Magazine article Marketing

News Analysis: Boots Draws Cash from Cards

Magazine article Marketing

News Analysis: Boots Draws Cash from Cards

Article excerpt

With high-street sales faltering, the chemist believes its loyalty scheme can bring in some revenue.

If over-the-counter drugs were available to mitigate the effects of tough trading, Boots' management would be swallowing them by the fistful.

Last Thursday, Boots chief executive Richard Baker revealed that like-for-like sales at its core chemist chain fell by 0.9% in the three months to March (the company's fourth quarter), and that operating profits in the 2005/6 financial year are expected to fall.

For Baker, who has spent his first 18 months at Boots instigating a plan to cut prices and extend opening hours of stores, this shows business performance heading in entirely the wrong direction.

It appears that these financial troubles have prompted some changes to the retailer's Advantage Card loyalty programme. Last week, Marketing reported that Boots is planning to allow other organisations to give away Advantage Card points to customers and employees (Marketing, 6 April).

Revenue boost

Haydn Derry, Boots' head of loyalty, maintains that the goal of the venture is to broaden the appeal of the card and make it easier for customers to collect points. But with 18m Advantage Cards already in circulation, many observers believe the major driver for Boots is the revenue to be made from partner companies in return for the right to distribute the scheme's points.

If the plan follows the pattern of other loyalty schemes, partners would buy large blocks of points in advance. These would be charged at the rate that they are worth to customers - 1p per point in Boots' case - although the first wave of Boots partners are likely to be given a discount to get the scheme started.

Boots' motivation may also mirror that of the partners in the Nectar scheme - a desire to share the high costs of a loyalty programme with long-term partners. That is the view of Tony Mooney, partner at database marketing agency Clarity Blue, who points out that by giving back 4% of the value of purchases, Boots' scheme is fairly generous. 'That has served it well in that it is consistently rated by consumers as one of the top two favourite schemes, but it must be really costing Boots,' he adds.

'By bringing in new partners, the company can spread the huge investment.'

Mooney, who has run loyalty schemes for Orange and Centrica, points to the often-forgotten cost of these schemes - the fact that the value of unredeemed points must be accrued as debt on the company's balance sheet.

'This can run into millions,' he explains. 'It is in the company's interest to get customers to redeem points to reduce this debt. …

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