Sunday 23 May 2010

Boots to generate value from customer relationships


It seems coalition is the buzzword of the moment, and I'm not just talking about politics.

Nectar and Airmiles have already seen recent competition from Barclaycard Freedom for the multi-merchant loyalty model, but now high street loyalty behemoth Boots has announced their intention to open up their Advantage card to other partners.

Although most Boots Advantage card holders are also members of another large loyalty scheme like Tesco Clubcard or Nectar, with 16m members they can hit the ground running with regard to engaging other partners - not least using their aquisition of Dollond & Aitchison which they have just pulled out of Nectar.

It's also not surprising that this is happening given the ownership of Boots by private equity firm KKR.  They will be looking to maximise their investment of over £11bn when they first purchased Alliance Boots and a 16m customer database is certainly one asset that could provide profitable returns.

Looking at coalitions though, what's clear from the current government is that brand identity can become diluted.  With most news reports referring to the government as the "coalition government", "Liberal Conservatives" or "LibCons" it's evident that sharing the platform with someone else can force individual brands to be pushed to the back a little more.  For any partners looking to join the Boots Advantage programme, it may be difficult for their brand to shine as brightly as Boots.

So what's the attraction for any potential suitor to join a programme like Advantage?

Quite simply it's acquisition.  The benefits of tapping into a large shared membership base can bring great benefits to a new brand joining, with a loyal base of members keen to maximise their earning and willing to change their behaviour to do so.

When Tesco for example joined Airmiles back in 2002 they say searches for the nearest Tesco store jump 450% and they issued 1m new Clubcards.

The other side of this though is tied into the reduction of brand identity, with customers becoming more loyal to the programme than the participating brands.  When Tesco's for example saw an influx of Airmiles customers, it was reported in Scoring Points: How Tesco Continues to Win Customer Loyalty that Sainsbury's saw a corresponding loss of 1% of sales volume - equal to losing 60,000 of it's most valuable customers.

Another potential advantage though of a coalition programme is the shared earn & burn model.  With many brands not seeing enough frequency to remain front of mind or enough value to make the loyalty currency attractive in it's own rights, then a model which contributes to a wider and more open currency seems like the natural choice.  In fact, if you ask customers what they want these come out as key aspects.

For example, the Home Retail Group which recently launched Nectar points at Homebase to replace the previous Spend & Save programme said:-

In-depth consumer research that showed Nectar points were more attractive to customers as they are more flexible and can be earned and redeemed at a much wider range of outlets.

When part of a coalition, it's sometimes better to see it as a marriage of convenience - just like the Lib Dem and Conservative coalition.  Neither political party would have chosen the situation, but the benefits of working together and representing a majority of the electorate outweigh the alternative.

For coalition loyalty the situation is similar.  No company would ideally look to encourage focus on another brand, but sometimes the benefits outweigh the risks.  Increasingly however partners are looking to protect their brand at the same time as benefiting from coalition loyalty.

Tesco for example has managed to navigate a route with Airmiles which allows them to be part of the coalition programme, without in any way devaluing their own brand or their own loyalty programme - really having the best of both worlds.  Shell is another example - offering a variety of rewards within their Drivers Club programme including Airmiles and now being part of Barclaycard Freedom.

However, with an increasing number of UK coalition programmes to choose from, each offering different benefits and potentially different audiences, brands now have more choice - including creating or keeping their own proprietary programme.

What is increasingly not a choice is whether to have a loyalty programme at all.

As Justin King, Chief Executive of Sainsbury's recently said in The Times about retail loyalty:-

"There will be a big difference between the haves and have-nots"

So whether the choice is joining a coalition, creating a coalition or setting up a propriety loyalty programme - it's clear that loyalty marketing has evolved into the business tool to generate value from customer relationships - a value that Boots are obviously keen to increase.