Loyalty programmes have reigned in the level of their rewards, but spread the options for redeeming awards with loyalty points. This was the main conclusion to emerge from the third annual study of South African loyalty programmes, conducted jointly by Razor's Edge Business Intelligence and World Wide Worx.
Entitled 'Value in loyalty programmes 2005', the study found that, specifically in the frequent flyer and financial services categories, loyalty programmes have dramatically reduced the rewards earned for doing business with partner programs, in particular credit card partners, in the last two years. The level of reward has been reduced by a huge 50% by three of the major rewards programmes operating in South Africa, with BA and Virgin both following the SAA Voyager programme's lead in increasing the level of spend required for a frequent flyer mile from R5 to R7,50. The Mint programme has also increased the cost of points by 50%, from one point for R4 spent to one point for R6. Similarly, Exclusive Books has halved the level of loyalty points awarded, while continuing to expire rewards in less than a year if they are not used.
Many programmes have also eliminated a variety of 'easy-come' reward points, such as Virgin's signing on bonuses, Absa Rewards' points for home loan and car financing repayments, and the short-lived ability to earn eBucks points for spending at CNA outlets. Given its dominance in the loyalty arena, SAA's increasing the Voyager points required for upgrades and limiting upgrade availability also made a dent in the value of loyalty programmes in South Africa over the past two years. Both American Express Rewards and Investec Dividends report that Voyager miles are their most popular form of loyalty points redemption.
"The devaluation of loyalty seems to have started with Voyager, as it appears that other frequent flyer programmes followed them, and they in turn affected all the credit card programmes," says Bruce Conradie, managing director of Razor's Edge. "They made it acceptable for the sector."
As rewards are reduced, the cost of membership to the rewards programmes becomes more significant. In this context, numerous credit card users are paying a linkage fee that is higher than the value of the loyalty points they earn. As a result, according to the report, many credit card users spending less than R2000 a month on their cards are paying a premium for frequent flyer and other loyalty points, without realising it.
Says Conradie: "It typically costs the client R150 a year to link a credit card to a frequent flyer programme. It takes R25 000 of spend per year to recoup that fee in rewards."
There are exceptions, such as the Absa rewards programme, which charges only R32 for this benefit, and Investec Dividends, which does not impose a linkage fee.
The good news is that most major loyalty programmes are increasing their scope and range of partners. For example, Infinity has doubled from 1000 to 2000 partners, and MySchool from 1207 to around 2000 partners since the previous study was conducted.
Charities are also being drawn more strongly into the net, following the lead taken by eBucks and Dividends, which have always allowed loyalty points to be exchanged for donations. The Dischem rewards programme, for example, now offers exchanges with donations to the Selwyn Segal Hostel and Meals on Wheels.
"Frequent flyer points can now be earned almost anywhere one can spend money," says Arthur Goldstuck, MD of World Wide Worx. "Rewards programmes typically start out as single-vendor programmes and evolve into multipartner programmes, turning them into virtual currencies that can be used across the retail economy."
And the loyalty winner is ...
For the second time, British Airways' Executive Club has taken the accolades as South Africa's most highly-rated frequent flyer programme in a study of South African rewards programmes.
Value in loyalty programmes 2005, the third annual study of South African loyalty programmes, was conducted jointly by Razor's Edge Business Intelligence and World Wide Worx. It found that SAA's Voyager programme, despite having become South Africa's most popular rewards 'currency', offered lower returns than its competitors in two key measures used in the survey: return on spend (RoS) for flights and return on transaction value (RoTV) for credit card partners.
"We developed these metrics to assist the public in choosing loyalty programmes based on real value rather than the promise of loyalty points for their own sake," says Bruce Conradie, managing director of Razor's Edge. "Loyalty programmes need to deliver on their promises if they want to earn true loyalty."
Aside from frequent flyer programmes, four other categories were covered in the survey, namely financial services programmes, retail programmes, multisector programmes and travel and leisure programmes. Each rewards programme was evaluated according to 19 criteria, including cash value, reward choice and appeal, and attainability of rewards.
The most highly rated programmes in each category were:
* Financial services programmes: eBucks - offers a greatest number of earn opportunities in the financial services sector, including earning on home loan balances and cheque account transactions.
* Frequent flyer programmes: BA Executive Club - edged out Virgin's Flying Club because it had more financial services partners, a choice of credit card partners and advantages in rising through tier status.
* Retail programmes: Exclusive Books Fanatics - mainly because it offers a higher earn rate than its main competitor, Clicks ClubCard, despite the unpopularity of the practice of expiring awards after a short period.
* Multisector programmes: AgriBonus - rewards high volumes of business spend, giving its members a points earning power that is far above that enjoyed by the other category contenders.
* Travel and leisure programmes: Southern Sun Frequent Guest - exceeds the offering of other programmes in many ways, including a high RoS (10% minimum) and excellent value-added benefits.
"The best rewards programmes are designed for both reward and convenience," says Winnifred Knight, a leading marketing consultant, who participated in the structure and content of the survey. "When programme owners use reward points merely as bait, and then make it difficult to redeem awards, they end up in damage control mode with customers rather than reaping the benefits of loyalty."