Key to consumer loyalty

The Loyalty Management Group (LMG) is gearing up to reinvigorate its Nectar loyalty scheme (MW last week) and is preparing a global roll-out of the brand following its success in the UK, where it has more than 50% market penetration.

LMG operates the Nectar card on behalf of 17 partners and is looking to reinvent the future of loyalty schemes in the UK. LMG marketing director John Sheekey says that seven out of every ten Nectar cardholders redeem points on a regular basis, while 94% of those cardholders who are "inactive" say they plan to redeem them in the future. Sheekey plans to reinvigorate interest and is looking at new ways to motivate consumers.

One such initiative, a clever evolution of a pre-existing tool, is already in use. Small squares of branded synthetic paper, in the form of key fobs, are already transforming the retail and loyalty sectors. Instead of consumers having to fumble around trying to find the right loyalty or reward card, a key fob is always readily to hand. Key fobs are not just another below-the-line marketing tool, they also drive bottom line benefits.

The key fob concept has been around for ages. However, the original concept failed due to the brittle PVC plastics used in the manufacturing process. The breakthrough came with the invention of a synthetic paper-based material called Teslin.

Teslin is extremely malleable, durable and yet very versatile. Furthermore, Teslin has excellent opacity, making it perfect for sub-surface personalisation. Consequently, person-specific data such as barcodes or other printed data is virtually impossible to scratch off, another factor which shortened the lifespan of Teslin’s PVC predecessor.

Brand managers struggling to keep up with corporate social responsibility targets will also be pleased to learn that Teslin is environmentally friendly. It is one of the few retail materials that does not contain any cellulose-based materials or contribute to forest harvesting.

Some of Europe’s largest loyalty schemes have already realised the benefits that Teslin key tags can bring. One of the earliest adopters was Tesco which rolled out its barcoded Clubcard key fob in 2004.

The new Nectar key fob is a very different product however, designed around an innovative form of magnetic stripe technology. Both the Tesco and Nectar key fob concepts were jointly developed by ID Data (UK) and Vanguard ID Systems (USA).

The new Nectar key fob will be the world’s largest issue of magnetic stripe key tags. By using compressed data encoding, a full track of data contained on the normal length of a magnetic stripe on the back of a standard credit card can be written in 46% of its normal length. Consequently, when the fob is read at the till or point of purchase, it swipes like a regular card.

Furthermore, the fobs will have a three-year lifespan and will also support sub- surface personalisation.

So what are the benefits? First, there is an obvious yet important increase in brand recall given that consumers will receive a subliminal reminder every time they pick up their keys. By comparison, a loyalty card could sit at the back of someone’s wallet or purse without being noticed for months, resulting in missed opportunities for the consumer in terms of rewards and missed opportunities for the retailer in terms of customer behaviour insights.

The increased visibility and convenience of key fobs is expected to have a marked effect on uptake and use. Increased use ultimately translates into increased spend and more accurate promotional profiling.

The most attractive benefit, however, is in the form of increased efficiency. Key fobs are proven to speed up the loyalty transaction processing time by a considerable margin. If we consider for a moment that Nectar has captured more than 50% of all UK households since its launch in 2002, this equates to a significant number of transactions every week. Over the course of a year, the associated cost savings will be significant.

To date, very few retail brands have launched key fob loyalty products. Early adopters stand to gain significant competitive advantage in the short to medium term. Retail brand managers take note, this opportunity is ripe for the picking.

It seems that sometimes good things do come in small packages.

• Andrew Hayward is marketing manager of ID Data Group