While consumers are racking up points on loyalty programmes, the programme providers, that is the retailers, are busy too, compiling massive databases which track our every move.
Since the introduction of loyalty schemes, the information gathered has been considerable. Information about people now passes hands (or companies) at an alarming rate. The information is either shared within a consortium or is sold onto the market through a list broker.
Buying access to a loyalty scheme’s database for one-time use is expensive. If you are the owner, you can earn between 85 to 120 per thousand names. The list broker, in turn, is responsible for selling the list on “responsibly”. Data owners do not want their precious information falling into the hands of competitors – no matter how much they can earn from selling the data. The broker is also responsible for managing the database to make sure it is handed over for a one-time only use to a third-party – usually a registered direct mail bureau. When the bureau has used the data for whatever purposes, the list is returned to its owner and all other copies of it are destroyed.
Lloyd James List Broking Services manages 27 databases including those of the BBC and BP Oil. Both these companies are happy to make it known that their databases are for sale – despite increasing resistance on the part of consumers for their names and addresses to be bandied about.
“If data owners are collecting their data in a responsible way; are adhering to the rules set down by the ASA, DMA, and the Data Protection Act; and are represented by a reputable list broker,” says managing director Lloyd James, “then consumers have nothing to worry about.”
James says that credit card companies, record clubs and mail order houses are the biggest traders in databases; and the revenue generated from selling databases helps to pay for their own running costs.
“Databases are not cheap,” says managing director of list broker and manager HLB, Annette Kelley. “If the data can be sold, the owner can pay to maintain the database and still net a profit.”
Although many databases are on the open market, the most precious ones are not. The large supermarkets and Air Miles are some of the high-profile elusive lists which everyone would like to get their hands on.
James says he hopes this will change. “Many data owners do not sell their databases because they perceive that direct mail will be received poorly in the home,” he says. “But © you show me a situation where someone has not purchased something in their lives from direct mail.”
But not everyone is convinced even those who are in the business of direct marketing. Managing director of direct marketing agency TSM, Tony Wightman, says that databases must be regarded as precious. “If they are to be sold, it must be with the consumer in mind to protect the consumer’s newly found loyalty. Trust and integrity are how brand values are formed. Unless selling a database is going to add value to the relationship, then don’t do it” he says.
The long-term relationship with a consumer is the holy grail for marketing professionals who represent UK loyalty schemes. Boots launched its Advantage Card last September and has pledged that it will not sell its database under any circumstances. Boots is predicting 8 million card holders by this September.
“We are building a unique relationship with our customers,” says a Boots spokesman.
“We want them to know that we would bend over backwards to be their number one healthcare provider.”
Air Miles is also quite adamant about not letting its data out of its sight. Air Miles marketing director Judith Thorne says: “We are ambassadors for our clients and would not damage that relationship by releasing the information we have on them.” Air Miles’ database can be used by members of the Air Miles consortium (BA, Sainsbury’s and Vodaphone) but only if it is deemed to be beneficial to Air Miles customers.
“Of course if we put our database on the market we could make a lot of money. But I believe we would lose the loyalty of our customers if we did that,” says Thorn. “Loyalty is our most valuable asset, once you have lost it, there is no going back.”
Argos Premier Points has a consortium of partners, including Somerfield, BP, Southern Electric and selected aspects of Granada Motorway Services. The scheme allows money, from one penny up to 5 per card, to be earned and be redeemed towards a purchase of thousands of items at Argos. Argos is one of the few loyalty programmes that does not capture names and details of its cardholders.
General manager of operations Phillippe Gayton says one of the reasons why Argos is hesitating about collecting data is because of the sheer size of the project. He also maintains that there are many advantages to not keeping a database.
“We believe that the points earned should be purely to reward customers and not a means of contributing towards the running costs of a database,” says Gayton claiming that one of the reasons for Argos’ success is its simplicity and low cost. Gayton says the scheme is easy to understand and requires minimal paperwork, which allows for a consumer to become a loyal and regular collector.
“We have gained significantly because we provide a reward tool which requires minimum investment,” says Gayton.
The companies which formed the Goldfish credit card, Goldbrand Development and HFC Bank, decided from the start that they were not going to sell their database. “Because the brand is so new, it needs to establish long-term, mutually-beneficial relationships,” says DP&A’s client services director Dave May, “but we may consider trading data in the future.” DP&A is the direct marketing agency that developed the promotional material for Goldfish.
A data owner’s hesitation to sell information given them in good faith by their customers is easy to understand. A recent study by the Harvard Business School suggests that many customers are offended by unsolicited approaches from companies and it also matters to them what type of company approaches them and the way in which they are approached.
The report goes on to say that while relationship marketing is ostensibly for the benefit of the customer, it is in fact the companies themselves which set the rules of this special relationship. For example, loyal customers have to wait for special offers when they feel they should be able to request occasional preferential offers. This issue extends to brand positioning. The business school researchers found that one Internet bookseller won loyalty by not bothering its customers except to confirm orders. Effectively, this is recognition that the customer’s loyalty is not to a company but to a brand or product.
The quality of product and service is vital, the researchers say, while constant communication and questionnaires are not.