Shoppers keeping eyes on the prize

By IRENE CHAPPLE marketing writer

Somewhere in Auckland last month, an American Express customer bought a $95,000 BMW on credit.

A fortnight beforehand, the customer had signed up to American Express' Turbo scheme, launched in February, which gave him double reward points.

The purchase required permission from American Express and the car salesperson, and was so excessive it had to be billed over two months. But it earned the customer 190,000 airpoints - enough for six return trips to Australia, or a return trip to London and two trips to Sydney.

Providing that customer repaid his credit card at the end of that month, those trips were free.

"That," says American Express public affairs manager Craig Dowling, "was playing the game aggressively. People are becoming aware of how to play the game to their advantage."

He is talking about the customer loyalty game, where temptations vary from a free coffee to hard cash, and marketers ride the belief that gathering new customers can be five to seven times more expensive than keeping existing ones.

For American Express, the giveaways are worthwhile.

The Turbo scheme, launched to cover the big spending times of the America's Cup and running until May next year, costs $50 to join.

That doesn't cover the cost of running the scheme, but Dowling says March figures showed the card's New Zealand market share was the fastest growing internationally.

Its billings have increased "several per cent more" than the average of 16 per cent growth across the credit card market.

"That indicates a significant bite into the competitors' market, says Dowling.

"The Turbo offer is generating new customers, who have switched from other cards or moved their billings across," says Dowling.

"And a significant amount of credit must go to the programme of rewards."

American Express originally offered a cashback rewards scheme, but Dowling says it became obvious the temptation of travel attracted more customers.

His observations are backed by Loyalty NZ general manager Alastair Hutchens, who runs the company behind Fly Buys.

With a million household members, and 1.4 million cards in active use, the company launched on the lure of free flights is still signing up 4000 new members a week.

Some of that is attributable to its takeover of Telecom's talking points programme - offloaded because the in-house loyalty programme proved too exhaustive for Telecom - but the numbers have grown beyond expectations.

ACNielsen researcher Janette Brocklesby has monitored Fly Buys since it was founded in September 1996.

"Fly Buys invented the market," says Brocklesby. "The target [when it started] was 200 members in 3 years - that was achieved in 81 days. Fly Buys' share of the market is more than double any of its competitors."

Brocklesby believes some of its success has come from capturing a middle ground - rewards now vary from a magazine subscription to flights to Fiji.

Among other loyalty programmes, the virtues of cash payouts, or discounts at point of sale, or long-term incentives are all touted by their promoters as being what consumers want.

Kachingo!, invented by New Zealand company Global Online and introduced last October, rewards shoppers at its retail "family" - BP, Woolworths, Big Fresh, Super Liquor and Price Chopper - with cash.

Global Online concedes there were problems enticing consumers to check their Kachingo! tickets, and has simplified the game in response.

It has also changed its advertising campaign, and the TV commercials now feature a Kachingo! "trainer" showing consumers how to collect their cash.

Brand awareness of Kachingo! is promoted as being over 80 per cent among adult consumers, but without high-profile winners the scheme will not encourage loyalty.

Nevertheless, retailers say the programme is attracting new customers.

Research is so far anecdotal, but Woolworths' Des Flynn describes the scheme as "positive to business". Flynn says the rewards scheme was chosen because research showed cash was the greatest incentive for consumers.

But at competitor Foodtown - owned by Progressive Enterprises, which holds about 24 per cent of the market, 4 per cent more than Woolworths, instant discounts are the preferred inducement.

It introduced the Foodtown Card in 1994. It is now held by 83 per cent of customers, and is self-funding.

Customer Loyalty Card manager Barbara Mitchell says consumers are disillusioned with the amount of time it takes to gather enough Fly Buys for a solid reward.

"Customers are rewarded instantly, and they like to get a discount," she says.

"If we took it off them, there would be a huge uproar."

New Zealand's loyalty market is, though fractured, booming.

Success has brought its own problems - GlobalPlus cardholders had their airpoints earnings halved in January, for example - but consumers are playing it smart.

This week Consumer Magazine warned that loyalty schemes could be expensive ways to get flights or other rewards.

Many loyalty schemes pay back in rewards a maximum of 1.5c for each dollar. With credit card interest rates at about 18 per cent, failure to pay them off in full every month can cancel any benefits of a loyalty scheme.

Anecdotal evidence indicates that consumers are switched on to this. Like the man with the new BMW, they are learning how to get the best bite for their dollar.

"[Rewards programmes] have almost become part of New Zealand society," says Brocklesby.

"People are thinking rewards - they are working the programmes."