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MP52058

MAPS LOYALTY CARDS 1998

Overview

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Table of Contents
Executive Summary
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TABLE OF CONTENTS

1. INTRODUCTION	1
1.1 BACKGROUND	1
1.2 NEW MARKETING TECHNIQUES	1
2. DEFINITION	3
2.1 LOYALTY CARDS	3
2.2 REPORT EXCLUSIONS	4
3. EXECUTIVE SUMMARY	5
3.1 RETAILER BENEFITS	5
3.2 CONSUMER REACTION	6
3.3 MAJOR LOYALTY CARD MARKETS	7
3.3.1 Grocery Retailing	7
3.3.2 Petrol Retailing	8
3.3.3 High Street Retailing	9
3.4 PRESENT PROGRAMME BENEFITS	9
3.5 FUTURE PROGRAMME BENEFITS	10
4. STRATEGIC OVERVIEW	12
4.1 THE UK RETAIL MARKET	12
4.1.1 Customer Monitoring	12
4.1.2 Marketing Effectiveness	13
4.2 THE MARKETING MIX	14
4.3 CUSTOMER LOYALTY	15
4.4 INCENTIVES	15
4.5 LOYALTY CARD PROGRAMMES	17
4.5.1 Retailer Benefits	18
4.5.2 Retailer Problems in Operating Loyalty Schemes	20
4.5.3 Consumer Benefits	20
Table 1. - Real Value of Loyalty Points from Major Own-Scheme Retailers 1998	21
Table 2. - Loyalty Card Discounts 1997	22
4.5.4 Customer Misconceptions, Prejudices and Problems	23
5. INDUSTRY ANALYSIS	24
5.1 MOVING INTO NEW RETAIL SECTORS	24
5.1.1 Supermarket Product and Service Developments	24
5.1.2 Petrol Retailing Product and Service Developments	24
5.1.3 High Street Retailing Product and Service Developments	25
5.2 LOYALTY CARD EXPERTS	25
5.3 LOYALTY CARD PARTNERS	25
5.3.1 Tie-ups Within a Group	25
5.3.2 Long Term Partners	26
5.3.3 One-off Arrangements	26
5.3.4 Charities and Good Causes	26
5.4 REGULATIONS AND PARAMETERS	26
5.4.1 Regulations	26
5.4.2 Professional Guidelines & Codes of Practice	27
5.4.3 Changes for the Future	27
5.4.4 Customer Care	27
5.5 MAJOR LOYALTY SCHEME SECTORS	28
Table 3. - UK Retailers in UK Top 60 Companies by Turnover 1998	28
5.5.1 Supermarkets	29
Table 4. - Comparison of Group Turnover: Tesco, Sainsbury & Safeway 1993-97	31
Table 5. - Comparison of Supermarket Operating Profits: Tesco, Sainsbury & Safeway 1993-97	32
Table 6. - Turnover Comparison for Supermarkets 1995-97	33
Table 7. - percentage Increase in Supermarket Turnovers 1995-97	34
5.5.2 Oil/Petroleum Companies (Petrol Retailing)	34
Table 8. - Turnover Comparison for Petrol Retailers 1995-97	35
Table 9. - percentage Increase in Petrol Retailers Turnovers 1995-97	36
Table 10. - Comparison of Group Turnover; Total and Shell 1993-97	37
Table 11. - UK Forecourt Shops Owned by Petrol Companies	38
Table 12. - UK Forecourt Shops Owned by Supermarkets	39
5.5.3 High Street Retailing	40
Table 13. - Comparison of Turnover; High Street Stores 1993-97	41
Table 14. - percentage Increase in Turnovers; High Street Stores 1995-97	41
5.6 MAJOR RETAILERS WITHOUT LOYALTY PROGRAMMES IN PLACE	42
6. OPERATOR PROFILES	43
6.1 SUPERMARKETS	43
6.1.1 Co-operative Wholesale Society	43
6.1.2 Safeway plc	43
6.1.3 J Sainsbury	45
6.1.4 Somerfield	46
6.1.5 Tesco	47
6.2 OIL/PETROLEUM COMPANIES (PETROL RETAILING)	48
6.2.1 British Petroleum (BP)	48
6.2.2 Fina	49
6.2.3 Gulf	49
6.2.4 Mobil	50
6.2.5 Shell	50
6.2.6 Texaco	51
6.2.7 Total	51
6.3 HIGH-STREET STORES	52
6.3.1 Argos	52
6.3.2 Boots	52
6.3.3 WH Smith	53
6.4 OTHER PLAYERS	54
6.5 NON-PLAYERS	54
7. CHANNEL TO MARKET	56
7.1 SCHEME SET-UP	56
7.2 SCHEME MARKETING	56
7.2.1 DIRECT MAIL	56
7.2.2 PR & ADVERTISING	57
8. CONSUMER ISSUES	58
8.1 MARKET DYNAMICS	58
8.2 CONSUMER DYNAMICS	58
Table 15. – Consumer Attitudes to Loyalty Programmes 1998	59
8.2.1 I Prefer to Get Money Off My Bill Rather Than Coupons for Particular Products	60
8.2.2 I would Prefer Lower Store Prices to Loyalty Benefits	61
Table 16. - Consumer Attitudes Money Off, Lower Prices & Loyalty Benefits 1998	62
8.2.3 I am Generally Pleased with the Benefits My Store’s Programme Gives	63
8.2.4 I Always Do My Major Shopping at the Same Stores	63
Table 17. - Consumer Attitudes to Satisfaction and Store Loyalty 1998	65
8.2.5 The Stores have More to Gain from a Loyalty Card than the Customers	66
8.2.6 In-Store Staff Seem to Know all About the Promotion	66
Table 18. - Consumer Attitudes to Benefits and Staff Knowledge 1998	67
8.2.7 I Dislike my Details Being Held on the Store’s Computer	68
8.2.8 If I Wanted to be Removed from the Store’s Mailing List, This Would be Easy to do	68
Table 19. - Consumer Attitudes to Data Protection & Quitting the Programme 1998	70
8.2.9 I Always Read the Store’s Information that Comes Through the Post	71
8.2.10 I Have Taken Advantage of a One-Off Offer Associated with the Store Card	71
Table 20. - Consumer Attitudes to Store Information via Direct Mail and One-Off Offers 1998	73
8.2.11 Would Change to Another Store if they Offered Better Loyalty Benefits	74
8.2.12 I Would Prefer to Collect Air Miles or Similar Rather Than in-Store Points	74
Table 21. - Consumer Attitudes to Changing Stores and Air Miles Preferences 1998	75
8.2.13 I Always Shop at Stores that Offer Loyalty Programmes	76
8.2.14 Don’t Know/None	76
Table 22. - Consumer Attitudes to Store Preferences and Don’t Knows 1998	77
9. FUTURE PROSPECTS	78
Table 23. - Projection of UK Population Change by Age Group 1996-2021	78
Table 24. - percentage Breakdown of UK Population by Age Group 1996-2021	79
9.1 THE FUTURE FOR CURRENT PROGRAMMES	81
9.2 EVOLUTIONS AND ALTERNATIVES	82
Table 25. - Future Size of the Loyalty Card Market for Supermarkets 1997-2003	83
Table 26. - Future Size of the Loyalty Card Market for Petroleum/Oil Retailing Companies 1997-2003	84
Table 27. - Future Size of the Loyalty Card Market for High-Street Stores 1997-2003	85
10. SOURCES	90
11. GLOSSARY OF TERMS	94
11.1 ABOUT THE SOURCES USED	95
11.2 PROBLEMS IN CALCULATING	96

EXECUTIVE SUMMARY

RETAILER BENEFITS

The Loyalty Card is an excellent micro marketing tool which goes straight to the core of all these issues. The Loyalty Card Programme offers the retailer an unrivalled opportunity to collect large amounts of very accurate customer data. The trader can capture what types of products are purchased, when and by what means. Loyalty Cards provide a pinpoint insight into UK consumer purchasing patterns. Once data is collected, it can be analysed with many different purposes in mind.

Retailers can focus on specific sectors of the population which they wish to develop further as a customer base, with specifically targeted product information, or stock geared expressly to them. For example, several supermarkets have started to sell ranges of Kosher food for those adhering to Jewish dietary law. Another example is retailers attempting to cater for the many nationalities within the UK, offering a range of cosmetic and hair-care products for every shade of skin and type of hair. Such product choice can only be good for both customer and store. Another benefit to the retailers is that of failing product lines. The Loyalty Card Programme allows traders to quickly comprehend lines seen to be dropping out of fashion, at an early stage, and the decision can then be made to remove, relaunch or replace them.

Stock control too can be made easier and more efficient using data from the Loyalty Card Programme. A product will sell at a certain rate, which can be tracked over a period of weeks. Peaks and troughs in the selling pattern can be noted, and predicted for the future, so that stock levels can be kept on target. As retailers know only too well, both overstocking and lines selling out can be an expensive business.

CONSUMER REACTION

UK consumer shopping habits have changed dramatically over the past twenty years. Supermarkets and stores have grown in size, and the range and scope of the products on their shelves continues to increase. In the mid seventies, a medium-sized town might have had one supermarket; today there are likely to be four or more. They will tend to be out-of-town, served by adequate car-parking, and open long hours. They may be served by cafes and restaurants, childcare facilities, cash machines, petrol stations and recycling centres. For these stores, competition no longer involves getting consumers out of the small village store and into the supermarket. They must fight each other for every customer. The High-Street stores face similar problems. Unless they live or work close by, the majority of shoppers now pay a maximum of one weekly visit to the town centre. Therefore, the town centre High-Street store, no matter how its profile, needs to maximise these visits. The customer is in demand.

The traditional incentives of general price cuts and occasional free offers are no longer sufficient in an increasingly competitive and sophisticated marketplace. Today’s customers are wiser to the real value of their purchases, and have a much wider choice of retail options open to them within their area. Thus, from the customer’s viewpoint, it is important that the incentive is sufficiently impressive to have an effect.

The Loyalty Card Programme offers a very straightforward way of collecting data. It uses electronic methodology yet appears completely simple to the customer. UK consumers do not have to complete lengthy form questionnaires nor do they have to participate in interviews. They simply make their purchases and hand over their Loyalty Card along with their payment. Hence, customers do not perceive the Loyalty Card as a waste of their valuable time. They are happy, in this respect, to participate in the scheme.

UK consumers, through the Loyalty Card Programme, can now make savings on the actual products that they wish to buy. In the past, a supermarket might have discounted 20p off the purchase price of a packet of fresh meat, but that is not appealing to the vegetarian. Now, not only is there money off future purchases within a given store, but often specifically targeted coupons are also offered, tailored to real customers. For example, adults with children may be offered money off children’s clothing or toys and those who cook receive vouchers for raw ingredients.

The only real concern for UK consumers is with regard to the holding of personal data. Thus, retailers must be careful to point out that they can be trusted with customers’ details, and will not trade information on.

Overall, the Loyalty Card Programme offers an excellent way of capturing vital purchasing information, which can be utilised in a variety of ways benefiting the retailer, but it is also appealing to the UK consumer through its simplicity and tailored discounting benefits.

GROCERY RETAILING

The UK convenience sector was valued by the Institute of Grocery Distribution at £15.l4bn, in 1997, and 75 percent of food is sold through the top five supermarkets. As such, they vie strongly for market share. Customers are all.

Tesco were the first supermarket to enter the Loyalty Card market, and introduced their ClubCard in early 1995. Their competitors were initially reluctant to follow suit, but one by one they have introduced schemes of their own. Sainsbury and Safeway entered the market in mid 1996. Somerfield now has a scheme running, and the Co-operative Wholesale Society (the Co-op) - dealt with within this report as a food retailer - has recently entered the market too. Of the major supermarkets, only ASDA, has chosen to stay out of the market. ASDA, ran a pilot scheme in some stores, but has no plans to introduce it nationwide.

As Tesco was the first to introduce this scheme, they have had a competitive edge over the other supermarkets. Judging by the financial performance of Tesco in the last few years, it can be concluded that the Loyalty Card Programme had a bearing on this performance. Tesco has, in 1998, overtaken Sainsbury, to become the largest supermarket in the UK. By June 1998 both groups had over 11 million card holders. In the supermarket sector, the number of Loyalty Cards issued in 1997 was in the region of 30 million. The sector was reported to have grown by an overall 25 percent in 1997-98. However the real number of card holders has only increased by 3 percent, as most people have two or more cards.

Loyalty Cards, being the ideal micro marketing tool, is expected to be adopted by nearly all the large supermarkets, in one form or another, by 2003.

The market will not continue to grow at the current rate, although schemes that branch out into this new area are likely to be given a boost at various points by the means of a relaunch. The growth expected in this sector in the next five years is a compound annual growth rate (CAGR) of 1.9 percent, an overall increase of 11.6 percent, thereby increasing the number of Loyalty Cards in this sector to 33.5 million by the year 2003.

PETROL RETAILING

Petrol retailing is another major sector where loyalty incentives are the norm. If the supermarkets can claim to have made the Loyalty Card their own during the 1990s, it is the forecourt retailers that can claim the longest history of incentive marketing of this type, having introduced many coupon, stamp and free gift schemes during the 1970s and 1980s. It is with the advent of database marketing and sophisticated analysis techniques however, that the schemes have come into their own.

Generally, the petrol retailers’ Loyalty Card Programmes place less emphasis on the collection of very specific customer data. The product range and possibility for product choice on the part of the customer is much more limited, and the evaluation of overall trends will be given more emphasis than identifying highly-targeted customer segments.

However, this emphasis may change as forecourt shopping facilities become larger and more complex, and traditional lines of demarcation are broken down. But, until the range of products and services increases, the cards that can be used on the petrol station forecourt will continue to influence the customer as to choice of site, but will have a limited effect on choice of product.

HIGH STREET RETAILING

Leading High Street retailers are also major Loyalty Card Programme players are leading High Street retailers. At its simplest level, a High Street Loyalty Card Programme offers customers a discount on their next purchase in-store when a certain spend has been accrued, and will come into its own at times of high spend such as Christmas and pre-holiday season. Several High Street stores have entered the market or are planning to run Loyalty Programmes. The most high profile ones being Boots and WH Smith, while Argos stores operate as redemption outlets for points awarded under the Premier Points scheme used by a number of retailers.

Boots Loyalty Card is a technologically advanced card, as compared to those of the supermarkets, as it is a microchip-based Smart Card. Data is stored directly on the card, rather than having to be stored in a central computer.

There are a number of other players in the High Street market, such as Our Price, the music store, which is piloting its first Loyalty Programme, in a bid to sustain its market-leading position. Many smaller retailers also offer their own incentive cards. However, these are not covered within this report.

The size of the High Street Loyalty Cards market was currently 25 million, by summer 1998, with Boots having seven million Loyalty Card holders. By the year 2003, the loyalty card holders market size, is likely to reach 30 million, at a CAGR of 20 percent.

PRESENT PROGRAMME BENEFITS

Loyalty programmes are now an integral part of the marketing mix for many large retailers, usage patterns are emerging from their data which are enabling them to make informed decisions on the future.

From the retailer’s point of view, the Loyalty Programme offers the opportunity to get to know the customers, if not quite as individuals, then certainly as groups of individuals. They wish to collect data that will help with future marketing, and will create group profiles based on spending habits and products bought.

Despite the bad reputation that Direct Mail has found through mis-association with junk mail, half of all Loyalty Card holders now actively enjoy receiving mailings and special offers, a figure which is increasing. This is partly due to accurate targeting and careful planning on the part of retailers, helped by an increased awareness on the part of the customer of the nature of the Loyalty Programme, as a two-way co-operation.

Some customer profiles are easy for retailers to put together: regular cat food buyers own cats; prolific book-buyers like reading; petrol purchasers run a personal andor company car; and purchasers of bulk quantity nappies have small children. As such, these customers may well be interested in hassle-free litter trays, the Booker prize shortlist, discounted petrol and high-factor sunblock cream, respectively.

Other profiles will be less obvious, and will rely on a knowledge of wider trends and lifestyles. Some will be specific, and may justify a direct approach. For example, Tesco has a register of diabetics and vegetarians who receive offers specific to their needs and lifestyles. Even though they are expensive to set up, if well run and meticulously maintained the Loyalty Programme can provide a wealth of information for the store, and the disadvantages are few. Other than potential technological disasters, problems will be individual, and personal data must always be handled sensitively.

FUTURE PROGRAMME BENEFITS

The collected data from Loyalty Cards is not only useful to the retailer for present or short term applications. Loyalty Cards provide answers to future business questions. Many retailers (food, petrol and High Street) are making logical developments from their traditional business. For example, Boots ‘Mother & Baby at Home’ catalogue will use their Loyalty Card database to market products not normally sold by the stores, such as maternity wear and baby equipment. This is an intelligent extension to the Boots range.

Many retailers are also looking to move into other business areas. As such, Loyalty Card Programmes have been introduced with an eye to the deregulation and merging of industry sectors. Data collected from Loyalty Programmes will be particularly useful as a base for selling these new services.

Supermarkets are now offering financial services. An interesting development, for these stores in particular, is that customer data has revealed that Loyalty Card holders are more likely to be in the market for financial services in the future. As the supermarkets are already making their move into the financial sector with payment cards and accounts, they are finding that they have a readily identifiable market from their own data. Supermarkets are also already offering forecourt petrol and associated services. Many of the newer, out of town supermarkets offer petrol and car wash facilities and these services are also being introduced at existing supermarket sites.

On the other hand, petrol stations are expanding their lines to include general shopping products. For example, in 1998 Shell opened their first stand-alone shop, similar in style to their forecourt shops, but not connected to a petrol retailing site. Petrol retailers are also looking at combination incentives with retailers and service providers in other lines of business.

As shopping itself can now be accomplished from the comfort of home via various internet and home delivery services, it is possible to see a time when shopping comes full circle; loyal customers ordering their shopping from one store, and having it delivered to their homes.

Sainsbury are introducing interactive touch-screen kiosks in their stores, which will give card holders access to further services, discounts, recipes, and will give manufacturers direct access to customers for the first time. There are predictions of a ‘smart bin’, which will electronically recognise the empty packaging that is thrown into it, adding the item to the next week’s shopping list.

Future trends may include a whole life-style range of services available from one site - all centralised from one Smart Card containing the customer’s essential data: medical, financial and social information - all to hand and accessible at the swipe of a card. Badly managed, this may appear to be a nightmare - correctly and responsibly run, it could be the shopping experience of the future.

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Last updated by Duncan Nottage 9th February 1999