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From Glasnost to Points Growth

How Central and Eastern European loyalty programmes explore partnerships

It's been a busy few decades for Central and Eastern Europe (CEE), which in the space of a generation has transformed from a region under the wing of the Soviet Union to a set of countries that have joined the European Union or are in the process of negotiating membership. This journey has involved political, economic and social upheaval, and has introduced huge challenges for their political leaders and citizens.

The economic journey in general and the face of loyalty marketing in particular has also experienced significant change. Despite limited consumer disposable income, and the small population bases of individual countries, CEE citizens are now engaged in several recently-launched loyalty programmes, especially bank-card-based initiatives. Most notably these are growing in Poland, the Baltic states, the Czech Republic and Croatia.

Perhaps because of the fluctuating nature of the region's political boundaries, marketers in Central and Eastern Europe seem particularly adept at negotiating and managing partnerships. The loyalty industry in this part of the world may be "emerging", but in some ways it already outpaces some more developed economies. In particular, this region relies less on proprietary programmes and more on creative partnerships and coalition.

Regional challenge

This former Soviet region may look unified to Westerners, but it is defined by its differences. It comprises a very diverse cultural, ethnic, economic, political and geographic mix. Launching on one national base and then leveraging programme-development costs across borders with any degree of standardization therefore presents significant challenges.

In addition to the ethnic differences to consider and adapt to, the region has been challenged by economic factors following the recent recession. For example, the Baltic region of Latvia, Lithuania and Estonia has suffered massive negative economic impact, and the GDP for its seven million citizens is still very low—a quarter of that of their more-developed Scandinavian neighbours, Sweden and Finland.

The economic story improves for Croatia, part of the former Yugoslavia. This country has seen dynamic change (and sometimes conflict) during its adjustment to the post-Communist era. Its population base is 4.4 million, and its GDP per person is around 58% of their near neighbour Italy. GDP has been climbing steeply over the last decade, and Croatia is now awaiting membership of the EU.

Poland and the Czech Republic, both EU members since 2004, are slightly better positioned. Poland is the largest market in the CEE, with a population of 38 million. It navigated the recent recession well and is currently enjoying relatively good growth, but GDP per person in Poland is still less than half that in all the Western European mature markets. In the Czech Republic, GDP is tracking around 75% of the EU average for its 10 million citizens.

Overlooking these emerging markets is far too easy if judgments are based purely on population, cultural differences or lesser GDP numbers, but loyalty programmes in Eastern Europe are surprisingly robust. Some areas have established programmes. Marketers are optimistic, and eager to learn and grow loyalty initiatives.

A bold start

The Baltic region is proof that economics don't need to be perfect for launching loyalty. At first glance, this small population facing serious economic challenges doesn't seem the best target for an ambitious loyalty programme, but setting sights on consumers in the region is exactly what BalticMiles did in October 2009. Their brand vision is to be "the currency of the North," and they claim to be the fastest-growing loyalty programme in Northern Europe. BalticMiles is based on a frequent-flyer programme created originally to support Baltic Air, a regional carrier operating across Northern Europe.

BalticMiles claims it delivers the highest earn ratios in the global airline industry, with selected offers of 30-40 points per Euro spent via partner purchases. Current partners include Nordea Bank, Neste retail fuel sites, Sixt car hire and international travel and leisure brands, including Radisson. The redemption website operates in seven languages and currencies.

The original frequent-flyer points base delivers an upper-tier socio-economic membership of core spenders within the programme. The publicity, marketing and general "feel" of the programme is upmarket.

"We are signing new partners every day", says Gabi Kool, CEO of BalticMiles. "Our vision is to be the most successful loyalty company in Northern and Central Europe." Partner growth is Kool's top goal, with the challenge of maintaining balance and quality of partners in the programme. BalticMiles has more than 10,000 POS locations and a robust mobile loyalty programme built to leverage the market's active smart phone use.

The current membership base is half a million households, Kool says, with a goal of increasing to two million, achieving 50% market penetration. Over 30% of typical household budgets are spent on grocery items in these markets, so securing a leading brand grocery retailing partner was an immediate priority. Kool expects future growth to come from recruiting members with lower social demographic profiles, and as a result, the programme has evolved to incorporate low redemption thresholds (and younger demographic appeal), such as music downloads.

Adapt and learn

Because programme operators are still experimenting and learning, there is the occasional awkward hiccup and growing pain. For example, the Czech Republic has grown several large single-brand customer loyalty programmes, which are typically either based on a bank card or operated by a fuel company. On the one hand, the Czechs made a progressive early move by embracing coalition with the RENOME programme four years ago. On the other, that programme (successful by all accounts), is now closing down with no clear explanation of why.

RENOME grew out of a single-brand programme begun by shoe retailer Bata 12 years ago. Bata became a well-established brand, with half a million active cards in circulation (more than 10% of Czech households), and the programme grew into a fashion-centric coalition.

"Then we tried some cooperation with other speciality retailers", says Radek Hrachovec, former director for both the Bata Club and RENOME programmes and now an independent consultant. "These joint promotions brought new customers and Bata received income plus satisfied customers."

The basic idea behind RENOME was to find the way to both operate the Bata Club more efficiently and secure a constant stream of new customers. Hrachovec lined up a group of speciality retailers mainly focused on women's fashion and beauty services. He persuaded non-believers of retention-loyalty marketing to become enthusiasts.

"Most of RENOME partners totally changed their approach to marketing and refocused their mass-marketing money into direct communication with their core customers", Hrachovec says. "By far the most important business achievement was keeping the growth of cross-shopping rate. Members of RENOME were year-by-year more active. The most important figure was about 30% of these members were cross-shopping among partners."

Ironically, Bata recently announced (after a change in management) that it will be closing down the RENOME project, a move that has confused loyalty practitioners impressed by the success of the programme. "RENOME was a good concept, proven to be commercially successful despite competitive programmes", says Jan Bizik, an independent loyalty consultant. "The future really is to learn how to use the loyalty programme to improve the business model by adopting strategy, saving costs, and satisfying better customer needs."

Tesco has recently introduced its Clubcard into the area, which will likely spark marketers to apply learnings from the Bata/RENOME programme.

Scaling up

The Czech market may be taking a hiatus from coalition, but other CEE markets are embracing this programme format. Rather than develop proprietary programmes, some retailers in Croatia and Poland are jumping straight into the economies of scale that coalitions offer.

The MultiPlusCard is the first coalition-based programme on the Croatian market. It allows customers to collect loyalty points via a network of 2,000 points of sale. The programme grew out of the Konzum's Supermarket loyalty programme, well-established after five years in the Croatian retail market. Konzum is known for its constant innovations and customer care, and this was a guiding principle for the MultiPlusCard development, which was spun off and launched last year as an independent company.

The programme has already built a substantial partner network, including leading banking group Zagreba ka Banka (part of the UniCredit Italiano), T-mobile, Tisak and Tisak Media (a leading chain of kiosks and multimedia shops), national drugstore Kozmo, and large tour operator Atlas Airtours.

"We developed our model based on the best loyalty programmes in the world", says Nikola Jurcic, CEO of MultiPlusCard. "As the leaders in their segments, our partners are bringing a huge collective know-how and customer base to the MultiPlusCard programme."

The programme has almost a million members, with over 70% of those actively engaging with regular frequency.

The MultiPlusCard programme is a combination of collecting loyalty points and coupons. Each partner rewards customers for purchase via points, as well as by using various combinations of targeted award coupons. Members collect points for three months and then receive a booklet of financial coupons—four rewards for items that they usually buy, and another four to stimulate spending, or targeted incentives.

"Data analytics helps all our partners to prepare new products and services according to customer needs", Jurcic says. "There are some differences between the levels of previously existent data analytics among our partners. We are adding deeper and richer insight, and helping partners to utilize that advantage. This is especially helpful for the partners that hadn't any form of loyalty programme before and now can see their customers in a totally different perspective."

Poland made an early attempt at a coalition programme at the start of the new millennium with a Statoil-sponsored coalition called the Premium Club. The programme has achieved some penetration of the market with around 2 million active members, but it still lacks a retail grocery partner. That isn't surprising, as Poland's grocery market is historically fragmented, and hard discount grocery brands are strong in the market.

Another recent entry has made great progress in Poland, however. In 2009, Loyalty Partner GmbH (the programme management company behind PAYBACK), moved into the Polish market. PAYBACK brought together its existing issuance partners, BP service stations and Real grocery stores, plus Polish telco partner Telekomunikacja Polska (TP). The initiative also included Allegro, a dominant e-commerce partner in the Polish market, and BZWBK bank.

The programme launched in 2009, and grew rapidly to overtake Premium Club. The critical differences for PAYBACK Poland were that it included high-frequency, high-touch partners in grocery and fuel. As one of the "big three" coalition companies, Loyalty Partner was able to leverage the expertise and economies of scale that it developed in PAYBACK's operations in Germany.

Home-grown success

A delicate balance is being maintained between success and failure in some of these emerging programmes, the primary issues being the relatively small populations and generally low disposable incomes as compared to Western Europe.

The trend toward coalition leverages the fixed costs of running a consumer loyalty programme, and that will put more pressure on single brand consumer loyalty initiatives. Can any of the single-brand loyalty programmes that are common across Central and Eastern Europe demonstrate sustainable key performance indicators and returns on their investment?

It remains to be seen if outsiders or home-grown initiatives will take the day in this region. While local knowledge and growth from existing strong national brands is currently driving the action, that may not last for long. It's likely that national players are standing by, waiting to join the game after local skirmishes have winnowed the players, and those left in the game are ready to be acquired by larger teams.

The winners, of course, will be CEE consumers, who will gain ever more earn-and-burn opportunities when those tumultuous changes—which they're now very much used to given the history of the region—settle further into a strong and stable loyalty business environment.