Credit card rewards get cut in half
What New Zealand credit card loyalty managers have been fearing for years finally happened at the start of May. The regulator cut the value of their credit card loyalty points in half. That’s the impact of the newly announced interchange regulation which will reduce the fees merchants pay to credit card companies and in turn what credit card companies give their customers in rewards.
By: Simon Rowles, CLMP
Why it matters for New Zealand's loyalty industry
Loyalty points are a $4bn industry in Australia with half of that being contributed by credit cards. Comparatively, the New Zealand loyalty points industry is worth at least $500m annually. More important than the value of these points is the positive economic impact a loyalty program drives in a company’s sales (7% up in the first year, 11% after 3 years) and gross profit (up 6%).
The impact for banks is big but the impact for the rest of New Zealand loyalty programs including airlines and more particularly retailers is arguably bigger. Who or what might a loyalty manager in New Zealand have to watch out for?
A lot of regulation all at once
It’s not only interchange. New Zealand is facing a series of changes which individually and over time altered the power balance in loyalty ecosystems offshore but are all arriving at the same time here. Privacy regulation, the beginning of a Customer Data Right discussion (Open Banking to the rest of us), and the death of third-party cookies are creating winners and losers.
Privacy compliance is of course important but most privacy decisions and by extension customer data strategies are being driven by a fear of doing anything that might in any way compromise customer data.
New loyalty programs are coming to take a share of your customer’s spend
There’s been more new enterprise loyalty programs launched in New Zealand in the last three years than in the prior ten:
- The Warehouse is running its new loyalty program GiveIt in pilot. Loyalty is one of the nine pillars that support it’s published strategy to become the Amazon, Walmart or Alibaba of New Zealand. They’re using the Eagle Eye platform that powers Pret, a Manger’s new coffee subscription program in the UK (and which Woolworths is about to deploy).
- Sierra Coffee has a new rewards program. Sierra’s loyalty play is important because it’s the first meaningful deployment of card linked loyalty. Card linking is the building block of next level loyalty models that every retailer will need to deploy.
- Now a year old, AIA’s Vitality program rewards their insurance customers for getting and staying healthy with Airpoints, Harvey Norman vouchers and New World dollars. Vitality has been a standout success in every country and every category it has been applied to. Expect it to grow in influence.
- Genesis Energy now offers its own product (power) as a loyalty currency through its Power Shouts. The New Zealand electricity market has the highest rate of switching in the world and Genesis’s strategy has already reduced churn 2%. New entrant from the UK, Octopus, won’t bring a loyalty program. Instead, they’re bringing a business built from the ground up as the best customer experience possible.
Airpoints, AA Smartfuel and Flybuys are all evolving
- AA Smartfuel have launched a partnership with Australia’s loyalty market leader Qantas. 35% of all credit card spending goes through a Qantas credit card in Australia and retail partners include Woolworths. The Qantas loyalty division in most years makes more money than it’s Jetstar division.
- Harvey Norman have signaled they’re exiting their Airpoints relationship.
- Airpoints market testing of new propositions is rumoured to include lifetime memberships and a new exclusive top tier.
- Flybuys last year revamped their program and customers now choose to earn from three different currencies (Z, New World Dollars or Flybuys).
- Z is particularly interesting as it develops progressively better customer experiences through their Innovation Refinery lab. Experiences like Sharetank and Fastlane are overtaking Airpoints and Flybuys in their strategy. The launch of their own electricity offering linked to Sharetank is an indicator of their digital first, customer goal.
Expect pure plays and new offerings to launch
- It’s not just companies with their own integrated loyalty programs who are competitors in this market; in Australia pure play loyalty start-ups are coming too. ANZ Australia invested $25m in Cashrewards, a pure play cash rewards program. The equivalent in the USA, Ibotta, is now worth $1bn.
- Liquorland in Australia is giving shares in parent Coles as a loyalty reward through start-up Upstreet.
- Barclays bank in the UK is delivering a single in-app view of all of a customer’s retail loyalty program memberships and balances with start-up Bink. Barclay’s cards double as loyalty cards everywhere and customers never miss out.
- Swapi in the UK will let customers blend all those retailer currencies together and spend them at their favorite outlet.
Options for a New Zealand loyalty manager
The combination of regulators changing the playing field, the major players getting better, and new players entering needs a response. Some of the coming changes are going to be irrelevant or minor in impact. Some won’t be and could be the inflection point that launches a new competitor.
The useful news is that there’s a specialist loyalty or customer experience solution for any (and we don’t say that lightly) customer offering a loyalty manager might conceive of. These solutions are further specialized to every industry and every category. Most useful is that these platforms cost less than a luxury car. They come with proof points in your industry overseas and product roadmaps of future features.
Technology and solutions are not the challenge. Picking the right customer strategy to navigate the coming changes is where winners and losers will be decided.
Simon Rowles is a Certified Loyalty Marketing Professional™ and the Managing Director of Beyonde, a Sydney based CX solutions company.