Two years after the world and his wife launched loyalty schemes, Boots has joined the party.
The high street retailer is investing 52m over three years in its Advantage card scheme, although that does not cover the costs of redeeming the discount points on the 10,000 items available through the Advantage scheme. The bill includes a 24m advertising and marketing budget; a further 8m spent on creating and updating – but not analysing – the database information collected; and another 8m to cover the manufacturing cost of the cards.
But apart from claiming that the scheme will break even by the millennium – producing a four per cent increase in sales – and that the card will provide vital information about Boots’ customers, the company refuses to give more details. Managing director Steve Russell hints at the future use of the information stored on the smartcard, when restrictions on collecting medical details and marketing direct to patients ends, but that could be a long way away.
Boots seems to have launched its “me-too” card as a defensive measure against the supermarkets and other rivals, which are threatening its dominance in the health and beauty market by undercutting on price.
On first impression the scheme, which offers four pence for every pound compared with the supermarkets’ one penny, appears generous. But to collect 1, you have to spend 25, and the average shopper only spends 6 on a visit to Boots. However, the company hopes the smartcard capability which it claims has the potential to store medical records and detailed information on customer buying habits will convince City analysts that Boots is a forward-thinking operation. But some potential flaws are obvious.
As customers are spending 6 on a trip to Boots, compared with an average 75 in a supermarket, it will take longer to build up the equivalent number of loyalty points. Also, customers can only redeem their points against chosen items in a catalogue similar to the one used in the green shield stamps scheme, so they do not immediately see savings on their everyday purchases.
Henderson Crosthwaite analyst David Stoddard says: “What Boots is doing is a defensive move. Health and beauty is a category opportunity for food retailers which are putting more resources into it with in-store pharmacies and increased footage space given to the category.
“Whether the food retailers hit back depends on how successful the scheme is. The supermarkets are taking on petrol companies, banks and other sectors, so they might not be ready to take on Boots as well.”
A source close to the launch of the Advantage card says that it is not a company associated with taking gambles and that it has been forced into providing a loyalty scheme for fear of appearing arrogant and mean. The source confirms that the card is a response to the threat of outside competition – mainly from the supermarkets health and beauty offer.
Boots has the highest “footfall” of any retailer so the scheme is unlikely to lure many more people to its stores. It is there to stop customers becoming promiscuous and spending less at Boots, rather than getting them to spend more, says the same source.
“I believe that research would show that because the scheme doesn’t translate into real money and can only be redeemed against what are essentially luxury items with high margins, customers will lose interest in the offer fairly quickly,” says the source.
It is a view echoed by Superdrug marketing director Steve Round. “A loyalty card may be right for core Boots shoppers, but our customer research shows that Superdrug shoppers want value today, not points tomorrow,” says Round. This was a view also expressed by Sainsbury’s about the Tesco loyalty scheme, months before it was forced to launch its own.
But Boots spokesman Francis Thomas counters: “Our priority is to build the best retail card, so that when wallet fatigue does set in, we can, with the help of the microchip, add more facilities and benefits to the card. Hopefully ours will be the card that customers choose not to throw out.”
Initially it seems Boots will only use the scheme to match its rivals’ offers, but it is the card’s microchip facility that is creating interest.
As health provision moves further away from the National Health Service, Boots will be among those companies seeking to be more involved with private health provision – either with its own surgeries or through expanded pharmacies. It is not surprising therefore that Boots is hinting at the possibility of an all-purpose health information card encompassing medical records, a donor card and health insurance details.
But rather than outlining any specific plans, Russell stresses that the company will not contravene existing guidelines.
A source close to the planning of the card says Boots healthcare provision proposition is purely science fiction at the moment. He believes that for all Boots’ heritage, customers (or patients) would have difficulty coming to terms with a card that can at once store their personal details and tell a checkout assistant how many lipsticks they have bought in the past year.
“Imagine going to get some advice and medication about a case of VD and then immediately going to the make-up counter to buy a bottle of perfume,” he says. “Even if the information was stored separately, customers wouldn’t necessarily trust or understand such a technologically successful system.”
In trials in Norfolk, Devon and Cornwall, over 200,000 people registered for cards with almost 40 per cent of all adult women in the trial areas holding the card. But experience shows that the cost of interpreting and using the data on a large scale often deters retailers. There is little evidence that retailers have used the information gathered via loyalty schemes to great effect in the past two years.
Diana Dunn, managing director of the direct marketing agency Triangle, which worked on the launch of the Safeway ABC card, says she suspects retailers have not used the data collected from loyalty schemes to the extent that they first intended. “It will be good to see a retailer do what they say they will do with loyalty schemes, and maybe Boots will, but the huge investment required to do it properly will not be undertaken lightly.”
Tesco’s decision to launch its Clubcard scheme two years ago was perhaps more cunning than it seemed at first. By sparking what has now become a compulsory requirement among all the major retailers, it is driving up retail costs for its competitors.
Boots hopes to have 8 million consumers signed up to the Advantage card within 12 months. That would make it a serious player in the loyalty card market. But of more interest will be the type of information collected and how it is used. Boots is playing a long game for now, built on defence rather than attack.