Sharp cards

In marketing, most activities are sector specific. The way sales of packaged goods are achieved has little relevance to selling life insurance, for example. But with the shifting of attention towards loyalty, the techniques and mechanics employed have begun to spread across categories.

These days, credit cards employ retail-driven point collection schemes to maintain usage, retailers offer loyalty cards to keep their share of the shopping basket and car manufacturers offer credit cards which build up discounts on future purchases. With product parity in many of these categories, competitive edge can often only be gained by adopting an incentive idea which was previously used by a different product type altogether.

In financial services, the credit and charge card market has become extremely crowded. With every type of financial institution issuing a card and keeping a close eye on each other’s interest rates, the real battleground is at the point of sale. With individuals holding on average more than two credit cards, getting them to choose yours is essential.

That means offering incentives to encourage the switching of payment methods. At American Express, the introduction of the Membership Rewards scheme has seen charged expenditure among registered cardholders increase by more than 30 per cent. Much of that growth has come from users making personal purchases on the card.

“The scheme encourages people who may have used Amex only for business to expand,” says Barbara Barsa, vice-president for rewards at American Express Europe. “We have seen a much higher rate of spousal cards being taken out, which are treated as one account. That is one of the scheme’s principles – if you hold a corporate, personal and supplementary card, we can provide a single statement on the bill of your preference.”

Points are awarded for every pound charged, giving the scheme a much lower entry threshold than many rivals, and are acquired through any sale. Barsa says this is an important distinction as it means registered cardholders do not have to switch their buying habits in order to use retailers who are participating. They simply have to spend more on Amex. ©

Research among its customers also told the company that the points acquired should be shown on the monthly bill, rather than as an additional printed item within the mailing. Every 12 weeks a newsletter is mailed to members of the scheme giving details of the rewards for which they can redeem their points.

Setting the redemption levels is always one of the hardest issues for collection schemes. Too high and they will deter less frequent users from participating, and hence from using the card; too low and there is a risk of compromising the brand qualities of the product. This is critical for Amex, which has built up emotional brand values over a long period of time.

Its scheme does allow for relatively low spending – from 1,000 – to produce a reward, in this case a free voucher for a restaurant meal for two. At the top end – about 20,000 – holders can buy a stake in a Loire valley vineyard and receive free cases of wine. There are also airlines participating who offer free flights in return for a certain number of points, traditionally the most sought-after reward.

According to Barsa, part of the scheme’s success has been that members get to take their reward, for example a meal, without having to spend anything else. “We believe the free format is best, unless it is for something expensive which is offering a deep discount,” she says.

While careful research among users can indicate the type of rewards which will work best in the financial arena, other UK card issuers have another problem to work around. Travel, especially by air, is the strongest incentive and in this country, British Airways is the dominant carrier.

It offers flights through the Air Miles scheme, but this is tied up by National Westminster Bank as an incentive for its customers. Other schemes have to turn to alternative carriers, with Amex using Virgin Airlines.

A different problem has to be dealt with by storecard issuers. Recent rulings by the Office of Fair Trading have forced the high-street giant Marks & Spencer to allow cards other than its own to be used for purchases. This is putting pressure on the share of spend which is going through its chargecard.

For the time being, it has not radically changed its incentive strategy for cardholders. According to a spokeswoman for Marks & Spencer, a key motivating element for its card users is the absence of an annual fee and the availability of lower interest rates on loans.

Beyond that, the benefits are in customer service and special offers. “News of exclusive offers is sent in their bills,” she says, “and there is a telephone-ordering and home-delivery service for flowers, hampers, wine cases, furniture and furnishings.” In addition, there are cardholder evenings and free copies of the in-store magazine.

If encouraging credit cardholders to make retail purchases is the key to increased loyalty for financial services providers, for retailers, the key issue is identifying who their regular customers are. In this respect, the loyalty card has become the hottest marketing concept since making all prices end in 99p.

Tesco and Shell have gained a high profile for their magnetic strip cards, which have made their rivals think long and hard about how to respond. With Tesco, the rewards for users are only just emerging in the form of vouchers, while Shell has been able to take the entrenched forecourt premium concept a step further, with a broader set of rewards and collection objectives.

On the high street, home furnishing retailer The Pier introduced a loyalty card last year. The benefits to users of the card were entirely service based, principally in the form of improved customer service, free gift wrapping and delivery.

Having established a solid base of users, The Pier carried out a research programme among holders into what more the company could offer. From the 43 per cent of holders who responded to the survey mailing, 38 per cent said they would like an account card.

“It was a logical extension. What we did was in the spirit of loyalty programmes generally – we listened to customers,” says Chris Lovell, managing director of Lovell Vass Bodey, marketing agency for The Pier. By picking up a ready-made credit card package from finance house Lombard Tricity, the retailer has been able to extend the service proposition of its loyalty card into monthly payment facilities.

An important benefit of the new account card is also the ability to access interest-free loans without having to go through a second application procedure. Lovell says this is an issue for customers of other storecards as the credit checking process is usually carried out by stores in public, which can be stressful.

Because the new card also offers the enhanced customer services of the Passport loyalty card, Lovell says the retailer expects to see “new money” being spent in-store, rather than just a switch in the method of payment. “In the storecard market, not only do storecard holders come in more often, but their basket size is also bigger,” he says.

But while collection and loyalty schemes are sweeping through retail outlets, not all traders have been convinced of their value. Sainsbury is remaining notably aloof from the fray, while on the petrol station forecourt, questions are being raised about the effectiveness of running long-term programmes.

“Eighteen months ago we recommended to BP that it come out of its long-term points scheme because it was not competitive and was not recognised by consumers,” says Matthew Hooper, managing director of Interfocus, which holds the BP account.

With retailers taking a growing share of petrol sales and a plethora of oil company collection schemes devaluing the concept, BP decided to turn back to short-term, four month-long sales promotions. “They have an effect on a particular audience and market and they have allowed BP to gain greater volume and share in a competitive market,” says Hooper.

One of the largest forecourt promotions ever run in the UK, the first burst of the 5m promotion offered free Warner Bros videos. Drivers collected tokens and then redeemed them across the counter at the service station. Hooper notes that this form of instant redemption is one of the strongest incentives and that other schemes risk alienating their customers because flights or products are unavailable, or take too long to be gained.

Long-term loyalty is one of the hardest qualities to build among a customer base, and yet it is critical to the automotive sector. Most owner-drivers only renew every three or four years. Whatever their emotional loyalty to a marque, there is the risk of losing them to a competitor during that critical sales window.

For this reason, virtually all manufacturers now have communications programmes of some form that talk to owners following their purchase and before they replace their car. “They get a magazine two or three times a year. It starts there. The magazine is one of the most important programmes we do,” says Andy Mitchell, marketing manager for Mazda.

The car company has just redesigned its title, Senses, to ensure it is aligned with the brand values it is projecting across the marketing campaign. At the same time, Mazda is just about to unveil a five-year, 100,000-mile warranty offer that takes “the high ground”, according to Mitchell. “It is special, it is not a distress offer.”

Finding points of difference is important – from the design and manufacturing through to on-the-ground servicing by dealerships. For smaller companies, it is also crucial since they cannot afford the loyalty schemes offered by the likes of Ford and Vauxhall.

“As a one per cent share marque, if we did me-too copies of everything in the market, we would have awful programmes, like a bad credit card. We have not got the resources in terms of people and money,” he says.

But finance does remain a critical way for car manufacturers to ensure repeat purchase. Ford has tied in with Barclaycard to allow its customers to build up points towards a discount, while General Motors launched its own credit card with the same offer built in.

Peugeot has just entered this market with its own card. “A lot of loyalty is down to finance,” says Phil Bourne, a director of KLP which works for Peugeot. “A car is an expensive commodity and it is hard to effect a sale on something costing more than 10,000.”

The company has signed up with the Midland Options scheme, which is a points-per-pounds system that shows credits on the card statement each month. “If you use it over a four-year period, when it comes to renewing, you can save hundreds of pounds. That is a very powerful loyalty device,” says Bourne.

The irony for car manufacturers is that while they are using financial services as a loyalty tool, they still rely on the retail contact their customers have with dealerships. And those outlets have become just as concerned to keep their customers loyal by offering enhanced service, special events and invitation-only evenings. The convergence of retailing, financial and manufacturing marketing will probably reach its apogee with a dealership discount and credit card. Watch this space.