Magazine article Marketing

News Analysis: Test of Loyalty

Magazine article Marketing

News Analysis: Test of Loyalty

Article excerpt

AirMiles, the elder statesman of customer loyalty schemes, is being pressured by generalist rivals.

What do you do if the carrot you have been dangling in front of consumers is no longer attractive enough for them to want to bite? This is the challenge facing AirMiles, the loyalty scheme set up in 1989 by Sir Keith Mills, who went on to launch Nectar in 2002.

Seventeen years ago, when regular air travel was still a novelty and those who went abroad still viewed themselves as jetsetters, a scheme that offered points for purchases that could be converted into air travel was welcomed as an exciting incentive.

But the advent of discount airlines such as Ryanair and loyalty schemes including Nectar have led AirMiles to reposition itself as a general travel operator, offering hotels, car hire and travel insurance. Last month it began a pounds 5m campaign to publicise these services.

But not everyone is convinced that the incentive scheme is attractive enough to build loyalty across the whole of a customer base. In February, the Royal Bank of Scotland and its online banking brand Mint withdrew from the scheme.

RBS-owned NatWest will remain in the scheme, although recently it decided to stop offering AirMiles to what is believed to be the sizeable proportion of its credit cardholders not using the product. The loyalty programme will continue to be offered to new and existing NatWest customers who regularly collect and redeem AirMiles points.

Member participation

NatWest's decision to clear out underused AirMiles accounts illustrates one of the biggest problems for loyalty schemes today. According to a recent study by Morgan Stanley Consumer Banking, AirMiles' redemption rates are well below those of its competitors at 9%; Nectar's was 29%.

AirMiles claims to have about 8m members, although there is little indication of how many of them actively use their accounts.

AirMiles marketing director Sarah Woods says this is partly down to the different reward types the schemes offer. She points out that AirMiles' redemptions are based around holidays, which workers are unable to take often, and have higher average values than products offered in other schemes.

Woods adds that Morgan Stanley's findings are at odds with AirMiles' internal figures.

Scottish and Southern Energy (SSE) has been an AirMiles partner since 2003. The supplier's marketing operations manager, Ray Smethurst, says that though it is happy with the scheme, redemption rates are crucial to its continued partnership. The redemption rate is high among those of its customers who are members, but Smethurst sounds a note of caution.

'If customers aren't using the scheme, they're not happy with it, and if that's the case, there is more chance of them moving on to other energy providers,' he says.

Other AirMiles partners, including Tesco and Shell, declined to comment on the scheme.

For Smethurst there are many attractions to staying in AirMiles, not least the fact that it has proved a consistent means of acquiring customers.

The majority of AirMiles members at SSE came to the utility because of the scheme, rather than being existing customers who opted in. …

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