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The 5 essentials of loyalty programmes in New Zealand.

Around this time last year TRA’s Andrew Lewis wrote a fascinating piece on loyalty for Marketing Magazine, closing with the damning conclusion that “we should acknowledge that most loyalty schemes operating right now don’t work to provide any real gains for their businesses. The reason for this is that they are simply trying to buy a behaviour change that customers don’t desire to make.”

And he had a point, especially with a global eye. However, over the last two or three years, we’ve seen a lot of change in the New Zealand loyalty landscape. This year alone, there are already further developments underway. As I write, Fly Buys Pumped has just launched, an aggressive and smart play by Z and Fly Buys to win market share and deliver value back to the Fly Buys base. Who wins out of this? We all do – customers who get easy access to rewards and savings, Z and Fly Buys partner group because it drives greater engagement in the programme and of course, drives sales. And there’s even more to come for New Zealand consumers in the loyalty space this year.

As a nation, we should give ourselves a pat on the back – programmes like New World Clubcard, Fly Buys, and Subcard have all gained global recognition as world-class examples of loyalty programmes, most recently with New World Clubcard being one of only 14 programmes recognised last year by the voice of the global loyalty industry, Colloquy.

But let’s take a step back. For those considering launching or adapting an existing scheme, what is there to consider? There are some notable loyalty schemes in New Zealand that could do with a rework – that have bags of opportunity – if only the scheme owners would embrace this; there are significant gains to be made for consumers, and the brands.

There are five key factors to consider when developing an effective loyalty programme, many of which New Zealand programmes are already getting right.

 

  1. Do shoppers spend or visit more?

One US study found that ‘’70 per cent of consumers modify the when / where they purchase from in order to maximise points”[1].

What about New Zealand? Across several programmes, we’ve seen significant improvements in customer visitation based on launch, relaunch, or the implementation of simple smart customer insight driven mechanics to motivate shopping behavior. New World Clubcard’s success at the New Zealand Direct Marketing Awards over the last couple of years has been thanks to a significant increase in these metrics.

Visitation is key to effective loyalty programmes. If the programme can drive this rather than the blunter stick of discount, a common NZ retail device, it’s better for both the margin but also for the price perception of your brand (unless you are a discounter, in which case a loyalty programme probably isn’t for you).

 

  1. Does it drive up brand engagement metrics?

A good loyalty programme should be a pillar of your brand. Why? The statistics here are compelling. In the US, 73 per cent of loyalty programme members say they are more likely to recommend brands with good loyalty programmes[2]. And, from the same study, they found that 81 per cent of consumers are more likely to continue to do business with a brand that does offer a loyalty programme.[3] Subway found that the launch of Subcard in New Zealand (a world first for Subway), afforded the brand valuable technology kudos, and in turn Subcard holders became the most frequent and higher spending customers. Subcard became a brand pillar for Subway in New Zealand. Tracking told us that the presence of the loyalty programme drove preference over alternative mealtime options.

 

  1. Does it provide distinct competitive advantage?

Two words sum up the critical competitive advantage here – big data. Loyalty programmes are increasingly appealing to companies as an opportunity to deliver customer centric relationship programmes.

This is all about data. Whether you own the point of sale or not, technology will increasingly allow you and the sale of your product to be connected. Based on this, you can reward or otherwise connect with and thank the purchaser. Add to this the potential richness of data around this sale – other things purchased, last purchase, value of purchase, competitor product purchasing, location, time of day, sale or not on sale, you name it – the opportunity to build sophisticated and effective marketing information systems which can precision target people that buy your products is huge.

Are New Zealand brands using this now? Yes. Just start looking for an analyst and you will discover the demand for these skills that exists right now. Organisations that don’t jump on board soon will see that they are years behind in terms of developing learnings and effective ways to connect, because there are massive gains to be made in the FMCG space.

 

  1. Does it work for the bottom line?

For those operating currency based schemes, success is inherently challenging as points usually appear on the balance sheet as a liability, and CFOs and Boards (understandably) tend to get slightly anxious about that.

Any successful scheme is going to be exposed to this issue, but there are smart ways to tackle it:

  • Points only represent a value when they are enough to redeem (e.g. as a voucher); so any programme needs its own ratio calculation here to understand what is actually redeemable, near redeemable, or unlikely.
  • There’s a difference between the perceived value of points and the actual cost to the business of a redemption (successful programmes report redemption driving a significant multiplier of reward cost, in other words, sales).
  • How you set up the cost of the point at time of purchase can massively reduce your liability; some programmes factor points as a cost at point of issue, so any breakage drives a credit to the balance sheet.
  • Breakage – points expire, how you do this and what is deemed an acceptable breakage rate helps to underwrite some schemes.

 

  1. Is it visible enough for shoppers to actually feel engaged?

A lot of programmes fall down with poor visibility – whether of your earning, your points, your redemption, your status etc. Their communication efforts can let them down if they aren’t designed and delivered well.

Visibility is so, so important. People like to be recognised for being ‘part of the gang’ (remember that 75 per cent statistic?). Little wonder 73 per cent of United States users are interested in saving loyalty cards to their smartphones[4] and we expect mobile only programmes to double by 2020[5].

New tech is going to transform our opportunities here. Faster, easier ways to understand progress and participate.

To suggest, as Andrew Lewis did, that loyalty schemes are in part attempting to “buy a behaviour change that customers don’t desire to make,” misses the point.

The fact is Kiwis love loyalty programmes – it does change behaviour, and it does deliver bottom line benefits to retailers and other participants. Provided the retailer (or other marketing organisation) place real value on it as core to their marketing activity. New technology and insights around data, coupled with smart Kiwi thinking, are undoubtedly going to continue to ensure that loyalty programmes are part of the marketing landscape here for the foreseeable future!

[1] Source:  2016 Bond Brand Loyalty Report.

[2] Source:  2016 Bond Brand Loyalty Report

[3] Source:  2016 Bond Brand Loyalty Report

[4] Source:  Vibes, 2016 Mobile Consumer Report.

[5] Source:  Juniper, Customer Loyalty Statistics 2016 Edition.

 

 

Ben Goodale, Managing Director 

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