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The Wal-Mart effect

How globalization is changing the face of European loyalty

Will customer loyalty schemes in Europe survive the Wal-Mart effect? European companies are facing a period of soul-searching and reflection as American-style, price-only marketing philosophies invade a mature European loyalty market. Mixed messages and big bets on differing strategic plays are the challenges facing loyalty in Europe as the global competitive bandwagon rolls into town; only the best-designed and executed programmes will survive. Those that do will continue to be valuable brand assets.

The entry of Wal-Mart into European retailing has raised the stakes for investment in customer loyalty programmes. After all, if price and choice are to be the main criteria by which consumers play the shopping game, then what is the future for currency-based retention marketing? These programmes can potentially add cost to the marketing budget, but do they deliver value to the customer? Most importantly, do customers increase their share of spend with retailers to offset this cost?

The market reactions have been mixed. Some companies continue loyalty initiatives while others launch new ones. But some have paused to reflect upon their commitment to points-based marketing schemes.

The European landscape includes a mix of telemarketing, plastic cards, customer databases and networks that have all radically transformed the business environment in the last twenty years. The crucial issue facing many marketers now in the first decade of the 21st century is "what next?" How will the Internet, digital television and a new generation of consumers who are growing up with this technology impact business strategies over the next five years?

Consumer loyalty schemes in Europe have evolved from the maturing of traditional high-frequency retailer markets. In the grocery, general retail and petroleum sectors, short-term tactical promotion offers were replaced by more cost-effective "points-means-prizes" collector schemes. As technology developed in the 1980's, these programmes shifted from paper tokens and stamps towards magnetic card-based platforms. Simple offers evolved into more complex rewards via internal and then third-party catalog reward redemption. This evolution was consistent with increasing consumer sophistication in the more developed markets and a massive increase in consumer choice between ever more competitive suppliers.

Safeway Grocery Group in the UK have already made their choice: they dumped their ABC loyalty card programme after five years and a reported $75 million investment per year in administration costs. In announcing their withdrawal from the ABC card, Safeway cited customer market research that clearly showed they wanted price deals and not points.

And then there's British Airways, which scrapped the Air Miles coalition programme in favor of their Executive Club frequent-flyer membership. Observers consider the move a cost saving initiative by BA, which continues to post declining financial results. Even though BA will continue to own Air Miles, they won't be involved in the coalition. They're replacing it with a new currency called BA Miles, which has a points earn and burn bias towards the long haul. Air Miles has a total membership of over six million, and only 600,000 of these are BA Executive Club members, so this is not the end of the road for Air Miles. But it certainly is a setback for this type of multi-partner programme in the U.K.

This loss of faith in this type of loyalty marketing has also been reflected in the reluctance of large oil companies to refresh or revitalize their programme memberships, even after a growth phase for card-based point programmes in the mid-nineties. Collectively, these programmes cover many European petrol station networks, they number millions of members and operate in a politically sensitive, high-taxation revenue arena. But they're also expensive to run. And with limited access to useful customer segmentation and profiling information, it is hardly surprising that oil company marketers have been keeping their loyalty cards on the metaphorical back burner.

But not everyone in Europe has the same view. Witness the launch in Germany, in April this year, of the Loyalty Partner Payback coalition programme. That the German retail market represents the largest, most affluent in Europe, one that has traditionally had restrictive legislation for consumer promotions and strict data protection laws, makes this launch a significant one. Lufthansa, Metro Group and Roland Berger management consultants jointly own the programme. The membership is already at four million, with high participation levels. Partners in the programme include Real Supermarkets, Kaufhof department stores, DEA service stations, DM drug store group, AOL Internet services, QXL online auctions, Apollo optical retailers and EuropCar Hire. This is a serious, well-designed multi-coalition that will build a high profile in Europe in the near future.

In the grocery sector, the UK's leading player, Tesco, keeps the faith with its ClubCard programme and claims to have secured over $750 million in benefits from effective data utilization. They are seeking to position the brand as a consumer champion by claiming that customers do not have to choose between points, deals or low prices by effectively offering them all.

The U.S.-based MyPoints, a familiar programme to USA consumers, has announced that it will enter Europe. MyPoints Europe is a joint venture between the US parent and UK retailer Great Universal Stores. Supported by an initial investment of $13 million, the scheme will seek to offer and develop loyalty applications for corporate clients across Europe.

Retention marketing is already a crowded area of cyberspace; Beenz is an early mover in this area, and has become one of the fastest growing programmes with over three million registered consumers. Beenz has established a global network, has secured some high profile technology partners and has signed over 300 participating businesses. The vision for the brand is to become a multi-platform global e-currency and web-based incentive marketing tool.

The grouping together of companies in mergers, acquisitions, joint ventures and consortiums is a reaction to the development of global competitive market pressures in developed European economies. The growth of database marketing, the impact of "open" markets and increased global competition will further encourage business consolidation.

The most likely scenario for 2000-2003 will be combined "clicks and bricks" strategies from retailer groups. Technology will also open the prospect of auction-type marketing that will match consumer intentions with supplier offers. Loyalty programmes will need to keep pace with these changes in consumer behavior and attitude to stay relevant. Mountains of analysis and opinion reveal that loyalty schemes will assist brand values and drive customer behavior if they are part of an overall core proposition. This is because the true value of a loyalty programme lies in the one area that it excels in creating: the database of information on consumers facilitated by running a scheme.

As companies focus on the challenge of meeting customer expectations in the 21st century, a trend is emerging in mature retail markets for greater "openness" and transparency with customers. Customers will soon dictate the terms and conditions under which they will elect to do business with suppliers. Well-designed and implemented, database-driven loyalty programmes will therefore continue to be an important strategic marketing technique to assist retailers in this new environment.

Peter G Wray

The author is managing director of pgw Ltd. This article was first published in volume 8, issue 4 of Colloquy.

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