British Airways estimates it will spend 100m convincing customers to fly on New Year’s Eve, despite the possible disruption of the millennium bug.
Potential disasters for the air traffic industry always grab headlines when combined with possible effects on computers at midnight on December 31.
BA knows it must instil confidence in its customers and has 3,000 IT staff gathering data to ensure its computerised navigation systems are year 2000 compliant (Y2K).
However, almost every company relying on information stored in a computer system is at risk from the millennium bug. Although few are as critical as air traffic control, the threat also includes any business running a customer loyalty scheme.
Major players are investing thousands of pounds to ensure their loyalty programmes do not crash. The entire Sainsbury’s group has spent the past 20 months checking all its internal and external computer systems, including those used to update its 13 million Reward Cards. Its sister chain Homebase has 9 million Spend & Save cards in circulation and, relationship marketing manager Paul Hudson says, it is vital for customer relations that the question of Y2K is addressed sooner rather than later.
He adds: “It has meant going back to basics. Spend and Save is a loyalty scheme designed to encourage people to return to our stores, so we would be stupid to risk anything that would cause dissatisfaction.”
No one can be sure what effect, if any, the dawn of the millennium will have on customer loyalty schemes. The threat to existing data depends on whether a computer programme has been written to recognise the year 2000.
Programmers typically stored dates in a two-digit rather than a four-digit field to save memory space. This means when software changes to 00 at midnight December 31 the system could read 00 as 1900 or not recognise it as a valid date. A computer that has not been made Y2K compliant could crash or revert back to the default date set by the programmer. If this happens there could be serious corruption problems. Consumers may lose all the points they have collected or be awarded hundreds of extra credits.
Major retailers have been aware for nearly two years of the need to prepare for potential consequences of the bug.
All the chains Marketing Week spoke to, claim they have already adapted their loyalty systems – or they are in the final stages of checking them.
Eighteen months ago, Tesco created an in-house Y2K team to assess the possible effect on its Clubcard scheme, which launched in February 1995 and presently has 10 million members.
Initially third-party computer consultants were employed to work alongside the project team, but for the past 12 months, ensuring the loyalty system is bug-free has been the responsibility of Tesco’s IT department.”So far, Clubcard holders have not enquired about the effects of the millennium bug, but they would expect a brand such as Tesco to ensure that any potential problems are being solved on their behalf,” says a company spokesman.
Because Safeway launched its ABC card eight months after Tesco unveiled its loyalty programme, its software was already Y2K compliant. However, the chain’s IT staff have spent the past few months verifying the system just in case.
Last February, the DTI’s Action 2000 taskforce carried out a survey of British business to see how aware companies were of the millennium bug. The telephone study of 1,200 firms revealed that 24 per cent of large companies had experienced problems relating to the year 2000 date change.
A government poll of the FTSE-500 companies found that 75 per cent were on course to beat the bug, by the end of last year.
Smaller retailers must also take action. German smart card company ORGA has helped Co-op stores in Lincolnshire upgrade their paper-based Dividend Points loyalty programme, with a Y2K compliant smart card alternative.
More than 10,000 cards were issued in a pilot scheme in the Fens area before the idea was rolled out across the county to more than 100,000 Co-op customers in November.
Bob Doe, marketing services manager for Lincolnshire Co-op, says consumer demand prompted the switch from paper. “We wanted a system that would be ready for the year 2000 and, considering the market as a whole will eventually move to smart cards, we decided to by-pass the swipe card technology used by the multiples,” he says.
He adds that running a pilot scheme in a small, isolated area meant any bugs in the system could be ironed out without jeopardising large-scale customer loyalty. “We could ensure the terminals were quick enough and staff were properly trained to answer queries, particularly from our older customers,” he says.
The action taken by retailers to update their loyalty programmes has intensified the debate of when stores should switch to chip-based smart cards that provide extensive data on consumer buying habits. Companies already using smart cards to boost customer loyalty include
Boots and Shell, while the Marks & Spencer staff discount smart card is five years old.
Boots launched its Advantage scheme in September 1997 and says it has led to a four per cent rise in sales. There are just under 10 million Advantage card holders and because the scheme stores customer’s points on a computer chip, Boots has not had to spend vast sums making its system Y2K compliant.
The smart card EPOS terminals and 13,000 card readers used by Boots were provided by Dione, which is one of three companies forming The Smart Solution.
Dione has linked with Orga and retail customer loyalty solutions provider The Continuity Company to try to convince retailers to switch to smart cards.
The Continuity Company’s smart card loyalty manager, Richard Nutt, says replacing all magnetic strip-based systems in the UK could take up to five years.
“However, the benefits to retailers are huge and there should not be a problem getting loyal consumers to change cards if a scheme is marketed correctly. Most loyalty cards already carry an expiry date, so customer loyalty should not be lost if there is a switch to smart cards,” he says.
The UK banking industry has devised a global standard for smart cards and is keen for retailers to adopt the new technology. Yet it is the perceived cost of introducing smart cards, as well as concerns that the terminals will slow consumer traffic at the checkout, that is deterring many stores. The banks cannot force the issue because they do not own the integrated EPOS systems used by the large chains.
The banks are consoling themselves with the knowledge that they can switch the 250,000 EPOS terminals they own in the nation’s smaller stores. This move should also ensure that most independent shops running their own loyalty schemes do not have to worry about the millennium bug.
Despite the hesitant approach to smart cards by the large retailers, Richard Tyson-Davies, head of business affairs at the Association for Payment Clearing Services (APACS), expects them to start introducing the new cards in the second half of the year.
“From a customer loyalty perspective, smart cards are more secure than existing schemes and banks are working on speeding up the terminals which they accept has been a concern,” he says.
The store groups, which have millions of magnetic strip-based loyalty cards in circulation, are reluctant to say when they expect to be re-carding their customers, or how far their negotiations with banks have progressed.
At the end of last year both Sainsbury’s and Safeway showed they were willing to continue investing in their loyalty schemes. Sainsbury’s linked its Reward Card with 12 high street brands, including Burger King and Blockbuster, while Safeway began trials of handheld personalised computers for shoppers who are already members of its ABC programme.
A spokeswoman for Safeway says the company’s IT department is aware of the pressure being applied by the financial sector for it to introduce smart cards, and it is watching the situation carefully.
Shaun Doyle, chairman of database marketing company Intrinsic, believes the move to make loyalty schemes Y2K compliant will accelerate the introduction of smart cards. “Many of the schemes launched by retailers three or four years ago, were copycat systems put together quickly, using outside agencies, because they feared being left behind. Companies are using the Y2K problem to bring their customer loyalty technology in-house, because they want to have as much consumer information at their fingertips as possible,” he says.
Doyle adds that the investment needed to distribute millions of new cards to existing customers could be massive. He estimates that it costs about 2 to issue every card, once the additional expense of advertising the scheme and incorporating discounts to encourage signing-up are included.
“We could see retailers trying to reduce the expense by culling some of their database,” he says.
Introducing or updating technology which benefits the brand and keeps customers happy can be a tricky balancing act. Those running loyalty schemes are currently more concerned with the threat from the millennium bug than smart cards, and have put measures in place to ensure it will not be their computers suffering a hangover on New Year’s Day.