South African loyalty schemes face new nemesis

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By: Wise Marketer Staff |

Posted on November 14, 2005

Rewards programmes in South Africa are set to face a new nemesis as new legislation takes effect in 2006. The 'Co-Operatives Act' aims to grow the number and type of consumer co-operatives, especially among lower income groups. But consumers that join co-ops are inclined to channel their spending through it, putting many loyalty schemes out the equation, according to a new survey.

The Discount Clubs and Programmes (DCP) 2005 survey from Razor's Edge Business Intelligence and Imbhumbhe Solutions found that the industries most likely to feel the impact are: financial services; retail; and hotel, travel, and tourism. Also affected, but less so (because they have fewer existing programmes) will be the restaurants and healthcare sectors.

Indeed, South African operators of points-based rewards programmes have not found it "all plain sailing" to begin with. There are numerous signs that programme operators have fought, and often lost, many a battle to make their programmes successful. In the past three years at least four rewards programmes in the country have been shut down. In 2004, a multi-divisional financial services group set about developing a group-wide rewards programme but the project was later aborted. In 2004, SAA and British Airways found it necessary to increase the price at which they sold frequent flyer miles to their credit partners. Voyager followed this with another increase this year.

Rewards-programme operators face numerous challenges, among which is intense competitive heat. The country has over 60 rewards programmes and customer clubs. In addition, according to the DCP 2005 survey, there are at least a dozen discount clubs and programmes. These entities compete, sometimes directly and sometimes indirectly, for customers' share of wallet. Soon they will face competition from the new co-operative menace. If the Co-Operatives Act is effective, more consumer co-ops will be established and with a greater variety than is generally seen at the moment; Currently, co-ops are confined mainly to the agricultural sector, in which very few loyalty schemes operate.

Co-op buying power
The buying power latent in this channel astonishes many marketers. The country's five existing buying associations collectively account for more than R3.8 billion (approx. US$0.56 billion) in expenditure on behalf of their members. The buying power, and even the existence, of these associations (namely Cape Consumers, Koopkrag, Iemas, Pretorium Trust, and Samba) has passed by many marketers unnoticed. In the last financial year, the five associations paid out to their 200 000 members R150 million (approx. US$22.2 million) in rebates and distributed profits.

Competitive value
The buying associations offer good value to members. They each pay a rebate (called a bonus) on expenditure at the end of each financial year. The rebate is typically around 2% to 5% of expenditure. This compares very favourably with retail rewards programmes. For example, the popular Clicks ClubCard offers a generous 2% return on spend to its base tier members and 4% to its Gold members. Although rewards programmes and DCPs are structurally different, the consumer must choose one or the other for a particular purchase. They are thus indirectly competitive.

Discount methods
A DCP offers discounts to its members using a variety of discount methods, and those discounts may be a percentage off the list price, a rebate credited to the member's account once a year, or even be determined by two or more factors (such as programme tier status and the number of units purchased to-date). Discounts can also be given the form of preferential pricing from an exclusive buying facility. The latter is the option used by the Bluebean card division of Standard Bank, with its exclusive buying facility called The Ware House.

The report
They survey report profiles and analyses various South African discount clubs and programmes. DCPs profiled in the survey include: the AA's Show Your Card & Save programme, Rythmic Beat's Backbeat, Cape Consumers, DiscoveryCard, Hotel Express International, Iemas, the International Student Identity Card, Koopkrag (literally translating as "Co-op Power"), Pretorium Trust, Samba, the South African Youth Card, and Bluebean's The Ware House.

The report is available for purchase directly from Razor's Edge for R7,600 (approx. US$1,124.00) - email:

For additional information:
·  See Razor's Edge at