- Email: [email protected]
Capturing commitment
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Capturing commitment Partnership and commitment may sound like the recipe for a perfect marriage, but an increasing number of European organisations are also discovering that these are key ingredients for loyalty programmes designed to aid cross selling, tailor promotions and drive a concentrated spend that will impact on market share. Originally launched to promote brand commitment, loyalty schemes have become more sophisticated, and – boosted by smart card technology – are now able to provide value and profitability to some organisations. With the advent of smart cards, organisations that adopt the technology are in a good position to segment customers and find out more about individual wants and needs. This ability to look at areas such as demographics, spending habits and brand loyalty, enables providers of the most successful loyalty schemes to concentrate on their most profitable customers to ensure that they continue to make favourable purchasing decisions. As Peter Cox, CEO, ID Data, points out: “Whenever the economy starts to become sluggish or go into a recession, retail loyalty really jumps ahead. Some 80% of business comes from 20% of customers: It’s therefore essential during a downturn for a retailer to understand who its top 20% are.”
Drivers The demand for loyalty programmes tends to come and go in waves. When few competitors are offering a scheme, retailers and banks may choose to adopt some form of rewards programme to add value to their business offering. At other times, the market can become saturated with programmes, which consumers may find difficult to differentiate between. In such circumstances, organisations need to use their loyalty programme to offer more innovative ways of maintaining customer usage and spending. Within Europe, we are seeing growing numbers of loyalty schemes operating on smart cards in several key areas: notably banks, supermarkets, and other retail outlets. The public sector is also showing an interest in using the technology to reward loyal users, such as with the UK’s Connexions card. Cards are seen as a convenient way of storing data. Some banks and retail organisations are opting to use smart cards as a means of combating fraud, and are consequently using the smart card platform to develop a loyalty programme. However, fraud is not the only reason for adopting smart card-based schemes. Ray Winter,
Card Technology Today February 2003
chairman, Loyalty Holdings told CTT: “Data mining is the end game – understanding clients and why/how they make purchasing decisions is one of the main objectives. The more analysis of the data that is done, the easier it is to identify customers’ needs and preferences. This enables the loyalty scheme provider to tailor products and services that meet customers’ needs and to develop new products.” As growing numbers of cards migrate towards EMV (Europay MasterCard Visa) compliance, many organisations are looking at the technical capabilities associated with EMV chips. While many organisations are adopting the technology to combat card fraud, there is evidence that some companies are motivated by the possibility of easily adding innovative loyalty features. In fact, demand for smart cards in the Turkish banking sector is largely driven by the use of loyalty functions. Smart card use is also being driven by data carrying needs. For example, one UK retailer is trialing a system whereby the customer can go into the store, and be scanned for exact clothing measurements. These measurements are then placed on the card, so that exact measurements can be used during future Internet purchases of clothes.
Banks As the liberalisation of banking services has opened the doors for competition in major markets, so too has the need for banks to look carefully at what they offer their customers. Inertia – for many years a common characteristic of banking customers – is now being challenged. As SchroderSalomonSmithBarney mention in ‘The Hunt for Revenue Growth Predators and Prey in the European Banking Sector, Sept 2002: “Banks need to strive for committed customers. Unhappy and uncommitted – yet inert customers – are less likely to spend as much with a bank than committed customers.”
Retailers According to Cox: “People are looking at rewards: The reward for the retailer is understanding the customer and understanding supply dynamics. For example, Tesco (UK supermarket) successfully used
its loyalty programme to persuade customers to purchase its own brand products. In other words, there’s a tremendous capability to affect spending habits. In Boots (UK chemist), the onus is on higher value goods such as perfume or make up.” The Boots Advantage card is currently held by more than half of all women in the UK over the age of 16. The use of smart card technology gave Boots a marketing differentiation, but it did cost four to five times more than mag-stripe technology. The Advantage scheme is considered one of the most technically advanced in the UK for its ability to build a profile of customers which then feeds back into store layout and new product development. “The scheme provides us with a unique insight into the way our customers shop. This means that we can manage the customer relationship on a one-to-one basis, ensuring that our total offering continues to delight the customer and drive emotional loyalty,” Jo-Rose Finch at Boots’ press office told CTT. “We use the Advantage Card to learn from our customers, to develop new products, adapt the in-store experience and even tailor promotions to them.” Bonus points are used as a promotional tool to drive sales through ‘three for two’ offers and ‘Buy One Get One Free’ campaigns. The company introduced Advantage Point machines in September 1999 and now provides personalised offers and promotions not available elsewhere in store. Boots uses the data collected from its Advantage cards in a variety of ways. “If we can see that a customer likes to buy particular products then we can ensure we offer them relevant and exciting promotions – which can be offered directly via mail or through the Advantage Point machine,” says Finch. “In addition, the data we collect helps inform what future products we should stock at each store to ensure we have the best range tailored for each store. In essence, the data provided via the Advantage Card ensures our customers receive really relevant offers and our product and promotional range continues to delight them.” The UK’s supermarket sector provides big loyalty programmes (e.g. Tesco Clubcard). Ongoing bids for the Safeway supermarket chain could prove interesting for loyalty. The current contenders are: • • •
Morrisson’s – could grow its business and develop loyalty; Asda (Wal-Mart) – this has a proposition of low-cost, no loyalty; Sainsbury’s – part of the Nectar scheme comprising Sainsbury’s, Barclaycard, Debenhams, BP and First Quench.
We could therefore see a large chunk of shoppers taken and locked into a loyalty scheme by one of the supermarket giants.
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Trends One of the most popular trends within the European loyalty card market is currently the drive to develop affinity and co-branding programmes. Partnering with leading players of other business sectors provides cost and revenue benefits, access to partners’ distribution outlets and a reduction in above-the-line advertising through more specific target marketing. MasterCard now claims to have nine million affinity/co-branded cards in Europe alone. “Success depends less on choice of sector…than on a strong partner brand, competitive pricing and incorporation of unique benefits to drive loyalty and spend,” Carol Stanton, head of co-branding and affinity, MasterCard Europe, told CTT. MasterCard shareholders report that average co-brand card spend is typically 25% higher than for a standard card.
“Motivated by powerful loyalty schemes or other usage incentives, cardholders use their cards more often and for higher transaction values. Highly successful programmes yield spend levels that are double or treble non co-branded programmes.” MasterCard claims that such schemes improve customer retention rates: “Cardholders are loyal to their chosen card with retention levels typically 1020% higher than for traditional cards.” Turkey is currently involved in some interesting co-branding schemes – the Akbank ‘Axess’ programme is multi-branded with 119 different partner brands in a variety of sectors; Garanti ‘BONUS’ now has 1.5 million cards in circulation; and Isbank ‘Maximum’ offers 5000 merchant locations with ‘Maximum’ advantages. These multibranded schemes give customers the opportunity to earn points in most places, which is important in the promotion of high spending and usage.
In the UK, the London pass scheme also includes a consortia approach to loyalty. The value proposition of the scheme is that member companies have a guaranteed increased throughput. Although the micro-demographic information is less significant for this market than for Boots, it does provide important data on where tourists come from and which places they visited during their trip to London.
Legislation In Germany, the repeal of the Rabatzgesetz, which historically precluded the linkage of loyalty points and incentives to card programmes is driving new customer loyalty initiatives. The biggest co-brand scheme is currently believed to be Karstadt Quelle, which had thousands of cards in use following its launch in June 2002.
A selection of smart loyalty cards in Europe Germany
DaimlerChrysler Bank This was the first financial institution in Germany to issue chip-based debit/credit bankcards. The cards have been supplied by Giesecke & Devrient and will offer the standard EMV international payment functions as well as carrying customer loyalty programmes. The first loyalty programme to run on this card is the ‘Road Miles’ scheme. Ireland
Esso – Tiger Miles The Tiger Miles programme has been positioned as a CRM solution for Esso to target key customers. The programme was launched in 2001, and is expected to last for three years. Half a million cards have been issued and are currently in use in Esso stations throughout the Republic of Ireland. These points can be redeemed in Esso shops for items such as kettles. Esso adopted smart card technology to reduce the fraud associated with traditional paper-based tiger tokens. Applied Card Technologies (ACT) has provided cards, terminals, software and databases under licence. Support has been supplied by ICL, Ireland.
Pettitts supermarkets and hotels – Gold Star Card Launched in February 1998, the Gold Star Smart Card stores ‘star’ balances on the card. Stars can be redeemed against purchases within the Pettitt group of supermarkets and hotels, which are all located in the southeast corner of Ireland. The card also contains an electronic purse-based savings club. As the scheme is fully integrated with EPOS, the cashier can transfer change from purchases to the electronic purse as well as direct savings deposited at the cash office. Customers earn stars related to their purchase, and these vary between a standard award of one star per Euro spent and special offers, department offers and product offers. Pettitts Supermarkets provide all direct contact and support to members. Databank provides full scheme management including card issuing and replacement and member database and scheme and technical support to Pettitts. More than 40,000 Gold Star smart cards have been issued to date. Turkey
Akbank Axess With one million cards issued in nine months, MasterCard claims this is the fastest growing co-branded programme in Europe. The card is multi-branded with 119 different partner brands in a variety of sectors. The card went from 0% market share in December 2001 to 12% of the credit card market in Turkey by August 2002. The Axess card is enhanced with smart marketing applications such as cash back and instant delivery of targeted incentives based on Recency, Frequency and Monetary value.
Garanti Bank Bonus Garanti Bank’s Bonus credit card carries a loyalty programme that allows accumulated loyalty points to be spent like cash at any participating retail outlet. The programme was launched in April 2000, and gained over 200,000 new customers in two months. Some 1.5 million cards are currently in
14
circulation. The card has 10 different merchant categories and 510 partner merchants.
Isbank – Maximum The Isbank ‘Maximum’ offers 5000 merchant locations with ‘Maximum’ advantages. Additionally, Isbank runs a VIP lounge at Istanbul International Airport, which is available free of charge to all ‘Maximum’ cardholders. UK
Boots Advantage The Boots Advantage Card was launched in September 1997 and re-launched in April 2002. Advantage now has 14 million cardholders and 10.5 million active card users. Boots gives four points per £1 (excluding dispensary); one point per £1 on well being services such as massage, makeovers and chiropody and eight points per £1 on all holidays booked through Thomas Cook Direct. Customers can use 1370 kiosk points in 400 large Boots stores throughout the country – these provide extra points offers and details of all the latest in-store points promotions. Since August 2000, more than 500,000 people have also applied to join the UK’s NHS organ donor register through their Advantage card. As part of the re-launch, the company linked up with other businesses such as Toni and Guy salons and the Sanctuary health club, London, to provide additional offers.
Bracknell Forest – Edge The Edge loyalty scheme was launched in the local Bracknell Forest area during 1999 as a show and go scheme. Since then, 22,000 loyalty only cards have been issued. The council reports that it is just beginning to issue Edge smart card library cards to its existing 45,000 library members. These cards will also act as loyalty cards.
Connexions Card This is a secure smart card designed for those aged between 16-19 who live in England. The card allows users to collect reward points for learning, work-based training and voluntary activities. Points can be exchanged for discounted and free goods and services as well as special ‘money can’t buy’ experiences. The card stores basic information such as date of birth. It also has a colour photograph, and can be used as a proof of age. The card is optional, but some learning centres may choose to use it to record attendance data. The initial rollout began in the North East of England during Autumn 2001.
London Pass The London Pass is a tourist retail scheme that relies on tourists purchasing the smart card-based pass from the Internet before travelling. The pass includes tickets for London Underground as well as access to Tate Gallery, Buckingham Palace, London Zoo and London Dungeons. The pass is available in a variety of formats: Adult/Child/Family and for varying durations: 1/2/3/5 and 7 days. The cards provide an average discount of 30%. ACT supplies the technology for the scheme – which also operates on contactless cards – and reports that 60,000 transactions take place each week. Similar schemes are operated in Bath and York (Bath pass and York pass). Over 1 million cards have been issued for these three schemes during the past three years.
Card Technology Today February 2003
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feature Scandinavia has typically had a more liberal approach to loyalty schemes than Germany. However, some governments are known to regard certain loyalty rewards as taxable. In such cases, loyalty offers a weaker value proposition to consumers.
•
•
Creativity Loyalty has traditionally been rewarded through the award of a certain number of points per unit of currency spent. However, as loyalty differentiation becomes increasingly important, we are likely to see more creative schemes to capture public imagination. Taking Akbank in Turkey as an example, it uses smart card technology to deliver customised rewards based on Recency, Frequency, Monetary (RFM) criteria, Under this scheme, consumers may receive an extra discount or points for the Xth transaction of X amount within a promotional period of X. Other organisations may give guaranteed rewards for customers with particular cards (e.g. entry to airport lounges, faster services).
•
•
•
Technically speaking One of the biggest barriers to adoption of smart card schemes is the cost of such programmes. However, ongoing technical developments should continue to help these costs fall. “We’re looking at the possibility of taking existing loyalty that lives on a magnetic stripe and putting it on an EMV card,” says Waqar Qureshi, vice president, Chip Business Support, Visa. “There’s interest in this because we can use the same cost of standard EMV cards and personalise a new applet for loyalty etc. We can add a small applet into the terminals and continue to use the existing infrastructure of existing loyalty schemes.” Last year, the company – in conjunction with Barclaycard – showed a technology proof-ofconcept to 3000 people. Using a standard EMV Visa debit card with an applet developed by Visa International, the company loaded Nectar points onto a Barclaycard. Customers were able to download coupons from the Internet and could read the card with a key chain reader. “Customer feedback was good, with many commenting on ease of use,” reports Qureshi. “When people used the card at Point Of Sale, there was virtually no additional overhead in processing payment and loyalty.” A selection of other recent developments include: Market survey contacts Company ACT Boots Bracknell Forest Databank Giesecke & Devrient IBM ID Data Loyalty Holdings MasterCard Visa Welcome RealTime
Card Technology Today February 2003
the launch of the OneSMART MasterCard which includes market-ready technology solutions (including chip-based loyalty functions), end-to-end implementation support, marketing support and the trademark OneSmart; the announcement that Visa’s cards could include Java-based GlobalPlatform cards that can carry applications – such as loyalty – in addition to the basic EMV payment function; the development of a multi-application platform for chip and token-based online transactions by MBU, the IT services subsidiary of the Croatian banks. The system will give MBU’s owner banks the ability to offer electronic purse and loyalty products to their customers; the launch of eLOYSE (electronic Loyalty Scheme Engine) from Banksys – a product intended to automate the rapid development of new loyalty schemes; the demonstration of a loyalty programme with Customer Relationship Management (CRM) on a smart card from Hitachi. This card enables loyalty points to be accumulated, and customers’ purchasing patterns to be analysed at the same time as a payment is made.
Barriers Although smart cards are increasingly being used for high profile loyalty schemes throughout Europe, they have so far failed to achieve a critical mass. This was a problem in Shell’s multi-retailer loyalty programme in the UK. During the programme, it was discovered that while Shell could read smart cards, its partner companies didn’t have the technology to read the cards. Meanwhile, smart cards continue to compete with other technologies, notably mag stripe. As Prof Merlin Stone, business research leader, Business Consulting Services, IBM points out: “If you put loyalty points onto a mag stripe card, you may be susceptible to fraud. However, you need to evaluate the business case for using chip technology.” The fact that Nectar – which was the largest retail card launch anywhere in the world – was launched on magnetic stripe cards during 2002 indicates the enormous strength of the competition. Cox told CTT: “Nectar used mag strip because: (1) It could utilise the existing terminal/ POS installed base. (2) The technology
Name Gary Watts Jo-Rose Finch Jayne Ward John Wright Andrea Bockholt Merlin Stone Peter Cox Ray Winter Carol Stanton Waqar Qureshi Marjorie Banès
Tel +44 1249 751037 +44 1344 352147 +49 89 41 19 2422 +44 20 7202 3000 +44 1536 207000 +44 1279 655599 +44 207 557 6863 +44 208 937 8111 +33 4 42 97 58 62
infrastructure for smart cards isn’t quite there yet. (3) The system would collect points online, and not be storing them on a card. If they wish to switch to smart card technology in the future, the process will be very straightforward.” In addition to magnetic stripe technology, lasercards are also proving useful to some companies. According to Winter: “Lasercards cost approximately the same as smart cards when produced in large volume, and are now being widely adopted by organisations where security is a key factor. Laser cards cannot be easily falsified, can store up to 4MB of data, and are difficult to damage during everyday usage.” Other organisations, particularly in the financial services sector, are opting for a CRM database approach to loyalty.
Running costs Running any form of loyalty scheme is a costly exercise, but properly managed, the data collected can assist a company to increase its sales to their customers. In such instances, the costs of running the scheme are offset by targeted direct mailings enticing cardholders to purchase other goods by offering extra discounts. However, a report by Datamonitor in the second half of 2002 also highlighted some concerns. “Credit card firms are finding loyalty schemes expensive to run and are passing these costs on to their consumers…consumers are getting more financially savvy, with many preferring lower prices to rewards.”
More please As the battle for market share hots up throughout the retail and banking sectors, we can expect to see increasingly innovative loyalty programmes. As organisations migrate towards EMV, more loyalty programmes will be delivered via smart cards. The current trend to co-brand with partners from other industries is providing real value to businesses and customers alike – and we can expect many developments in this area. However, loyalty schemes on smart cards are costly to implement and run. It is therefore imperative that organisations understand their objectives from the outset. The battle for consumers is no longer about customer satisfaction – but customer delight. Loyalty cards, when applied correctly, could provide a useful tool for some companies in this battle. Email [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
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Capturing commitment Partnership and commitment may sound like the recipe for a perfect marriage, but an increasing number of European organisations are also discovering that these are key ingredients for loyalty programmes designed to aid cross selling, tailor promotions and drive a concentrated spend that will impact on market share. Originally launched to promote brand commitment, loyalty schemes have become more sophisticated, and – boosted by smart card technology – are now able to provide value and profitability to some organisations. With the advent of smart cards, organisations that adopt the technology are in a good position to segment customers and find out more about individual wants and needs. This ability to look at areas such as demographics, spending habits and brand loyalty, enables providers of the most successful loyalty schemes to concentrate on their most profitable customers to ensure that they continue to make favourable purchasing decisions. As Peter Cox, CEO, ID Data, points out: “Whenever the economy starts to become sluggish or go into a recession, retail loyalty really jumps ahead. Some 80% of business comes from 20% of customers: It’s therefore essential during a downturn for a retailer to understand who its top 20% are.”
Drivers The demand for loyalty programmes tends to come and go in waves. When few competitors are offering a scheme, retailers and banks may choose to adopt some form of rewards programme to add value to their business offering. At other times, the market can become saturated with programmes, which consumers may find difficult to differentiate between. In such circumstances, organisations need to use their loyalty programme to offer more innovative ways of maintaining customer usage and spending. Within Europe, we are seeing growing numbers of loyalty schemes operating on smart cards in several key areas: notably banks, supermarkets, and other retail outlets. The public sector is also showing an interest in using the technology to reward loyal users, such as with the UK’s Connexions card. Cards are seen as a convenient way of storing data. Some banks and retail organisations are opting to use smart cards as a means of combating fraud, and are consequently using the smart card platform to develop a loyalty programme. However, fraud is not the only reason for adopting smart card-based schemes. Ray Winter,
Card Technology Today February 2003
chairman, Loyalty Holdings told CTT: “Data mining is the end game – understanding clients and why/how they make purchasing decisions is one of the main objectives. The more analysis of the data that is done, the easier it is to identify customers’ needs and preferences. This enables the loyalty scheme provider to tailor products and services that meet customers’ needs and to develop new products.” As growing numbers of cards migrate towards EMV (Europay MasterCard Visa) compliance, many organisations are looking at the technical capabilities associated with EMV chips. While many organisations are adopting the technology to combat card fraud, there is evidence that some companies are motivated by the possibility of easily adding innovative loyalty features. In fact, demand for smart cards in the Turkish banking sector is largely driven by the use of loyalty functions. Smart card use is also being driven by data carrying needs. For example, one UK retailer is trialing a system whereby the customer can go into the store, and be scanned for exact clothing measurements. These measurements are then placed on the card, so that exact measurements can be used during future Internet purchases of clothes.
Banks As the liberalisation of banking services has opened the doors for competition in major markets, so too has the need for banks to look carefully at what they offer their customers. Inertia – for many years a common characteristic of banking customers – is now being challenged. As SchroderSalomonSmithBarney mention in ‘The Hunt for Revenue Growth Predators and Prey in the European Banking Sector, Sept 2002: “Banks need to strive for committed customers. Unhappy and uncommitted – yet inert customers – are less likely to spend as much with a bank than committed customers.”
Retailers According to Cox: “People are looking at rewards: The reward for the retailer is understanding the customer and understanding supply dynamics. For example, Tesco (UK supermarket) successfully used
its loyalty programme to persuade customers to purchase its own brand products. In other words, there’s a tremendous capability to affect spending habits. In Boots (UK chemist), the onus is on higher value goods such as perfume or make up.” The Boots Advantage card is currently held by more than half of all women in the UK over the age of 16. The use of smart card technology gave Boots a marketing differentiation, but it did cost four to five times more than mag-stripe technology. The Advantage scheme is considered one of the most technically advanced in the UK for its ability to build a profile of customers which then feeds back into store layout and new product development. “The scheme provides us with a unique insight into the way our customers shop. This means that we can manage the customer relationship on a one-to-one basis, ensuring that our total offering continues to delight the customer and drive emotional loyalty,” Jo-Rose Finch at Boots’ press office told CTT. “We use the Advantage Card to learn from our customers, to develop new products, adapt the in-store experience and even tailor promotions to them.” Bonus points are used as a promotional tool to drive sales through ‘three for two’ offers and ‘Buy One Get One Free’ campaigns. The company introduced Advantage Point machines in September 1999 and now provides personalised offers and promotions not available elsewhere in store. Boots uses the data collected from its Advantage cards in a variety of ways. “If we can see that a customer likes to buy particular products then we can ensure we offer them relevant and exciting promotions – which can be offered directly via mail or through the Advantage Point machine,” says Finch. “In addition, the data we collect helps inform what future products we should stock at each store to ensure we have the best range tailored for each store. In essence, the data provided via the Advantage Card ensures our customers receive really relevant offers and our product and promotional range continues to delight them.” The UK’s supermarket sector provides big loyalty programmes (e.g. Tesco Clubcard). Ongoing bids for the Safeway supermarket chain could prove interesting for loyalty. The current contenders are: • • •
Morrisson’s – could grow its business and develop loyalty; Asda (Wal-Mart) – this has a proposition of low-cost, no loyalty; Sainsbury’s – part of the Nectar scheme comprising Sainsbury’s, Barclaycard, Debenhams, BP and First Quench.
We could therefore see a large chunk of shoppers taken and locked into a loyalty scheme by one of the supermarket giants.
13
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Trends One of the most popular trends within the European loyalty card market is currently the drive to develop affinity and co-branding programmes. Partnering with leading players of other business sectors provides cost and revenue benefits, access to partners’ distribution outlets and a reduction in above-the-line advertising through more specific target marketing. MasterCard now claims to have nine million affinity/co-branded cards in Europe alone. “Success depends less on choice of sector…than on a strong partner brand, competitive pricing and incorporation of unique benefits to drive loyalty and spend,” Carol Stanton, head of co-branding and affinity, MasterCard Europe, told CTT. MasterCard shareholders report that average co-brand card spend is typically 25% higher than for a standard card.
“Motivated by powerful loyalty schemes or other usage incentives, cardholders use their cards more often and for higher transaction values. Highly successful programmes yield spend levels that are double or treble non co-branded programmes.” MasterCard claims that such schemes improve customer retention rates: “Cardholders are loyal to their chosen card with retention levels typically 1020% higher than for traditional cards.” Turkey is currently involved in some interesting co-branding schemes – the Akbank ‘Axess’ programme is multi-branded with 119 different partner brands in a variety of sectors; Garanti ‘BONUS’ now has 1.5 million cards in circulation; and Isbank ‘Maximum’ offers 5000 merchant locations with ‘Maximum’ advantages. These multibranded schemes give customers the opportunity to earn points in most places, which is important in the promotion of high spending and usage.
In the UK, the London pass scheme also includes a consortia approach to loyalty. The value proposition of the scheme is that member companies have a guaranteed increased throughput. Although the micro-demographic information is less significant for this market than for Boots, it does provide important data on where tourists come from and which places they visited during their trip to London.
Legislation In Germany, the repeal of the Rabatzgesetz, which historically precluded the linkage of loyalty points and incentives to card programmes is driving new customer loyalty initiatives. The biggest co-brand scheme is currently believed to be Karstadt Quelle, which had thousands of cards in use following its launch in June 2002.
A selection of smart loyalty cards in Europe Germany
DaimlerChrysler Bank This was the first financial institution in Germany to issue chip-based debit/credit bankcards. The cards have been supplied by Giesecke & Devrient and will offer the standard EMV international payment functions as well as carrying customer loyalty programmes. The first loyalty programme to run on this card is the ‘Road Miles’ scheme. Ireland
Esso – Tiger Miles The Tiger Miles programme has been positioned as a CRM solution for Esso to target key customers. The programme was launched in 2001, and is expected to last for three years. Half a million cards have been issued and are currently in use in Esso stations throughout the Republic of Ireland. These points can be redeemed in Esso shops for items such as kettles. Esso adopted smart card technology to reduce the fraud associated with traditional paper-based tiger tokens. Applied Card Technologies (ACT) has provided cards, terminals, software and databases under licence. Support has been supplied by ICL, Ireland.
Pettitts supermarkets and hotels – Gold Star Card Launched in February 1998, the Gold Star Smart Card stores ‘star’ balances on the card. Stars can be redeemed against purchases within the Pettitt group of supermarkets and hotels, which are all located in the southeast corner of Ireland. The card also contains an electronic purse-based savings club. As the scheme is fully integrated with EPOS, the cashier can transfer change from purchases to the electronic purse as well as direct savings deposited at the cash office. Customers earn stars related to their purchase, and these vary between a standard award of one star per Euro spent and special offers, department offers and product offers. Pettitts Supermarkets provide all direct contact and support to members. Databank provides full scheme management including card issuing and replacement and member database and scheme and technical support to Pettitts. More than 40,000 Gold Star smart cards have been issued to date. Turkey
Akbank Axess With one million cards issued in nine months, MasterCard claims this is the fastest growing co-branded programme in Europe. The card is multi-branded with 119 different partner brands in a variety of sectors. The card went from 0% market share in December 2001 to 12% of the credit card market in Turkey by August 2002. The Axess card is enhanced with smart marketing applications such as cash back and instant delivery of targeted incentives based on Recency, Frequency and Monetary value.
Garanti Bank Bonus Garanti Bank’s Bonus credit card carries a loyalty programme that allows accumulated loyalty points to be spent like cash at any participating retail outlet. The programme was launched in April 2000, and gained over 200,000 new customers in two months. Some 1.5 million cards are currently in
14
circulation. The card has 10 different merchant categories and 510 partner merchants.
Isbank – Maximum The Isbank ‘Maximum’ offers 5000 merchant locations with ‘Maximum’ advantages. Additionally, Isbank runs a VIP lounge at Istanbul International Airport, which is available free of charge to all ‘Maximum’ cardholders. UK
Boots Advantage The Boots Advantage Card was launched in September 1997 and re-launched in April 2002. Advantage now has 14 million cardholders and 10.5 million active card users. Boots gives four points per £1 (excluding dispensary); one point per £1 on well being services such as massage, makeovers and chiropody and eight points per £1 on all holidays booked through Thomas Cook Direct. Customers can use 1370 kiosk points in 400 large Boots stores throughout the country – these provide extra points offers and details of all the latest in-store points promotions. Since August 2000, more than 500,000 people have also applied to join the UK’s NHS organ donor register through their Advantage card. As part of the re-launch, the company linked up with other businesses such as Toni and Guy salons and the Sanctuary health club, London, to provide additional offers.
Bracknell Forest – Edge The Edge loyalty scheme was launched in the local Bracknell Forest area during 1999 as a show and go scheme. Since then, 22,000 loyalty only cards have been issued. The council reports that it is just beginning to issue Edge smart card library cards to its existing 45,000 library members. These cards will also act as loyalty cards.
Connexions Card This is a secure smart card designed for those aged between 16-19 who live in England. The card allows users to collect reward points for learning, work-based training and voluntary activities. Points can be exchanged for discounted and free goods and services as well as special ‘money can’t buy’ experiences. The card stores basic information such as date of birth. It also has a colour photograph, and can be used as a proof of age. The card is optional, but some learning centres may choose to use it to record attendance data. The initial rollout began in the North East of England during Autumn 2001.
London Pass The London Pass is a tourist retail scheme that relies on tourists purchasing the smart card-based pass from the Internet before travelling. The pass includes tickets for London Underground as well as access to Tate Gallery, Buckingham Palace, London Zoo and London Dungeons. The pass is available in a variety of formats: Adult/Child/Family and for varying durations: 1/2/3/5 and 7 days. The cards provide an average discount of 30%. ACT supplies the technology for the scheme – which also operates on contactless cards – and reports that 60,000 transactions take place each week. Similar schemes are operated in Bath and York (Bath pass and York pass). Over 1 million cards have been issued for these three schemes during the past three years.
Card Technology Today February 2003
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feature Scandinavia has typically had a more liberal approach to loyalty schemes than Germany. However, some governments are known to regard certain loyalty rewards as taxable. In such cases, loyalty offers a weaker value proposition to consumers.
•
•
Creativity Loyalty has traditionally been rewarded through the award of a certain number of points per unit of currency spent. However, as loyalty differentiation becomes increasingly important, we are likely to see more creative schemes to capture public imagination. Taking Akbank in Turkey as an example, it uses smart card technology to deliver customised rewards based on Recency, Frequency, Monetary (RFM) criteria, Under this scheme, consumers may receive an extra discount or points for the Xth transaction of X amount within a promotional period of X. Other organisations may give guaranteed rewards for customers with particular cards (e.g. entry to airport lounges, faster services).
•
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Technically speaking One of the biggest barriers to adoption of smart card schemes is the cost of such programmes. However, ongoing technical developments should continue to help these costs fall. “We’re looking at the possibility of taking existing loyalty that lives on a magnetic stripe and putting it on an EMV card,” says Waqar Qureshi, vice president, Chip Business Support, Visa. “There’s interest in this because we can use the same cost of standard EMV cards and personalise a new applet for loyalty etc. We can add a small applet into the terminals and continue to use the existing infrastructure of existing loyalty schemes.” Last year, the company – in conjunction with Barclaycard – showed a technology proof-ofconcept to 3000 people. Using a standard EMV Visa debit card with an applet developed by Visa International, the company loaded Nectar points onto a Barclaycard. Customers were able to download coupons from the Internet and could read the card with a key chain reader. “Customer feedback was good, with many commenting on ease of use,” reports Qureshi. “When people used the card at Point Of Sale, there was virtually no additional overhead in processing payment and loyalty.” A selection of other recent developments include: Market survey contacts Company ACT Boots Bracknell Forest Databank Giesecke & Devrient IBM ID Data Loyalty Holdings MasterCard Visa Welcome RealTime
Card Technology Today February 2003
the launch of the OneSMART MasterCard which includes market-ready technology solutions (including chip-based loyalty functions), end-to-end implementation support, marketing support and the trademark OneSmart; the announcement that Visa’s cards could include Java-based GlobalPlatform cards that can carry applications – such as loyalty – in addition to the basic EMV payment function; the development of a multi-application platform for chip and token-based online transactions by MBU, the IT services subsidiary of the Croatian banks. The system will give MBU’s owner banks the ability to offer electronic purse and loyalty products to their customers; the launch of eLOYSE (electronic Loyalty Scheme Engine) from Banksys – a product intended to automate the rapid development of new loyalty schemes; the demonstration of a loyalty programme with Customer Relationship Management (CRM) on a smart card from Hitachi. This card enables loyalty points to be accumulated, and customers’ purchasing patterns to be analysed at the same time as a payment is made.
Barriers Although smart cards are increasingly being used for high profile loyalty schemes throughout Europe, they have so far failed to achieve a critical mass. This was a problem in Shell’s multi-retailer loyalty programme in the UK. During the programme, it was discovered that while Shell could read smart cards, its partner companies didn’t have the technology to read the cards. Meanwhile, smart cards continue to compete with other technologies, notably mag stripe. As Prof Merlin Stone, business research leader, Business Consulting Services, IBM points out: “If you put loyalty points onto a mag stripe card, you may be susceptible to fraud. However, you need to evaluate the business case for using chip technology.” The fact that Nectar – which was the largest retail card launch anywhere in the world – was launched on magnetic stripe cards during 2002 indicates the enormous strength of the competition. Cox told CTT: “Nectar used mag strip because: (1) It could utilise the existing terminal/ POS installed base. (2) The technology
Name Gary Watts Jo-Rose Finch Jayne Ward John Wright Andrea Bockholt Merlin Stone Peter Cox Ray Winter Carol Stanton Waqar Qureshi Marjorie Banès
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infrastructure for smart cards isn’t quite there yet. (3) The system would collect points online, and not be storing them on a card. If they wish to switch to smart card technology in the future, the process will be very straightforward.” In addition to magnetic stripe technology, lasercards are also proving useful to some companies. According to Winter: “Lasercards cost approximately the same as smart cards when produced in large volume, and are now being widely adopted by organisations where security is a key factor. Laser cards cannot be easily falsified, can store up to 4MB of data, and are difficult to damage during everyday usage.” Other organisations, particularly in the financial services sector, are opting for a CRM database approach to loyalty.
Running costs Running any form of loyalty scheme is a costly exercise, but properly managed, the data collected can assist a company to increase its sales to their customers. In such instances, the costs of running the scheme are offset by targeted direct mailings enticing cardholders to purchase other goods by offering extra discounts. However, a report by Datamonitor in the second half of 2002 also highlighted some concerns. “Credit card firms are finding loyalty schemes expensive to run and are passing these costs on to their consumers…consumers are getting more financially savvy, with many preferring lower prices to rewards.”
More please As the battle for market share hots up throughout the retail and banking sectors, we can expect to see increasingly innovative loyalty programmes. As organisations migrate towards EMV, more loyalty programmes will be delivered via smart cards. The current trend to co-brand with partners from other industries is providing real value to businesses and customers alike – and we can expect many developments in this area. However, loyalty schemes on smart cards are costly to implement and run. It is therefore imperative that organisations understand their objectives from the outset. The battle for consumers is no longer about customer satisfaction – but customer delight. Loyalty cards, when applied correctly, could provide a useful tool for some companies in this battle. Email [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
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