The man with plans for loyalty cards

Patrick Hosking12 April 2012

KEITH Mills is the king of loyalty cards. The man who invented Air Miles has a new project. He and his clients are spending about £50 million launching a new loyalty programme, and 12 million people are about to be bombarded with a new piece of plastic to cram into their already bulging wallets.

Mills, who is due to launch the Nectar card this autumn on behalf of Sainsbury's, BP, Barclaycard and Debenhams, is upfront about the main criticisms of loyalty cards. There are too many programmes, not enough rewards and some of the schemes are just 'too bloody complicated', he says.

Nectar, he claims, will confound those criticisms. Certainly, it should reduce the number of different loyalty programmes.

With four major companies already signed up, he is negotiating with dozens more to join the Nectar scheme in every category from DIY retailing to mobile phone operators.

Most single-company loyalty card schemes can be launched in five seconds, he says. But getting a string of big-name retailers to agree on a single scheme is another matter. 'These coalition programmes are very difficult to put together,'

he says. In theory, coalition programmes work because consumers are able to accumulate more points and qualify for bigger rewards. But the more companies that participate, the less loyalty there can be to any one of them. There is already a potential conflict of interest among the four founders, with Sainsbury's and BP competing for petrol customers, for example.

Some big-name retailers regard loyalty cards as counterproductive. Safeway dumped its ABC card two years ago, arguing that shoppers were bored with loyalty cards and would prefer the £50 million cost to be paid back in the form of deep price cuts on selected branded products.

Asda prefers the simplicity of lower prices. Waitrose says loyalty cards are 'intrusive' because customer information can be sold on to other companies (though Nectar promises not to do this).

Even Sainsbury's used to disparage loyalty cards as ' electronic Green Shield Stamps' although it was later forced into a U-turn by the huge success of rival Tesco's Clubcard scheme.

A Mori poll found that 69% of cardholders said they had no impact on where they decided to shop. A quarter said they never or rarely redeemed their points.

Richard Hyman of retail research outfit Verdict says the benefits to retailers are modest. 'We surveyed thousands of shoppers and found 27 factors which were more important to them than loyalty cards. The most important are choice and competitive prices.'

But consolidation is a good

thing, he adds: 'People's purses and wallets are getting stuffed with cards. Having a single card which brings everything together is good. This is a sign of things to come.'

As for the other criticisms levelled at loyalty programmes, the jury is still out on Nectar. Accumulated points will be exchangeable for groceries, consumer durables, flights, holidays and family days out, goes the official blurb, which sounds no more innovative than dozens of existing schemes.

But Mills believes the buying clout of a club with 12 million members could ultimately lead to more exclusive rewards. As an example, he suggests the possibility of a Madonna concert for Nectar cardholders only.

He says the rewards will have to be good. 'Once someone has redeemed and had a good experience, they become even more loyal to the companies involved.'

The Nectar scheme does not appear very complex. But again, the devil will be in the detail. Barclaycard has begun mailing its members alerting them to the new programme, but there is no explanation yet as to how their Profiles points from an existing loyalty programme will be converted into Nectar points. The other three founders also plan to transfer customers from existing loyalty schemes.

MILLS, 52, launched his Loyalty Management International group in 1988, after running a string of different advertising agencies. It was originally a joint venture with British Airways, and he sold his half to the airline in 1994 but kept ownership of the Air Miles name.

He now runs Air Miles programmes all over the world. The

most successful one is in Canada, where 110 companies participate and an extraordinary 70% of households collect points.

In response to scepticism about the benefits of loyalty cards, he points to Shell in Canada, which was a lossmaking number three in petrol retailing with 12.4% market share in the early 1990s. Nine years later, it was number one with 18.4% and making money.

He defends loyalty cards against the charge that they lead to a proliferation of points that can never be redeemed. Trillions of frequent flyer points have been accumulated worldwide but the seats actually available are strictly controlled.

Mills argues that while in the US there is a problem, in Europe and Britain cash is set aside in a redemption reserve to pay for the rewards. 'Here, there is real cash sitting behind the liability,' he says.

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