new cardholders a month, and that the driver for their success is the day to day value they offer members.

“The days of saving for something for three years are over,” he says. “People want instant savings and AA Smartfuel offers that.”

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