Buying loyal customers more than a card-trick

By DITA DE BONI

From coffee cards to air points to "most treasured buyer of pink frilly underwear," loyalty programmes have become a must-have in the modern marketer's arsenal.

While the better-known ones are widely subscribed to - and Aunt Maude can now afford that free flight to Palmerston North she has always wanted - a more important question for marketers is: do loyalty programmes engender brand loyalty, or do they just attract a slew of bargain shoppers who would take their business elsewhere if a better deal presented itself?

On the surface, the numbers attracted to loyalty schemes are impressive, and have been widely credited with boosting the business of their corporate participants.

Fly Buys says more than 1.6 million Kiwis have its card in their wallets, BP Oil-AA Rewards boasts 650,000 active members and 800,000 Foodtown shopper cards are in circulation.

The American Express Loyalty Charge Card, which rewards members with points, has a membership "in the six figure range" in New Zealand (the company won't give exact numbers), and even the humble coffee buyer brandishes his or her card each morning and relishes the sweetness of a free brew at the end of the week.

In the more sophisticated schemes, clever retailers look at how best to harness the information they gather about their consumer base through the schemes.

For the others, repeat purchases are the primary aim.

For consumers, the result is a wallet bulging with plastic and cardboard cards, each with one or two stamps or purchases registered.

As one frustrated consumer said: "They want to lock you in - they want your commitment almost immediately. It's like someone asking you to marry them after the first date."

With the spectre of "loyalty fatigue" on the retailing horizon, it may be worth considering whether the programmes do, in fact, breed loyalty.

University of Auckland marketing lecturer Dr Brett Martin says that if a loyalty programme is based simply on price or a cash incentive, then the takers are probably more bargain hunters than brand loyalists.

"But some argue about the concept of 'loyalty' too," he points out. "The word has been criticised by some academics, who say that the word has emotional connotations, when in fact all it is is repeat purchase."

So does loyalty exist? Perhaps not in the lower price regions.

"The danger for strategic planners is that you start seeing these price-driven customers as a loyal segment that you 'own,' when in fact you don't," says Dr Martin.

"Some marketers know this as 'spurious loyalty.' It has been documented that for inexpensive goods, consumers tend to see them as very alike.

"For example, people may see all tooth-whitening toothpaste as the same and therefore buy the cheapest."

The same thing could happen to loyalty programmes, he says.

APC Marketing's Geoff Shaw agrees, saying a loyalty programme should ultimately aim to build "preference and commitment" above anything else.

He says some of the most powerful recent examples of loyalty drives are those offering something to consumers already locked into a contract.

"For example, the BNZ now offers travel rewards on top of mortgages - that seems like a really good way of maintaining loyalty."

Loyalty New Zealand, which runs the Fly Buys scheme, agrees that banking and insurance offers are becoming increasingly popular on the Fly Buys' roster of member businesses, and says that even in a crowded loyalty market there is plenty of room for growth.

Chairman Ed Johnson, who is also chief financial officer at Fly Buys' participant company Shell, does not quite buy the argument that people become more loyal to the programme than the brands involved, because, he says, the programme becomes synonymous with the brand.

"For all retailers, it is important to get people through the door so they can experience your offer - so getting them there in the first place is the most important thing.

"Once you have them through the door, you then have to generate brand loyalty - that's good old-fashioned retail marketing."

Is it important that people identify the loyalty programme before the brand?

A study done in New Zealand and Australia in 1998 suggests a danger in that trend. Fifty-five per cent of those asked said they would reduce their business with a company if it removed its loyalty programme, and only 2 per cent said they were more loyal to the company than to the programme.

Most marketers and retailers agree that the key - for company and customer - is to have differentiated offer and true value for money.



American Express country manager Anna Hynes says consumers should look for a programme that runs long enough for them to accumulate enough points to get something of value, a straightforward formula for accumulating points and/or rewards, offers that are not too restrictive and a programme that does not require consumption of a good or service disproportionate to the reward offered.

Mr Johnson says the main purpose of a loyalty scheme is for a business to differentiate itself from its competitors, but everyone must see the value in it.