How loyal do you have to be to earn loyalty points on your rewards programme? Very, actually, and a recent survey indicates that there? little awareness on the public? part of the real cost of acquiring these benefits. We take a closer look at the nitty-gritty of nine popular loyalty programmes offered by airlines, banks and medical schemes.
Customer appreciation programmes, rewards programmes, loyalty programmes ?call them what you will, they are each and every one an unashamed effort to induce you to spend as much money as possible with particular companies.
For the uninitiated, loyalty programmes woo you to enrol and then reward your commitment by offering you opportunities to acquire a stock of the "loyalty currency", which in turn gives you access to rewards, discounts or services based on your spending patterns.
It sounds good; why shouldn? you organise your spending in such a way that it earns you something for nothing? But there is a problem: the fact is that most programme members do not know just how much value they are getting from their programmes, according to a study of loyalty programmes in South Africa carried out last year by World Wide Worx.
For most people, the main determinant of the value of a programme is the cash value of its rewards. But this is usually impossible, or so difficult, to calculate that few members, if any, make the effort, according to Bruce Conradie and Arthur Goldstuck, the authors of a report on the study? findings.
Even when the cash value of loyalty points is known, the total value offered by a programme remains obscure. It depends on, among other things, the range and cash value of the rewards, the likelihood of actually collecting enough points to earn a reward, the aspirational nature of the rewards, and any value-added benefits offered.
By rating 12 loyalty programmes (excluding those offered by healthcare providers such as Discovery and Bonitas), the report proves just how confusing the picture is. The criteria used to rate the programmes were those listed above, plus two more: ease of use and the psychological benefits for members.
In terms of cash value, British Airways (BA) Executive Club and South African Airways (SAA) Voyager both received an "excellent" rating, whereas the FirstRand group? eBucks programme ?available to First National Bank (FNB) customers, among others ?received a "poor" rating. Leisurelink (an independent programme that supplies points/rewards to Absa customers) was rated as "very poor".
As far as choice of rewards goes, eBucks and Leisurelink were rated "excellent", Voyager rated as "poor" and Executive Club as "very poor".
On the basis of attainability of rewards, eBucks and Leisurelink were rated "excellent", Executive Club rated "acceptable", while Voyager came at the bottom of the list with a rating of "very poor". Voyager was also found to be the most complicated programme.
On ease of use, Leisurelink was rated "good", Executive Club and eBucks were "acceptable", and Voyager was "very poor".
To work out if you are getting value for money, you need do the maths. If you belong to, for instance, an airline rewards programme, consider how often you fly and whether you are likely to accumulate the 20 000 miles you need to earn a domestic return airticket within the required period. If you fly once a year and your air miles expire if they?e unused after three years, the likelihood of you qualifying for a free flight is zero.
If, on the other hand, you can join a programme that offers you many sources of earning points, and they can be earned on products or services you need anyway, go ahead. Just be sure to keep an eye on the costs, especially annual or monthly membership fees. You don? want to pay an annual fee to belong to a programme without being able to qualify for a reward before your points or miles expire.
The key factors to consider before you join a programme are:
- The ease with which you can accumulate points;
- Whether points expire after a predetermined period of time;
- Whether you can pay cash to boost your points in order to obtain the reward you want;
- Whether the reward is subject to availability or capacity constraints ?for instance, if you can get on to the flight you want; and
- Whether there are any thresholds or amounts you have to spend before earning points or miles.
Changes
The loyalty programme concept has been through some trying times. Both Standard Bank and FNB initially launched their own programmes, then shut them down. Standard Bank? Accolades was replaced with a partnership with SAA? Voyager programme, and FNB closed two earlier programmes before joining the eBucks programme launched by the FirstRand group about two-and-a-half years ago.
When you join a loyalty programme, it? important to be aware that the rules can, and do, change from time to time, so you need to be vigilant. For instance, from the beginning of April, Standard Bank and Nedbank cardholders will have to spend R7.50 on their cards to earn one Voyager mile, as opposed to the R5 that earned them one mile previously.
Loyalty programmes are not, in themselves, money-spinners for the companies that provide them. In many cases, the profits come from the buying activities of customers who are attracted to the programmes and use the companies?products and services, rather than from charges to members.
Mike Olsen, the director of product development at Standard Bank? card division, says Standard Bank does not make a profit from Voyager, but the programme is seen as a significant value-added feature of the bank? product range.
Both Standard Bank and Nedbank pay SAA for the flights used by their members, but neither bank would divulge how much money changes hands.
Absa declined to comment on how much profit the bank made from its programme in its last financial year, while eBucks says it made a small profit for the first six months of its current financial year and is using it to repay the loans received by FirstRand for the start-up, according to Janine Hills, the marketing director of eBucks. She says that profits are made, not on charges to members, but on charges to partner companies in the programme.
Stuart Cochrane, the marketing manager of British Airways Domestic, says the company breaks even and does not make a profit from Executive Club.
Medical schemes do not aim to make profits from their loyalty schemes, because the intention is to encourage healthier behaviour and, in so doing, reduce the cost of medical scheme membership, which has been soaring over the past few years.
What's the point?
The objective of loyalty programmes is to change consumer behaviour, and many providers believe they do just that.
Hills says there has been a significant increase in the use of FNB cheque accounts and credit cards since eBucks was launched, which is what the eBucks programme is all about.
One example of how eBucks drives behaviour, Hills says, was the customer who walked into the foreign exchange department of FNB and asked for R17 000-worth of foreign exchange to be debited from his eBucks account.
"We could not do it because at that stage, eBucks could not be used on foreign exchange transactions. So he walked across the street to another bank and used his FNB cheque card to buy his foreign exchange, which allowed him to earn eBucks for using his card.
"Nobody carries R1 000 in their wallets in Johannesburg anymore," she says, "so clients use their credit card or cheque account to pay for goods and services and earn eBucks for doing so."
Loyalty programmes do change the behaviour of consumers, Johan van Rooyen, the head of Discovery? Vitality programme, agrees. Vitality members are 40 percent more likely than non-members to take preventive health steps such as quitting smoking, having a cholesterol test or, for women, going regularly for Pap smears, he says.
Vitality is based on actuarial and clinical principles, Van Rooyen says. It is a benevolent bribe to members to be healthier.
Theunis Potgieter, the senior executive manager at SAA Voyager, says research shows that frequent-flyer programmes influence 30 to 35 percent of consumers who are choosing an airline.
But not all providers are as confident that loyalty programmes influence consumer behaviour. Gary Taylor, a director of Medscheme, says it is debatable whether medical scheme rewards programmes induce you to become healthier, because the person who makes use of incentives such as discounted gym membership would probably go to the gym anyway, whereas the overweight, sedentary smoker probably would not. Also, flying more cheaply from Johannesburg to Cape Town is not going to make you healthier.
But, Taylor says, medical scheme membership is seen by some members as a grudge purchase and if a rewards programme takes some of the grudge out of that purchase, it has served a purpose. A rewards programme may make members feel less resentful towards their medical schemes and so less inclined to claim unnecessarily, he adds.
The risk of overspending
Banks insist that rewarding the use of credit cards does not encourage overspending; it merely channels spending through a different route, they say.
Olsen says customers who participate in Voyager are generally financially responsible and have a better-than-average credit profile. In fact, he says, there is a strong correlation between clients who belong to Voyager and who pay their full outstanding credit card balance every month.
Nicola Flynn, the general manager of marketing at Absa, says the most common objective of loyalty programmes is to retain existing customers. Encouraging customers to over-extend themselves is not in the interest of Absa or the programme, she says. The Absa Rewards programme is designed to reward responsible banking behaviour, and customers in arrears or who exceed their limits do not qualify for points.
Craig Rankin, the general manager of Nedbank? card division, says Nedbank? objective is not to increase the amounts that clients spend, but to encourage them to make Nedbank? cards the first option for payments or purchases.
"It? not in Nedbank? interest to have clients spending irresponsibly," he says.
Companies offer loyalty programmes to give them an edge over their competitors, and for many existing and potential clients, these programmes entail added value that they possibly cannot get at other banks, Rankin says.
Hills denies that loyalty programmes encourage people to spend more than they would have spent anyway. "The task of eBucks is to reward customers, because we don? want them to go to another bank," she says.
Cochrane says he does not believe that earning miles on frequent-flyer programmes changes behaviour negatively to any great extent. The miles are a bonus for spending what members would have spent anyway; with a loyalty programme, they have something to show for it.
Measuring the value
Membership of the Medscheme Club is offered at two levels, and it is up to individuals to work out whether it is worth the R20 or R40 a month it costs, Taylor says.
Members benefit by being able to buy lifestyle products at discounted costs. For example, Platinum members can get up to 25 percent off the price of compact discs. Members who work out at a Virgin Active gym at least 24 times a year get 20 percent of the value of the gym membership back in cash as a benefit.
Taylor says he had not supported a loyalty programme before he felt obliged to try out his own, but was soon a reluctant convert.
"When my family visited Cape Town on holiday last year, I saved R80 on two tickets for my son and his girlfriend to travel to Cape Town on the bus.
"Both my son and my daughter make use of the discounted gym membership, which saves me about R36 a month or as long as they remain members of the gym. I also got joining discounts and a rebate at the end, so these two benefits alone have made my Medscheme Club membership worthwhile. In addition, discounts on movie tickets and cellphone time have demonstrated the benefit of bulk buying through the Club concept," Taylor says.
Flynn says members of loyalty programmes don? want to wait 20 years to accumulate enough points for an airline ticket. For this reason, Absa Rewards uses Leisurelink, which has multiple partners, thereby making points available more easily and quickly than some of the other programmes.
Many customers set their hearts on a particular reward, be it an overseas trip or electronic goods, and will continue to accumulate points until they can claim that reward. For this reason, Flynn says, it is difficult to assess how long it takes for members to qualify for a benefit. But Leisurelink points don? expire.
Nicky Adams, the business manager at Old Mutual Healthcare, says the Oxygen Levels programme has a great deal of inherent value, but members are required to participate actively. If they join but do not use the programme, they will remain on the entry level and derive limited value from the programme, whereas members who reach the higher levels will receive significant value.
POINT-BY-POINT: How loyalty programmes compare
Absa Rewards
Bank customers who hold an Absa Rewards credit card or those who buy foreign exchange through Absa, qualify to join the programme at a fee of R34.20 a year. Platinum credit card and Absa Silver credit card customers as well as Absa Private Bank clients automatically qualify for the programme.
In addition, clients with a home loan equal to or more than R125 000 when the loan was registered and bank customers with a Bankfin loan equal to or more than R70 000 when it was registered also qualify, as long as they have a credit card.
Flynn says the programme offers various ways of earning points, so you earn them as quickly as possible. For instance, customers earn points by paying off car loans and home loans as well as by using their credit cards. Credit card spend earns you one point for every R5 spent. Home loan and car finance spend is variable in terms of points earned, but, for example, a new or repeat home loan of R125 000 or more will earn you 15 Leisurelink points for every R1 000 of your outstanding balance. Car finance earnings range from 10 to 15 points for every R1 000 of your outstanding balance.
Foreign exchange transactions earn one point for every R100 spent on traveller? cheques and foreign banknote products.
Rewards come in all sizes, starting with a R29 Vodacom prepaid voucher, which is worth 900 Leisurelink points and requires credit card spend of R4 500. The most expensive reward is a stainless steel Whirlpool side-by-side fridge/freezer that sells for R25 999, for which members need 754 300 points at a cost of R3.7 million on your credit card! The good news is that the points do not expire.
eBucks
Launched two-and-a-half years ago, eBucks is aimed at the five million customers within the FirstRand group (First National Bank, Origin, Outsurance, Wesbank) as well as Arthur Kaplan Jewellers and MTN.
eBucks are the loyalty currency you earn for using the products and services of these companies ?in other words, when you transact with your FNB credit card or cheque account, take out a homeloan with FNB or vehicle finance from WesBank, use your MTN cellphone, or when you buy from Arthur Kaplan Jewellers.
You earn eBucks automatically on qualifying FirstRand products without having to pay a membership fee. But to earn eBucks with an FNB credit card, you have to pay a linkage fee of R90 or R105 a year (depending on the type of credit card). To earn eBucks using all other products and services, you may have to register, but no membership fee is payable.
You can spend eBucks on products ranging from MTN airtime vouchers to electronic goods, household appliances and overseas trips. These products are available only through the eBucks Shop, which is accessed via a call centre or website. You cannot exchange eBucks for Voyager miles or for other loyalty points or cash. But you can use eBucks to buy an airticket, and if you have not accumulated enough eBucks to earn a particular reward, you can buy more eBucks with cash.
You can also transfer eBucks to other members and save or donate them to designated charities. They do not expire.
How many eBucks you earn depends on the product or service you use. You earn a once-off reward of eB300 for paying the first annual card linkage fee of R90 for a Premier credit card and R105 for other FNB credit cards. You then earn one percent of the value of your monthly card purchases in eBucks if your purchases equal or exceed R1 750. You get one eBuck for every R10 you spend.
For example, in a month, you might use your FNB credit card to spend R2 000 on clothes, R401 on shoes, R250 on toiletries and R1 800 on groceries. With debit orders of R750 for your cellphone, R600 for lights and water, R349 for DStv, R500 for your insurance premium and R210 for your gym membership, plus R1 200 for miscellaneous expenses, the total would be R8 060. At a rate of one eBuck for every R10 you spend, your benefit would be eB806 (worth R80.60).
The rate at which you earn eBucks on cheque accounts, home loans, vehicle finance, purchases at Arthur Kaplan, and MTN cellphone use differs.
Hills says it is possible for every eBucks member to qualify for a reward, because they are as cheap as R30 MTN airtime vouchers or as expensive as travel packages worth R25 000 or R30 000.
Hills says the average eBucks customer earns enough to buy R30 of MTN airtime in a month, but some qualify for a R500 Woolworths voucher.
Nedbank
Similar to Standard Bank, Nedcor does not have its own programme but piggybacks on SAA Voyager. Nedbank customers who have Visa- or MasterCard- branded cards have the option to join for R125 a year.
You earn one mile for every R7.50 you spend using your debit or credit cards. Traveller? cheques, expenditure at casinos and petrol purchases do not earn miles.
Standard Bank
Standard Bank started out with its own loyalty programme called Accolades, but in 2000 swapped that for South African Airways Voyager programme. To join Voyager as a Standard Bank client, you must have a credit card with the bank and pay an annual joining fee of R150. This will enable you to earn Voyager miles based on the amount of money you spend using your credit card (R7.50 gets you one Voyager mile) or on your monthly Stannic loan repayment (on the basis of two miles for every R25 you spend every month on your repayment).
Under the earlier Accolades programme, Standard Bank customers could earn miles on their home loan repayments and this continues to be the case if you were a member of Accolades. Members who signed up after August 1, 2002 do not earn miles for home loan repayments.
Olsen says market research showed that the cost of issuing Voyager miles for home loans was not justified because it did not sufficiently grow Standard Bank? home loan business.
Voyager miles expire after three years if you do not use them.
British Airways Executive Club
Executive Club was originally designed around business travellers, and was limited to people of 18 years or older. However, from July this year, household accounts will be introduced, free of charge, which will allow people of two years and older to join under a principal member and become Executive Club members in their own right. The idea is for households to be able to pool their BA miles and to redeem them for free flights more quickly. From July this year, in order to become a member you will have to prove that you have flown at least once on an eligible route in the year since you joined or you will have to enrol as a co-branded credit card holder.
Miles are earned by flying on BA, one of its partner airlines, or a member of the Oneworld Alliance (which includes Aer Lingus, American Airlines, Cathay Pacific, Finnair, Iberia, LanChile and Qantas). BA miles are also earned by using the services of certain car rental, hotel and financial partners (Standard Bank and Diner? Club). The accumulated miles can be redeemed on British Airways or its partner airlines.
There are different ways to earn points. Members can earn tier points by flying in certain classes on BA or a Oneworld airline. These tier points are tallied over a 12-month period to determine the member? tier level ?Blue, Silver or Gold. The higher the tier, the greater the range of benefits you are offered.
You need to maintain a threshold to retain your Silver or Gold tier status. This threshold will depend on the number of points you earn in a membership year. From July this year, to enrol and to retain your membership at Blue level, you will need to fly at least one eligible route a year.
To upgrade from Blue to Silver status, you need to accumulate 600 points each membership year. To qualify and retain membership at Gold level, you need to earn at least 1 500 points a membership year.
Flights are the only rewards available from the programme. You need 16 000 BA miles (18 000 miles from July 1 this year) at a monetary value of about R2 000 for a return flight between Johannesburg and Durban in economy class. For a first-class return flight from Johannesburg to New York via London you would require 270 000 miles at a value of around R110 000. From July this year, you will need 18 000 miles for all domestic routes.
And, from July this year, you will also have the option of gaining rewards more quickly by paying cash to buy extra miles. The number of miles required and the cash portion will depend on the route. For example, to travel from Johannesburg to London you will need 35 000 BA miles and R1 500. To get a return flight within Southern Africa, you will need 14 000 BA miles and R270.
BA miles do not expire, provided your account is active at least once within a 36-month period. Active means there must be a transaction on your account, which can be a flight, a redemption or spend on a co-branded financial card.
SAA Voyager
The Voyager programme is available to individuals who travel on SAA and use the services of Voyager partners, which range from airlines and hotels to banks, car rental companies and restaurants. There is no membership fee.
Children older than two years are eligible to join Voyager, provided the application and all transactions are signed by the child? legal guardian.
The minimum number of miles required for a reward is 5 000, which will earn you one day? free car rental on a weekend. For the most valuable reward ?a first-class return ticket on Air Emirates for travel between United Arab Emirates and Australia ?you would need 275 000 miles.
There are three different types of miles on the Voyager programme: tier miles, base miles, and bonus miles. The most important are tier miles, because they determine your tier status level each year, and the higher your tier status, the more benefits you get. Tier miles are earned when you fly with SAA or one of its feeder airlines, SA Airlink or SA Express.
Base miles earned by using any of Voyager? partner companies, will only earn you rewards, and not enable you to reach a higher tier status.
Bonus miles are earned via promotional offers, which include enrolment bonus miles as well as other specials offered from time to time.
Theunis Potgieter, the senior executive manager at SAA Voyager, says in the past it was not possible to gain rewards more quickly by paying cash, but since September last year, members who are 15 percent short, or less, of the miles required for the reward of their choice, can make use of the Mileage Purchase Option. This allows the member to purchase up to 15 percent of a reward on his/her credit card, at the cost of R250 per unit of 1 000 miles.
All Voyager miles expire three calendar years after the year in which they were earned. But there is one exception: If you fly enough to earn a minimum of 5 000 Tier Miles within the expiry year, your miles are carried over into the following calendar year, thereby extending their validity for one additional calendar year only.
Bonitas Club
Membership of the Bonitas Club programme, which is administered by Medscheme, is voluntary, Taylor says. Membership costs R20 or R40 a month, depending on the loyalty programme package you choose.
Instead of earning points and claiming rewards, members of the programme are offered discounts from day one of joining. The discounts range from gym memberships to flights and overseas travel packages, through to compact discs, movie tickets, magazines, and internet and email access.
"Before we implemented the programme, we did research among our members, who said they wanted something simple," Taylor says. "They did not want to monitor statements to see if they earned all the points due to them and so on."
Anyone who is a member of the Bonitas Medical Scheme can join the Bonitas Club loyalty programme. Partners in the programme include Netcare911, Virgin Active gyms, the Intercape bus service, Rhythmic Beat and Pro Range Golf.
There are no points or miles to accumulate, and the discounts offered to you do not expire.
Oxygen Levels
Adams says Old Mutual? health management programme, called Oxygen Levels, is designed to enable, incentivise and reward healthy behaviour.
Oxygen Levels is available to members of the Oxygen Medical Scheme and to members of corporate schemes administered by Old Mutual Healthcare at a cost of R50 a month.
Members benefit from two types of rewards. Instant rewards are benefits that all members of the programme have instant access to when they join the programme. Examples include membership of the BodyIQ Lifestyle management, offers on gym membership from accredited gym partners (such as Virgin Active and Planet Fitness), and competitive prices on everything from sports equipment to airtime.
Then there are "action" rewards. Members of Oxygen Levels access these rewards by "taking action" (for example, having your cholesterol tested regularly or using the BodyIQ facilities) towards leading a healthier lifestyle. These "actions" earn members Oxygen Levels points, which have a rand value and can be exchanged for action rewards valued at between R450 and R3 500. These rewards range from flights and weekends away, to power tools, DVD players, cellphones, wines and perfumes.
The higher the member? level (there are four levels) in the programme, the greater the rate at which points are earned, and thus the greater the value of the rewards they receive. For example, going for a cholesterol test on the first level will earn you 100 points, while taking the test if you are at the top level will earn you 400 points.
Adams was reluctant to divulge the redemption value of points, because of competitive issues among suppliers of rewards and the prices they charge Oxygen. Oxygen Levels points don? expire.
Vitality
Members of Discovery Health, Discovery Life and Discovery Health Partners are eligible to join the Discovery Vitality HealthStyle programme at a cost of R55 or R66 or R72 a month, depending on the number of dependants who belong to the medical scheme.
Vitality is a wellness, rather than a loyalty, programme. You cannot earn rewards by spending more; you have to take steps to improve your health.
Members acquire certain benefits immediately when they join Vitality, Van Rooyen says. The value of benefits improves as the member? status rises ?there are four levels, Blue, Bronze, Silver and Gold. Being fit, at goal weight, not smoking and interacting with Discovery electronically, earn points, which accumulate to the different status levels.
Every time you use an accredited health and fitness facility, take preventive care measures ?such as cholesterol screening or a mammogram ?or visit the online nutrition centre for advice, you earn points.
The cheapest reward is a discounted Ster-Kinekor movie ticket at R9. The most expensive reward is a Sony Mini DV Digital Handycam at R16 500, and the discount varies from 20 to 35 percent, depending on your Vitality status.
This article was first published in Personal Finance magazine, 2nd Quarter 2003. See what's in our latest issue