Loyalty in the new millennium

The loyalty market has come a long way since Canadian Tire introduced its paper Canadian Tire money in 1958.
While there are still get-one-free punch cards out there, today, most programs involve plastic magnetic-stripe cards, sophisticated back-end technology and electronic communications with collectors via the Internet. Even the granddaddy of loyalty programs has moved to online redemption and electronic currency with its Canadian Tire-branded Options MasterCard.

The loyalty market has come a long way since Canadian Tire introduced its paper Canadian Tire money in 1958.

While there are still get-one-free punch cards out there, today, most programs involve plastic magnetic-stripe cards, sophisticated back-end technology and electronic communications with collectors via the Internet. Even the granddaddy of loyalty programs has moved to online redemption and electronic currency with its Canadian Tire-branded Options MasterCard.

Technology has spawned an immediacy to loyalty programs that allows for on-the-spot point redemption and rewards. It has also made loyalty less ‘exclusive’ and expanded it to a broader base of consumers – claiming an award is no longer only for wealthy frequent flyers or just an aspiration for average spenders.

Thanks to new technologies and program providers that offer turn-key packages – managing the database, the program and the backend – more and more retailers, restaurant chains, and service providers are able to recognize and reward their best customers. Point-of-sale couponing, point tally statements and rewards with programs such as Shoppers Drug Mart’s Optimum Card eliminate the need for costly help desks and redemption centres, while driving customers back to the stores.

However, now that almost everyone is operating some sort of loyalty scheme, the shakeout is expected to begin. Consumers need a good reason to carry a particular card in their wallets and to shop at one retailer over another. According to pundits, programs that are simple and offer real value to consumers will be the winners.

The loyalty market is a little cluttered right now, says Walt Macnee, president of MasterCard Canada, adding that the programs that really work with consumers are easy to grasp and quick to gratify.

‘Fast seems to be the key these days. Consumers are so busy and don’t have the time to understand some of the precepts [of these programs]. The minute you need a little manual to explain what it’s all about, [the program] is going to be in real trouble.’

One of the biggest shifts in loyalty, he says, is the move from saving points for high-end offerings that could take years to redeem, to actually using the points immediately or on a short-term basis. He says that is why programs have brought lower-value rewards into the mix.

‘The frustration came when [cardholders and consumers] tried to [redeem travel]. Sometimes it was subject to blackouts and limitations that it turned into a bit of a negative because of the hassles associated with redemption,’ Macnee says.

‘This has shifted from a very high-end offering to things that are very practical and available to more people. The simplicity and the immediacy has meant [the programs] are better understood, better used, and I think the satisfaction levels go way up,’ adds Macnee.

For its part, MasterCard works with small retail, restaurant and hospitality chains to offer contests and promotions to cardholders using their cards at participating locations. It is also behind the President’s Choice Financial card and the Canadian Tire Options Card as well as CUETS (Credit Union Electronic Transaction Services – a group of about 600 credit unions across Canada operating a single travel and merchandise program called Choice Rewards).

To be recognized as ‘not just another loyalty plan,’ programs are beginning to offer a combination of hard (discounts and gifts) and soft rewards, an intangible recognition component that includes front-of-line and other preferential services such as gift-wrapping.

This February, for example, The Body Shop launched a stand-alone program called the ‘Know your mind. Love your body’ Club. The paid-membership club is designed to feed both body and soul of The Body Shop faithful – the $15 fee gives members a 10% discount on purchases for one year while one dollar from each membership goes to The Body Shop STOP Violence Against Women Fund.

Members also have the option to receive information updates, including offers from their closest Body Shop location, by e-mail, telephone or mail.

Cheryl Young, president of Tattoo Direct + Digital of Toronto, says the targeted and tailored shopping experiences enabled by Internet and smart card technology allow retailers to develop individualized relationships with customers through treatment and offers based on their past shopping behaviour.

‘That’s as powerful as any loyalty program based on cash-back or points collection,’ says Young. ‘Cash-back may be a hard benefit but the Internet and smart cards allow soft benefits such as speeding me through the check-out process or suggesting other products I might like – anything that feeds into our basic needs.

‘You can save time or you can save money. To many of us, time is more important than money.’

Young says the loyalty market in Canada is mature but not saturated, which is somewhat of a double-edged sword for the industry. Because customers today have been so well-educated about the value of loyalty programs, those programs are now vulnerable to the consumer shifting to the next best value product. She cites the Shoppers Drug Mart Optimum Card and President’s Choice Financial (a Tattoo client) as good examples of broad-based loyalty programs that successfully change behaviour.

‘[The Shoppers program] is high perceived value. It’s very easy to use. They just ask you at point-of-sale if you want to use your credit and give yourself a discount. I can see in a category with frequent purchases and you’re visiting on a regular basis, that you could indeed shift behaviour to that drugstore and make it a preferred destination with that kind of loyalty program,’ Young says.

‘President’s Choice Financial with grocery points is also a frequent purchase. You’re going to be there anyway, so you bring people into your program with rewarding them for using the MasterCard, then getting a mortgage, then getting a lending product and everyday banking. Then you start to build up a preference for that product.’

Time is money

Frequent purchase programs at coffee shops generally mean a punch-card and one free coffee after six to 10 purchases. Starbucks Coffee Company decided to reward its best customers by saving them time. This past November, it introduced its Starbucks Card in both Canada and the U.S., and at the end of December, it had issued more than two million cards.

It’s a payment card – a re-loadable, declining balance card – that allows Starbucks lovers to move through the lineup more quickly. There’s no signing up or information-gathering involved. Customers simply fill the card with anywhere from $5 to $500 and swipe the mag-stripe card at POS. (The Starbucks Card can be purchased online in the U.S. and that function is expected to be possible in Canada soon.)

‘The whole idea is to enhance the Starbucks experience,’ says Karin Koonings, Starbucks marketing manager for Eastern Canada and New England. ‘It’s really geared to our frequent users. Rather than having to dig for change, they use the card, and it really speeds up their transaction. Everybody is in a rush these days, so expediting that movement has been important.’

There is the possibility of point collection and other customer interaction down the road for Starbucks, but for now she says the card is there to speed up transactions.

While technology has brought loyalty programs within the realm of more retailers and service providers, industry experts such as Tattoo’s Cheryl Young believe the most cost effective way – and one proven by U.S. research – for smaller retailers or restaurant chains to institute a program is through an existing credit card, since the database and back-end technology infrastructure is already in place.

One example of such an initiative is Kelsey’s International of Oakville, Ont., which aligned its Montana’s and Kelsey’s restaurant chains with American Express Membership Rewards last fall. Amex cardholders can redeem points for gift certificates to be used at one of 134 locations.

Toronto-based Advantex Marketing International provides coalition loyalty programs to over 500 merchants restaurants, retailers, golf courses, inns, resorts and spas, including Sooke HarbourHouse (British Columbia), Toronto’s Centro Grill & Lounge, 360 Restaurant at CN Tower, Big Daddy’s Crab Shack & Oyster Bar, Vintage Inn properties at Niagara-on-the-Lake and ClubLink properties, which, because of their relative size, would not be able to operate a loyalty program alone.

The programs are run under the umbrella of Aeroplan and CIBC Aerogold. CIBC Aerogold cardholders can double and triple mileage rewards by making purchases at participating outlets. MasterCard and other financial institutions offer similar plans.

Another coalition program, Air Miles Reward Program – Canada’s most pervasive loyalty program – has been operating since 1993, when it began with 13 sponsors. Today, Air Miles has 100 different sponsors, more than 12 million active collectors, and over 300 different rewards in its portfolio. Originally an air-travel points program, it has shifted over the years to include a wide range of travel, merchandise and entertainment rewards.

There’s been an increasing number of new coalition and stand-alone programs to surface in the market, says Bryan Pearson, Toronto-based president of Air Miles. There are also other vehicles that, while not typical loyalty programs, are able to create deeper, value-rooted relationships with consumers.

‘One that comes to mind for me, because I use it, is the Starbucks Card. That creates loyalty for their really loyal customers like me, who buy coffee every morning with them. It’s a good value-added scheme. I don’t have to fumble for change. It may not be driving any incremental loyalty for me, but it’s certainly providing a value differentiator.’

Pearson says there have been more changes and new trends in the loyalty industry in the past three years than in the 10 years before that – primarily because of the Internet and new technology.

‘We’ve seen the rise and subsequent fall of Internet-enabled currency, where people were looking for ways to attract and retain [customers] and create some sort of glue for having people visit certain sites, create dialogue and effective marketing systems,’ he says.

‘What’s continued out of that is a recognition by the industry that the Internet provides an extremely valuable communication tool and marketing device. It needs to be integrated in a meaningful way into operations so they interact with consumers in a multi-channel environment.’

Air Miles, Pearson says, has rebuilt its marketing database three or four times over the years. Other improvements have included online redemption of everything but travel, and increased use of outbound e-mail with personalized offers. Pearson is getting ready to move to a new technology platform and will launch a new enhanced Web site that will offer consumers virtually a one-to-one experience.

What technology is going to bring over the next few years, he says, is the ability to retain and analyze data more effectively so segmentation will increase and lead to more effective implementation of CRM with differentiated communications to consumers.