I SAY, I SAY BY PETER GRAY
LOYALTY COMES AT A PRICE
In Australia and New Zealand the most common definition of an incentive reward is that created by the AIA several years ago: “Goods or services of tangible value provided at reduced or no cost following a period of sustained application resulting in the fulfillment of prescribed actions or the achievement of predefined objectives”. The USA tends to use a wider definition which allows its incentive industry to claim give-aways and business gifts as incentive rewards…and the latest figures suggest that these two categories alone double the size of the rewards market.
There are two main types of incentive progamme, both of which use rewards that fall into the definition I’ve given above. I suppose the easiest way to identify them is to call them ‘internal’ and ‘external’. The internal programme is one created to influence specific markets as identified by the sponsor – the person or company offering the incentive - and the majority of these are focussed on increasing business and ‘the bottom line’ in one way or another. Common users of this type of incentive programme are automotive companies, pharmaceutical manufacturers, insurance companies and so on.
The ‘external’ programmes are the ones we all know and love and they’re called ‘Loyalty Programmes’: Fly Buys, Frequent Flyer schemes and a host of others. Most of these allocate points for each purchase covered by the scheme which are stored until the user has sufficient to convert them into a tangible reward (which are dangled tantalisingly in front of us by virtue of the Web and email these days).
The name ‘Loyalty Programme’ is derived from the fact that the purpose of such a scheme is to ensure that the anticipation of the rewards is sufficiently to bring customers back to the same brand or store (or both) again and again. The very first loyalty scheme was actually the invention of an Englishman (in fact a Yorkshireman) in the second half of the nineteenth century and not, as many suppose, an American.
Green Shield Stamps was the next British foray into the loyalty market and this scheme was largely taken up by the petrol companies and Tesco, the British Supermarket chain. So successful was it that Lord Sainsbury (then head of the UK supermarket chain which still bears his name) sponsored an Act of Parliament to try to curtail its effectiveness.
Isn’t it strange, then, that the petrol companies are now probably the least proactive of the major retailers (except possible Coles with Fly Buys which must be one of the greatest loyalty names ever registered and yet the least developed, promoted or effective) when it comes to offering an incentive to purchase. In fact, quite the contrary, we are now told – even by the ACCC - that we have to put up with the ‘marketing cycle’ – surely a form of retain price maintenance, which I believe is illegal in Australia – which determines that we pay more for petrol on Thursdays and Fridays, more on Saturdays, Sundays and sometimes Mondays and less on Tuesday and Wednesday. With the price of petrol shooting up once again this anti-free-marketing practice is responsible for many tourism operators having a harder time than they need. And yet during the past twelve months petrol companies have recorded some of the highest profits ever declared!
It certainly seems that owners of loyalty programmes are having a hard time of it at the moment. Qantas doesn’t quite know what to do with its frequent flyer scheme (and nor do many of its customers). Will they sell it or won’t they? Coles Supermarkets in spite of changing hands in probably the second most publicised buy-out (after Qantas) has done nothing with Fly Buys which, since it’s launch, has been the most under-whelming scheme ever. And yet I, like many thousand of Australians, still proffer my Fly Buys card when I check out of a Coles Group store! Goodness knows how many points I’ve earned – nobody ever bothers to tell me. And good communication is one vital necessity with any loyalty scheme.
In another twist, I read that some tourism wholesalers are to walk away from preferred partners as they look to cut costs. I thought the whole point of loyalty, in having ‘preferred partners’, was that you remained loyal to them! But I suppose just as some of the major retailers found that a high percentage of their loyalty scheme members did indeed remain loyal but spent very little in doing so, even loyalty has a price these days.
Peter Gray is the Managing Partner of Motivating People www.motivatingpeople.net
For Speaking availability, Quotes and information email peter.gray@motivatingpeople.netcopyright Peter J Gray Motivating People 2009
