Retail news. Semester 1 of 2014 table of contents

Loyalty programmes must make 'cents'. 28 Sep 2012

The increase in rewards programmes in the market and a greater commitment from the companies that run them, has matured the sector and created some healthy competition in the South African loyalty market.

In addition, consumers are becoming more savvy and knowledgeable when it comes to joining and using rewards programmes - and tend to use them to extend their purchasing power and stretch their wallets.

Loyalty programmes that stay attuned and responsive to their members by giving them tangible rewards will be those left standing, in an increasingly competitive environment

Consumers want to feel as if they are in control of their finances and are wary of being exploited. We have found that many eBucks members see the rewards they earn each month as a way to stretch their wallets.

Increasing purchasing power

Rewards and loyalty programmes are seen to play an increasingly important role in the economy as they help increase purchasing power. For example, in good times, loyalty points earned by making everyday purchases can be set aside to purchase big-ticket items or luxury items such as expensive electronics, holidays or expensive jewellery.

In tougher times, members of rewards programmes tend to rely more on their rewards currency to make ends meet by purchasing everyday items such as fuel, groceries, medicine and airtime. The group has brought more retail partners on board over the last few years to add everyday value to its members. In the last year alone, nearly half the total eBucks spent each month were redeemed on necessities.

Reward mechanisms

Loyalty programmes generally use one of four mechanisms to reward members, with each reward type offering its own set of benefits.

5. 
   Discounts and cash backs - discounts offer an immediate monetary reward to members but are generally limited to transactions at specific partners. A cash back programme generally gives customers cash back in the form of a credit against an outstanding balance.
   
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   Rewards currency programmes - this would be a programme such as eBucks where the rewards currency is not a reward in itself, but a means to a reward. These programmes offer versatility and choice.
   
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   Soft Benefits - these hold significant appeal for many rewards programme members. In this case, the customers receives no money back and no rewards currency. Rather, soft benefits involving additional services or exclusive privileges for customers are offered. A good example is the FNB Slow Lounge.
   
8. 
   Hybrid rewards - the latest trend in the loyalty industry is to offer a combination of rewards currency, discounts, cash back and soft benefits. A 'hybrid' programme allows consumers to use their rewards currency as a way to extend their purchasing power. For instance, the group's loyalty programme allows its members to take advantage of significant discounts on earmarked items in its shop, such as gadgets, movie tickets, flights and more.
   

The different mechanisms are then packaged into a rewards programme, either offering the form of a 'club', where you pay a membership fee, or as part of a free rewards programme.

Whether a consumer prefers several frequent, smaller rewards or the ability to save or pool their rewards currency for a luxury item, the success of a rewards programme largely depends on how relevant the reward is to the individual.

It is important for consumers to establish whether their lifestyle and behaviour is aligned to the rewards programme of their choice to ensure that the most value can be derived.

Extracting value

There are a few questions for consumers to ask in assessing the value and relevance of a rewards programme:

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  Is the reward transparent in how much it is worth? Being able to measure and attach a rand value to a reward makes it more tangible to consumers so that it is clear to them how much the rewards currency can buy, and how far it will help them stretch their wallet.
  
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  How difficult will it be to earn and spend rewards? In evaluating a rewards programme, it is important to look into the actual earn rate what does the consumer need to do to earn a reward unit, and how much the unit is actually worth. Members are offered the benefit of accelerated earnings, as they can earn from more than one partner at a time, significantly boosting their earning potential. Spending rewards should also not be a difficult process and consumers need to understand where and how these may be spent. With this knowledge, consumers can decide whether the rewards programme will add value by offering them opportunities to spend on items they actually need or 'the special extras' they would like to purchase.
  
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  How much choice is available when it comes to spending rewards? The monetary value of a reward only represents one aspect of the full value proposition of a rewards programme. It is equally important to evaluate the number of opportunities available for consumers to spend their rewards. Some programmes only allow customers to spend in the same environment in which they have been earned while others allow members to spend in a variety of places and environments, such as online, in-store or via cellphone banking.
  
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  Do the rewards expire? Consumers need to know if a programme's rewards expire. For example, if a consumer is looking for a programme that will offer the opportunity to 'save' rewards for a big ticket item, they need to know how long they have to save and spend their rewards before the rewards expire.
  
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  Will the programme offer additional value? With the exception of monetary rewards and discounts, consumers should also consider additional services and privileges available, such as lounge access at airports.
  

Consumers need to look at the specific behaviours a programme is asking them to adopt and then evaluate if they are prepared to do so. They will also need to weigh up the value of the reward offered, how easy it is to access your reward and at what cost.

Most loyalty programmes are looking to create 'smart customer behaviour', such as better banking practices and, by slightly changing a few behaviours such as using electronic banking channels, you can earn even more rewards, while saving on your banking fees.

SA retail giants coming to Zim. 17 October 2011 HERALD. Business Reporter