What’s hot and what’s not – Trends in Card Loyalty Marketing

So which form of currency makes for a successful loyalty program? Points can generate loyalty – just look at Tesco’s wildly successful ClubCard program (Zarem, 2002). But the points system can also be a significant cost. Woolf says Tesco chose points primarily because it’s the typical m.o. for loyalty programs in the UK. In general, discounts have been found to be a more effective means of buying customer information and generating loyalty (Zarem, 2002).

However, there are many trends in the market place that seem to be using other tools for their loyalty card programs. Freebies appear to be on the way back – with a twist. Several major credit card issuers are giving consumers cash, travel and merchandise rewards for using cards, but the companies are dispensing with the usual annual fees and are offering rock-bottom interest rates (Fitzgerald, 2002). According to MasterCard research, consumers respond more favourably to rewards carrying brand names and to gift certificates good at national retailers (Fitzgerald, 2002).

Loyalty programs aren’t just about points anymore – get ready for coupons, sweepstakes, and instant – win games. For the codgers who insist on old-fashioned points, marketers are offering point-multipliers (Martin, 2002). The biggest hype at the moment in New Zealand is loyalty program Kachingo! Kachingo! is a technology driven product that operates within BP service stations and Woolworth’s supermarkets (Kachingo!, 2001). Shoppers spending a qualifying amount or buying a particular product on Kachingo! promotion are delivered a rewards game lines ticket with their till receipts. The ticket has a line of six number plus a ‘Power’ number printed on it. Some tickets may provide shoppers with an instant prize, while there are daily, weekly and monthly draws with prizes ranging in size from $20.00 through to a possible 1 million (Kachingo!, 2002).

The problem with Kachingo! is that many of New Zealanders are missing out on millions of dollars in unclaimed prizes, as customers forget to hold onto their receipts for the weekly draws (Ninness, 2002b). Further claims are stating that Kachingo for this reason is struggling to build a loyal following. Customers want their rewards immediately, not having to look up their receipt on the internet to find a reward. This current trend does not look promising as a successful loyalty marketing scheme.

The most successful loyalty reward so far in card marketing has been frequent flier points. In nearly 21 years, nobody has created a loyalty reward as powerful as the frequent flyer mile, but frequent flyer miles have nearly saturated the loyalty environment. It is time for new leadership and innovation on this front – time to explore the opportunities to tap into the lifestage and lifestyle sources of consumer behaviour and create a proprietary reward and recognition experiences that are irresistible in their appeal to high value consumers (Barlow, 2001).

3.1 Technology assisting in success

One factor that is leading innovation of loyalty cards is technology. The past five years have seen many exciting improvements to cards, particularly the introduction of the smart card, that will help organisations improve their loyalty marketing and their customer database and knowledge. A few examples of technology, successfully assisting companies in loyalty marketing are shown in the next few paragraphs.

3.1.1 Visible Results

One of the most successful technology companies in regards to card marketing is a New Zealand company called Visible Results. Visible Results have combined the best features of all the various types of loyalty marketing programs by melding leading-edge technologies in a loyalty card/CRM system known as GraphiCard. A magnetic strip, incorporated into the back of the card, stores specific data about transactions as they occur and is rewritten every time the card is presented. This turns the card into a self-contained database that eliminated the need for extensive costly systems integration since the customers are, in effect carrying in their pockets or purses their own databases, which are recognised and read by the terminals at all participating outlets (Lewis, 2002).

GraphiCard is a little bit different in that it has a screen as part of the card and user’s point’s totals are automatically updated and displayed after every swipe. GraphiCard, which is just now being distributed in Canada by Toronto-based PointSite Inc. uses thermal imaging to take data from the magnetic strip and transfer it to the screen on the card, which remain only as thick as a playing card (Berry, 2002) The GraphiCard is instantly rewritable over 50 times (AdNews, 2002) Graphicard has been action-ed in many organisations so far in the United States and Canada, and is moving into the Australasia region.

An example of their success is Visible results operating a real-time loyalty program for some McDonald’s restaurants. The GraphiCard tracks points, sweepstakes, and other information – all on the face of a thermal graphic card. Swipe the Visible Result’s Graphicard loyalty card though a POS terminal, and it’s updated with transaction information. The card tallies reward points, alerts instant winners, makes special offers, and even delivers ad messages (Martin, 2002). The face of the card serves as ad space (Martin, 2002). 3.1.2 SpeedPass

Esso has taken loyalty technology to the next level of sophistication with SpeedPass. Launched in 2001 and now available at over 700 Esso retail outlets, SpeedPass is a transponder payment technology that includes ESSO EXTRA benefits. The SpeedPass key tag offers the customer the ultimate in speed, ease and convenience. When point at the pump the tag will turn on the pump and charge the credit card the customer chose when he enrolled. SpeedPass can also be used for inside store purchases (Willard, 2002).

Proponents of electronic and mag-stripe cards are quick to point out that paper loyalty systems have limited security. For instance, little prevents a dishonest cashier from stamping away on the card of a friend. And electronic cards provide the ability to track spending and target customers (Anonymous, 2001).

3.1.3 Smart Card

The biggest hype in loyalty card marketing today however, is the smart card. Smart Cards are being used in 35 countries around the world, including the Internet (At your Service Today, 2002). A new generation of cards with tiny silicon chips that stores information inside the card gives you more portability and faster access to important information. The wafer-thin smart card chip holds about 8 kilobytes of information. That's enough information to store 1600 words of text or a digital snapshot of your finger print, palm print or retinal scan (at your service today, 2002).

Smart cards will be essential for the new technology involving loyalty cards. VeriFone, who make the SC250, offer a number of loyalty applications to their smart cards. It lets you accept smart cards for payment, Loyalty and electronic gift certificates (VeriFone, 2002). It can support retailer issued cards that support frequency programs and encourage customer loyalty (Verifone, 2002).

However, for at least a decade, the U.S. smart card has languished, as a technological application is search of a business case – a stark contrast to Europe and parts of Asia where smart cards flourish (Giesen, 2002). The difference lies not with marketing, but with the market itself. Because fraud rates were high with traditional cards in Europe, the smart cards stored value application quickly won over financial service providers, merchants and customers.

It’s difficult for card issuers in the U.S. to differentiate themselves right now. “Chip cards give issuers a robust platform on which they can create multiple applications to distinguish themselves from everyone else” states Mark Sievwright, president and chief executive of Needham, mass-based Tower Group (Giesen, 2002).

“The successful programs will involve a host of applications, including but not limited to payment, merchant loyalty, online security and data storage. And they will allow consumers to personalise their cards,” senior vice president of global smart Cards First Data Resources, a unit of Greenwood Village, First Data Corp.

The idea of “more applications” is critical. While its true that many loyalty programs can be handled by the mag stripe, smart cards are inherently more robust and flexible since they possess up to 100 times more memory to store information. Smart cards, for example, could allow multiple merchants to unite with a financial institution to create an entire loyalty package. Customers can store points from just one or all the merchants and get immediate discounts. “Mag-stripe don’t provide for electronic couponing or immediate gratification”. A lot of customers want that immediate reward at the point of sale” (Giesen, 2002).

Technological change, advances in payment and information processing, the economics of loyalty schemes and the differing appeal of card schemes across countries and cultures mean that the future for loyalty card schemes is hard to predict. Retailers must, however, align any scheme with their strategic objectives and possess a durable analytical framework to develop the scheme which is right for them, or to consider rejecting the concept altogether (KPMG, 2001). The following section will attempt to give advice on the best practices on how to improve loyalty-marketing skills and increase loyalty card activation.