Call us loyal: shopping reward card thrashed

It counts 2.2 million of us as members and is the country's biggest customer loyalty scheme, but eight years on, FlyBuys' formula for keeping shoppers loyal has hardly altered.

"The most notable thing is how little has changed," said Alastair Hutchens, the general manager of Loyalty New Zealand, which runs Fly Buys.

"It's not rocket science other than that we're trying to do the basics right."

In hindsight, FlyBuys had relatively modest ambitions when it started in 1996.

"We wanted to get 300,000 households on board, at that stage 25 per cent of New Zealand households," said Hutchens, who joined FlyBuys 5 1/2 years ago.

The scheme hit its target on the 87th day. Take-up was powered by two features: membership was free and big-name brands were on board from day one.

Of the 1.3 million New Zealand homes with FlyBuys cards today, Hutchens said more than 1 million were still active.

And what keeps them reaching for the card as they reach the checkout?

"It sounds selfish but people are wanting to be rewarded" for their loyalty as customers, said Hutchens.

And how well are FlyBuys members rewarded?

On the face of it, saving up for a decent bonus can take a long time for the average family.

A flight from Auckland to Wellington will set you back 455 points. At the standard one point per $20 spent, a FlyBuys member would have to spend $9100 to get the free flight.

An Apple iPod music player will set you back 600 points ($12,000 spent on average) and $370, and a children's Oral B toothbrush will cost $235 ($4700 spent).

Triple FlyBuy points deals and one-off points giveaways sweeten the deal but the scheme is not about instant gratification. Hutchens said members were holding on to their points for longer, accumulating them to obtain better rewards or to convert them into Air New Zealand air-points.

FlyBuys has seen off rival home-grown loyalty programmes Kachingo and Mobil Max, and welcomed aboard several companies that have ditched their own schemes.

"Telecom had their talking points programme, but they got to a point where they realised it didn't make sense for them to do it. They rolled talking points into FlyBuys."

Mitre 10 did the same.

A number of companies - BP, Foodtown, Resene and The Warehouse - continue to run their own loyalty schemes.

Debate rages as to which is more successful, but Merlin Stone, a loyalty scheme expert from Britain, says a well-run internal programme is the best option.

"The loyalty scheme has to add value and in my view it's more likely to do so if it's not a shared scheme," said Stone, a professor of relationship marketing at Bristol Business School.

British retailer Tesco had revolutionised retailing with a loyalty scheme that many observers believe played a key part in pushing the chain to a £1.7 billion ($4.6 billion) profit last fiscal year.

"No one would claim that Clubcard is exclusively responsible for the success of Tesco. But talk to any of the senior executive team who have steered the company so skilfully over the last decade and it is clear that the business benefits of Clubcard are now written through the Tesco business like lettering through a stick of rock," writes Stone in his book Scoring Points.

But he acknowledged that running a scheme was too expensive for many companies. A shared scheme also allowed that invaluable access to marketing data across a range of businesses.

"The option for a lot of companies is to do a shared scheme or nothing," said Stone.

The huge Nectar loyalty scheme has more than 20 million members in Britain and covers dozens of retailers, including grocer Sainsbury's. Barclaycard abandoned its own loyalty scheme to join Nectar.

Wal-Mart's British arm, Asda, has no loyalty scheme.

"The cost of relationship management on a mass scale is arguably prohibitive," said Hutchens.

FlyBuys member companies had a "share the pain, share the gain" attitude and were happy to invest collectively if confident it would boost sales, he said.

FlyBuys claims the scheme has boosted members' sales by $2 billion since 1996. Oil giant Shell says its turnover has increased $80 million a year.

Member companies can also tap into valuable marketing information gathered by FlyBuys.

Loyalty NZ had turnover of $60.8 million in the year to March and reported a $2 million loss. Hutchens said the company, which is owned by Shell, BNZ, State Insurance and Foodstuffs, was usually profitable but had been spending on IT systems.

With FlyBuys' penetration in New Zealand households at more than 85 per cent, growth could only really come from adding new shopping categories, he said. Real estate and the rural farm supplies market were being considered.

The scheme could also be extended to wholesale buying relationships between small and medium-sized businesses and their suppliers.

"The local builder might have three or four chippies working for him. They need all sort of services and supplies," said Hutchens.

Businesses that made larger purchases would expect bigger rewards.

"We expect some people will end up with significant numbers of points and be looking for more exciting rewards."

FlyBuys has a firm policy of including just one retailer in each market segment, and its ownership structure rules out major competitors coming on board.

As a result, FlyBuys follows other shared loyalty schemes worldwide in covering about 50 per cent of each market it operates in.

Hutchens said FlyBuys was approached a "dozen times a week" by companies wanting to join, but its one-category, one-company policy meant additions were few.

"It doesn't take long before you've got a lot of these things well covered."

Facts on FlyBuys

* FlyBuys claims it has increased the turnover of member companies by $2 billion since it started.

* 2.2 million New Zealanders have a FlyBuys card.

* There are 750,000 FlyBuys transactions each week.

* 7500 rewards are redeemed each week.

* 2200 outlets accept Flybuys.