Smart move for loyalty schemes?

This week’s announcement by Smart, the loyalty management outfit, that it’s launching a fully-fledged umbrella loyalty programme in Scotland marks a new era in loyalty schemes. A long over-due loyalty scheme shakeout now looks likely.

The ten companies – Shell (which originally launched Smart as its own loyalty scheme), Menzies, Victoria Wines, Dixons, Currys, The Link, RAC, Commercial Union, Hilton Hotels and Vision Express – will all be issuing and redeeming Smart points at their points of sale in Scotland. A full-scale marketing campaign, including TV advertising, will, hopes Smart, push all other loyalty schemes into the shade.

For Smart itself, this is just a small beginning. Later this year, it plans to launch a national scheme including companies such as Sainsbury’s, Cellnet and Next, plus many others whose names are still under wraps. In the end it hopes to bundle together 25 to 30 companies from all the main areas of consumer spending – motoring, high street retail (including both groceries and specialist stores), leisure, telecoms and financial services – into one mega-loyalty scheme. “The idea is to get people buying within the club for everyday purchases,” says Smart manager Gary Anderton.

That’s not all. With Lloyds-TSB now on board, Smart has the opportunity to add credit, debit and e-cash functions to its cards, so that consumers can pay for goods and services, and collect or redeem points on them all at the same time. It’s also investigating using the Smart technology as a security mechanism for cars, homes, offices, gyms etc. Anderton says: “We want to be at the centre of consumers’ lives.” Smart is meanwhile being launched in at least one other European country, and more expansion is likely.

There are a number of intriguing things about this development. First, it makes competition between loyalty schemes almost as intense (and expensive) as brands themselves. Second, the scheme is emerging as a brand in its own right, with its own values, identity, advertising and so on.

Third, to facilitate this development, “Smart as a brand is being moved away from Shell.” Thus, in the new Scottish scheme, the only logo to appear on the card is Smart itself. And partner companies are being offered the opportunity to buy into the operation – to become part owners. “You couldn’t assume that in future Shell would have a controlling share,” says Anderton.

Earlier press reports predicting the demise of Smart confused these two issues: participating in the loyalty scheme per se and taking a stake in the business itself. Some companies, such as Sainsbury’s, have decided not to buy a share, but are still talking to Smart about possible Reward/Smart operations.

Fourth, Smart is deliberately creating what Anderton calls a “virtual currency”.

Smart covers its cost simply by selling member companies points at one price and buying redeemed points back at a lower price – and pocketing the difference. Anderton comments: “We act as the bank.”

The marketing implications are fascinating. For a start, Smart is a new species of brand: what the techno-trendies would call an “infomediary”. It’s not exchanging a product or service with consumers for cash. It’s selling them benefits in the form of discounts, in exchange for information – and, of course, repeat custom.

It’s a new type of brand in another way: it’s a constellation brand, the next step beyond the corporate brand – a sort of super-brand which brings a range of different businesses together under its wing.

So, it’s much more than a loyalty scheme. Aside from gaining competitive edge by offering customers the chance to build up bigger rewards sooner and to redeem them more easily, it also gives member companies the ability to use the Smart database to attract new customers from within the club (an issue which has required the setting up of strict DM contact rules).

There are also endless co-marketing opportunities. What about, say, Smart Mover where a car company, a petrol company, a credit provider, a car parts and servicing provider, an insurer, and a motoring organisation all combine to offer one seamless, mutually incentivised, car buying and using service?

Compositioning is what BBDO strategic planner Haim Oren would call it: where marketers create “a unique combination of products and services under one or more brands to create an offer that adds more value to the consumer than purchasing each of the brands or products separately.”

Indeed you could say this is exactly what Tesco and Sainsbury are doing as they extend their business beyond groceries into everything imaginable – and what British Airways is doing as it races down the track of alliances ranging from USAir and Qantas to hotel and car hire firms. M&S, of course, has already done it. So have the Japanese Keiretsu.

Of course, Smart faces considerable barriers: high levels of investment; persuading companies to make a long-term strategic marketing commitment to a scheme over which they do not have full control; fretting about whose brand is gaining greatest prominence; worrying over whether they are getting into bed with their enemies (Shell and Sainsbury’s in petrol, for example); and bickering about the price of the points. Last but not least, it’s not yet proven that consumers jump at the chance of having all their shopping choices funnelled in one particular direction.

This means participants will need new skills. If, as consultant James Moore argues, competitive success nowadays revolves increasingly around the ability to build superior “business ecosystems” and to grab as big a slice of the ecosystem’s fruits as possible, the big prizes will go to those most adept at building constellation-wide cooperation while, at the same time, asserting their leadership within it.

And increasingly, marketing battles will revolve around “constellation wars”. A tiny indication of things to come is underlined by the following example. Air Miles, an initial Smart partner, is not taking part in the Scottish launch. One reason: constellation conflict. While Smart has signed up Cellnet and Commercial Union – Air Miles, another constellation brand of sorts, has Vodaphone and Sun Alliance.

What are these two beasts? Are they really just loyalty schemes? Or are they constellation brands in the making? If Smart succeeds in Scotland, the loyalty scheme looks like evolving into a very different type of animal.