Smartfuel innovation inside the AA Rewards coalition scheme

AA Rewards - New Zealand's number two coalition loyalty program behind Fly Buys - has struck a partnership deal with innovative loyalty start up Smartfuel. The deal means that AA Rewards points will disappear and the currency and rewards in the AA program will become accumulating fuel discounts.  AA Rewards members (and non-Members - see below) will now accumulate cents/litre discounts at AA Reward's participating retailers.  For instance a member might earn 3c/l at TelstraClear, 4c/l at Hammer Hardware and 10c/l at Take Note during the course of a week. This accumulates to a 17c/l discount when the member next fills up at BP or Caltex.

Non-members earn too

We first met Smartfuel early last year when they were building out a pilot of their program in Palmerston North.  The program launched on Monday of this week.  I spoke to Smartfuel's GM Ian Sutcliffe yesterday.  He said that not only was the current AA Rewards base going to benefit from this deal but those not paying an annual AA membership would also benefit (though at a lower rate).   This gives anyone the opportunity to participate.    

Ian Sutcliffe of Smartfuel 

Picture rights : MURRAY WILSON/Fairfax NZ

Richness, relevance

We know that members in the loyalty programs we operate improve their participation in the program in direct proportion to the increase in:

1. The richness of the rewards being offered  - the more you give back the more they'll spend with you, longer they'll stay a customer and more they'll recommend you
2. The relevance of those rewards  - the closer the rewards on offer are aligned with what they want, the harder they'll work to attain them.

Also - you have to have a match of both richness and relevance (one without the other will fail).  One criticism that's been leveled at Smartfuel is that the rewards are only fuel discounts and therefore will struggle on the relevance continuum.  That's possibly true but remember New Zealand has one of the highest rates of car ownership in the world so most people need to buy fuel regularly.  Looking at richness, Smartfuel seems to be offering more in some areas (not necessarily all) than comparable schemes.  For instance a WOF transaction at AA earns the member 30c/l discount.  With fuel at over $2.00, 30c/l off a $50 WOF is about a 30% discount.  Most retail programs offer less than 5% so this is pretty healthy.

Judging whether Smartfuel is rich enough or relevant enough may be missing the point though.  Their addition to AA Rewards program is a catalyst that makes the AA Rewards program far more valuable to their existing members and their existing retailers.

Education of the customer base

One of the big issues that Smartfuel is addressing is the education of customers into the accumulating portion of the program. Kiwis are used to collecting cents/litre offers from their supermarkets but not in rolling them together over 3 or 4 grocery visits into a single larger discount for their next petrol purchase.

New generation fuel rewards - the Smart new orange card

While we're all now used to fuel dockets in New Zealand we may soon have a better alternative available to us. It's the result of solid Kiwi entrepreneurship together with some solid marketing discipline.

Australia - 1

Woolworths Australia (who own Countdown and the rest of the Progressive Enterprises stable here) were offering fuel dockets (as we currently have here in New Zealand) successfully in 2005. At the Caltex Woolworths sites there was an average 80% increase in petrol sales. When the offer was 12 cents per litre, sales went "through the roof ". Also - sales appeared to be up in grocery competitor Coles who also offered fuel dockets - maybe as much as 3.8%.

Woolworths Australia have since progressed to offering an orange card which collects the various cents/litre discounts (doing away with the paper dockets) in 2007, launching an online community the same year, partnering with Qantas Frequent Flyer in 2009 and then this week launching a Woolworths Everyday Rewards Qantas Frequent Flyer credit card -with fuel discounts. Pretty impressive customer strategies.

New Zealand - 1 up?

Smartfuel is a Kiwi startup running a pilot programme in Palmerston North. Like Woolworths Australia it offers an orange card that collects fuel discounts. Unlike the Australian example these discounts can be earned at an array of retailers who print the running total of the discount at the bottom of the till slip. They also accumulate into a single large cents/litre discount which can then be used at the next fuel purchase . And there's two major chains participating : fuel discounts can be redeemed at either Mobil or Caltex.

Scott Fitchett (owner of the Caltex in Palmerston North) is the Smartfuel inventor. Ian Sutcliffe is the experienced marketer (previously head of marketing at McDonalds and Westpac and a past 1to 1 Customer Champion). The offer to customers is pretty compelling. So too is the offer to the participating retailers. While they pay for the discount at time of purchase - they don't pay for discounts which aren't used by the customer. These unused portions are credited back to the retailer.

Fuel discounts are not materially costly for the retailers who offer them (maybe a 1% to 2% discount equivalent) but they drive an out sized customer behaviour change. When fuel dockets first became popular one analyst noted that "The discount is worth $1.60. You wouldn't stop in the street to pick up $1.60 but customers are changing retailers for it."