Loyalty schemes: The hunt for the real deal

by Pattrick Smellie / 26 December, 2016

Photo/Getty Images/Listener illustration

Despite a raft of recent changes to loyalty schemes, it’s never been better for consumers.

Who else has noticed the anarchy in their wallet lately? Across the nation, holders of loyalty programme cards have seen a befuddling array of changes.

One of the aims of such schemes is a “set and forget” mentality when shopping, so homework seems like the last thing they should expect of their members.

Z Energy marketing general manager Jane Anthony acknowledges the issue.

“There’s so much choice it’s almost confusing,” she says, although it’s also “never been better” for consumers seeking a scheme that suits them. She should know. Few retailers are as caught up in the vortex of loyalty-scheme changes.

Z Energy is a 25% shareholder in Loyalty New Zealand, which owns the 20-year-old Fly Buys programme, but in recent weeks it has been offering triple points under rival Air New Zealand’s Airpoints scheme.

Until last month, Airpoints and Fly Buys were joined at the hip. Now they’re competitors, although Fly Buys points can still be redeemed for Airpoints dollars and ­Loyalty NZ manages the Airpoints gifts store programme.

For Z, there’s another wrinkle. It owns the Caltex petrol-station chain, which belongs to the powerful new combination of Countdown’s Onecard and the Automobile Association’s Smartfuel programme.

Meanwhile, the New World supermarket chain – whose owner Foodstuffs is also a Fly Buys shareholder – has just expanded its Clubcard scheme to North Island shoppers, who can choose either Fly Buys or Airpoints, but no longer both, when they do their grocery shopping.

Likewise, Airpoints cardholders no longer get a choice of Airpoints or Fly Buys, reflecting investment by Air New Zealand to gain direct control of its customer relationships, reduce what it pays for the scheme by bringing in new retail partners, and bring in-house the data analysis that Fly Buys used to do. 

Andy Symons: customer data “more and more important”.

Sophisticated offers

Also on the move during this shake-up has been Green Cross’ pharmacy division, which left Fly Buys to run its own loyalty scheme. And a schism between Airpoints and Bank of New Zealand last year saw BNZ lose substantial credit-card business to other banks that jumped into the vacuum. It is now in a scheme with Loyalty NZ.

Mitre 10 recently shifted from Fly Buys to Airpoints, and Contact Energy is also believed to be departing Fly Buys, having spent heavily on new systems to tailor more sophisticated offers to its customers.

“In their quest to build seamless customer experiences, organisations are working out that having the data to analyse customer behaviour to work out what they value has become more and more important,” says Andy Symons, a financial services sector lead partner for PwC in Auckland and former chief executive and director of Loyalty NZ.

“I’m not surprised to see organisations building or rethinking their loyalty schemes.”

The shake-up is good for all participants because it sharpens loyalty offerings, giving consumers the opportunity to devise their own “loyalty strategy” – a sort of toaster-based version of choosing the most appropriate KiwiSaver scheme.

“Some of the bigger brands are deciding their loyalty strategies value customers’ choice rather than one programme only.”

University of Auckland loyalty-scheme expert Laszlo Sajtos suggests that after dominating the market for so long, Fly Buys is facing inevitable erosion, especially as growing “big data” capabilities tempt participants to go it alone.

Loyalty NZ’s chief strategy and growth officer Hamish Mitchell bristles at that suggestion. Some of the recent departures from Fly Buys “are … our doing rather than theirs”. More “proactive and enthusiastic” replacements will emerge in the new year, he says.

“If you’re not going to make the most of the assets of the programme … then you’re simply tying up the category and preventing others from joining. You’re not doing us or your customers any favours.”

The programme has gained nearly 200,000 new members “who are actively shopping in the Fly Buys network”; Mitchell dismisses some other programmes that have “simply issued lots of people with a piece of plastic”.

Do stuff to get stuff

Loyalty programmes tend to concentrate on one of three Rs: rewards, recognition or rebates.

Fly Buys’ critics say it hasn’t moved enough from being mainly a rewards programme: do stuff to get stuff.

Although Air New Zealand Airpoints offers “free” flight rewards, its most important target market is a fairly small, high value segment of the population who fly a lot. That group seeks recognition, earning status points for perks such as airline lounge access, upgrades and luggage concessions.

The AA/Onecard combination is all about rebates: cutting the cost of everyday shopping. In all cases, the programmes’ reach to between 2.5 million and 3.5 million shoppers is a key reason for bearing their cost.

“Onecard doesn’t generate income for Countdown,” says Susan D’lima, head of loyalty at the supermarkets’ owner, Progressive Enterprises. “It’s about bringing our customers deals and specials. Sometimes our suppliers contribute [to the cost]; sometimes we both do.”

Hitching up with AA Smartfuel made sense because Countdown customers wanted the choice of fuel discounts as well as cheaper shopping. It was “also time for people to stop rummaging around for pieces of paper” – a reference to fuel discounts delivered via supermarket dockets – a fast-disappearing practice.

Smartphone apps

For AA, the Countdown marriage was a leap of faith. After five years, Smartfuel had turned to profit and there were fears that offering fuel discounts without requiring AA membership could hurt the motoring association.

The opposite has happened, says Scott Fitchett, AA Smartfuel’s managing director. “A lot of people have joined the AA because it gives the brand a lot more exposure.”

But loyalty schemes don’t come cheap.

“The launch of Fly Buys Pumped for Z, and integration of the new AA Smartfuel programme at Caltex incurred $7 million extra cost uplift … as the battleground for customers partly shifts from price board discounting and into loyalty schemes and targeted customer promotions”, First NZ Capital said in recent analysis of Z Energy.

The sector will continue to evolve. Smartphone apps will start replacing cards, and payment providers – MasterCard, Visa and Amex – will continue to entice customers to use their cards through loyalty-scheme entanglements.

It’s all a long way from the single hole-punches and bit of cardboard that still constitute the average coffee-shop loyalty scheme, offering a free cuppa after every 10th purchase – a 10% return on investment, guaranteed – with not a bit of big data in sight.

This article was first published in the December 3, 2016 issue of the New Zealand Listener. Follow the Listener on Twitter, Facebook and sign up to the weekly newsletter.

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