LMG's CEO reveals plans for Nectar & Aeroplan
The new owner of the UK-based Nectar coalition loyalty programme's operator, Loyalty Management Group (LMG), has been described as a 'perfect fit' by LMG's CEO, Alex Moorhead, following the group's acquisition by Canadian loyalty marketing firm Aeroplan.
The Wise Marketer's European contributing editor, Peter Wray, interviewed Alex Moorhead to gain a deeper insight into the reasoning behind the recent buy-out. First, we examine the background of both Aeroplan and LMG, and then future plans now that these two major loyalty operators have been linked.
Aeroplan's background Montreal based Aeroplan was originally operated as Air Canada's loyalty programme and was then spun-off as a marketing company in 2005. Aeroplan has over 60 partners representing approximately 100 brands. It still operates the Air Canada loyalty scheme and currently claims some 4 million cardholders. The company has also signed co-branding deals with American Express and CIBC Bank in Canada.
Aeroplan's main local market competitor, Air Miles Canada, is owned by Air Management Group Canada (a wholly-owned subsidiary of Alliance Data Systems), and was originally also created with expertise from part of LMG's team. Indeed, LMG still owns the Air Miles brand worldwide, although Air Miles Canada's operator has the perpetual exclusive right to the brand in Canada.
LMG's background LMG's operations in the UK are managed by Loyalty Management UK Limited (LMUK), the operating company for the UK-based Nectar coalition programme. Nectar was created by Sir Keith Mills and his management team (launched in September 2002), and has as its core partners Sainsbury's (a supermarket in close competition with WalMart-owned Asda), BP (fuel retailer), and Debenhams (department store), plus an array of other consumer sector partners. LMUK also operates a 'Nectar Business' extension to the programme which, although aimed at SME business owners, can be used to accumulate points with ordinary consumer-oriented partners as well. Nectar currently claims UK household penetration of 50% (12.5 million households) since the programme launched fives years ago.
Financial facts Apart from Mills himself, another key source of funding for the development and launch of Nectar in the UK was venture capital investment firm Warburg Pincus, and some degree of market speculation has been noted for at least the past 18 months regarding the possible sale of Nectar to interested parties.
Interestingly, apart from owning the Air Miles brand worldwide, Loyalty Management Group also has a 20% interest in a Middle East coalition scheme. LMG's price was £350 million plus £18 million in working capital arrangements. Of that, Sir Keith Mills earns £161 million, and several other LMG senior executives are also expected to gain significant shares of the proceeds.
Aeroplan's current CEO, Rupert Duchesne, has already made it known that he feels the loyalty programme market will consolidate and become global very quickly. This view was also expressed recently at a conference in London by Steve Grey, COO for Loyalty Partner (which operates Germany's largest coalition loyalty scheme, PayBack).
How the deal came about Our European editor, Peter Wray, began the interview with Alex Moorhead by asking how the deal had taken place.
Moorhead said that both companies' skill sets and programmes are a very complimentary match: "The LMG management team has extensive international experience in creating successful large scale consumer loyalty programmes with multiple partners. Aeroplan, by contrast, has significant experience in the travel and financial services sectors. The two combined are an excellent platform with which to approach the international expansion plans of the combined group."
Management strategy The LMG team has recently organised its focus into three main areas:
- The management of the Nectar programme in the UK;
- The creation of an 'Insight & Communications' division to focus on customer insight and analysis for partners;
- An expanded 'Loyalty International' group that will actively seek other loyalty programme opportunities in other markets around the world.
Moorhead explained that the LMG team will be left substantially in place to operate independently from Aeroplan, and that it will be encouraged to grow. He also explained that the greater financial strength that Aeroplan brings to the combined entity - plus the cross-fertilisation of expertise - will significantly boost the ability of the new group to seek opportunities for international growth and rationalisation.
Specific international plans Wray asked Moorhead directly about any specific plans for international growth, given that LMG already has offices in Mumbai (India), and given the huge growth currently being experienced in China and other BRIC (Brazil, Russia, India & China) countries' emerging markets.
While Moorhead was naturally reluctant to make specific statements about the group's future plans, he did confirm that LMG is now "looking at a lot of markets, and the Asian growth opportunities are obviously attractive".
Regarding the current global economic impact of the falling US dollar and sub-prime mortgage crisis, Moorhead was very optimistic about various opportunities that the situation has created for the company: "We find that more competitive markets and more intensity in our partners' desire to compete is actually good for our business. Our partners are seeking a competitive edge, and a large scale consumer rewards programme with customer insight capabilities can deliver that benefit exclusively to the partners."
Environmentally friendly plans When asked whether environmental issues would be a specific focus for the new group, Moorhead was a little bit more reserved, saying that the partners are the main drivers of initiatives in the "green marketing" space. He explained that, internally, the group is seeking to develop a more carbon neutral footprint in its own operations, but the use of the consumer behaviour change potential that is inherent in consumer loyalty schemes was something that partner companies would have to decide on.
However, many of LMG's existing partner companies are already very active in this area, especially BP, through which the Nectar programme already provides support for a 'Carbon Neutral' fuel marketing scheme in the UK. He also cited the use of "green mailings" using recycled materials and "green clubs" (sub-sets of the existing Nectar brand) as evidence of green activities that are already being driven by partner companies.
New efficiencies sought Exploring the scope for further efficiencies within the new group, Moorhead discussed the area of digital communications and real-time partner offers to members within both loyalty schemes as being an area with significant opportunities for leveraging existing expertise.
Moorhead was also careful to emphasize personal privacy issues which the group takes very seriously in terms of its members' data and other personal information.
No tiers for Nectar? When asked about the potential impact within LMG's loyalty operations of the current Aeroplan 'tiered earning and burning' approach to loyalty points, Moorhead reiterated that the airline loyalty model differed greatly, and that the Nectar approach - along with its partners - is to concentrate on base points, supplemented by bonus offers to create added interest and increase member focus on specific partner products or services. He said that he does not see that this approach would be likely to change under Nectar's new ownership, and that the differences between airline frequent flyer schemes and large scale retail coalitions would remain consistent for both programmes' active members.
This is a significant, and in many ways logical, development in the world of customer loyalty programmes: Making use of global expertise and seeking operating efficiencies and greater financial scale is certainly consistent with ongoing developments in many other areas of business. After all, if car manufacturing, financial services, and energy suppliers have all seen the need to consolidate their business models globally, why should the world of consumer loyalty be any different?
Benefits to be felt Operational efficiencies and improved shareholder value are theoretically possible with this type of takeover. The usage of existing skills and the combined application of 'world class' data analysis and customer insight are obvious benefits, but the challenges involved in practically making those benefits a reality are yet to be seen, with the world's long history of mergers and acquisitions having seen probably as many shareholder losses as gains.
In The Wise Marketer's opinion, this particular deal will present some real challenges for the management teams of both Aeroplan and LMG, and cultural issues and cross-border cooperation is likely to feature as a significant factor in the eventual success of the venture.
Another significant feature of this acquisition will be the membership's response to the coming "new world order" of loyalty programmes that will no doubt come about as a result of such increased activity in this space. That is, it is one thing to join a programme such as Nectar or Aeroplan, but how will members feel if or when these programmes ever consolidate and merge? Would added-value benefits be handed down to the members in the form of improved offers, services and functionality? And would customer data be kept as closely protected when databases are combined across international borders and disparate IT systems for customer insights and analysis?
These will of course be significant issues that would need to be addressed first. But, from this interview, it appears that Alex Moorhead is very highly focused and certainly does not under-estimate the challenges and opportunities ahead. And, with this acquisition starting the whole customer loyalty marketing space thinking about the future once again, it seems likely that other high profile consolidation moves may be yet to come in the near future.