Air New Zealand's Airpoints innovations (again)

Air New Zealand has recently delivered a comprehensive renewal of the Airpoints Dollars Frequent Flyer scheme. While it follows similar actions by Qantas Frequent Flyer in Australia it is a very Kiwi and innovative solution.

First mover - Qantas in Australia

Air New Zealand's new innovations follow moves in Australia by Qantas over the last 3 years. Qantas first signaled a partial listing of it's 5 million member Frequent Flyer Programme in 2008 which could have fetched it AU$1.5billion (for many airlines there's more money made in the frequent flyer scheme than in flying planes). The listing strategy was based in large part on Carlson Marketing's parent Groupe Aeroplan's success in Canada according to Simon Hickey - boss of Qantas Frequent Flyer in 2008. Qantas changed tack, held onto ownership of the Frequent Flyer programme, (which produces more profit than subsidiary Jetstar) and took it on an aggressive expansion drive.

Most frequent flyer programmes struggle with too many points being issued (typically by partners such as credit card companies and at a a compound annual growth rate of 10%) and not enough seats being available to redeem them (new planes add only 5% more seats to the global fleet per annum).

Qantas first addressed the redemption options from difficult-to-find-free-flights to include an online store stocked with merchandise and gift cards (full disclosure - we deliver this service for Qantas) and an any-seat, any-Qantas-flight redemption options. It then required all banks who were offering Qantas Frequent Flyer points on their credit cards along with other rewards to offer cards with Qantas Frequent Flyer points only (know as Direct Earn credit cards) - or not at all. Then last year it struck a deal with Woolworths Australia in which Woolies offered Qantas points to its shoppers and along the way added 700,000 new Qantas Frequent Flyer members.

The result? Depending on who you talk to either Qantas or FlyBuys is now the biggest and best loyalty programme in Australia. Either way - FlyBuys has a new attacker. And for Qantas it's a big earner : in the year to June 30, it generated underlying EBIT of A$328 million and now has a base of 7 million members.

Air New Zealand's strategy here

Air New Zealand didn't face the issues of limited seats being available for redemption in its Airpoints programme. In fact it could be argued that anything that got passengers onto it's planes was positive with the Centre For Aviation describing them as a "small airline getting smaller". The world first Airpoints Dollars innovation introduced a few years ago means any seat on any Air New Zealand flight could be bought with Airpoints (rather than the roughly 3%-5% of seats reserved per plane in other classic frequent flyer schemes).

Air New Zealand's advance in 6 steps

1. Flying on Air New Zealand flights had always gave customers Airpoints Dollars which could be redeemed for..
2. ...more Air New Zealand flights.
3. BNZ had long issued the GlobalPlus credit card on which customers earned even more Airpoints Dollars. ANZ (our client), Kiwibank and American Express have all issued new Airpoints Dollars credit cards over the last year.
4. Then recently - Air New Zealand enabled Fly Buys customers too to convert their Fly Buys points to Air New Zealand flights.
5. The really interesting piece has been the issuing of a new Airpoints membership card last month which is co-branded with Fly Buys by Air New Zealand. With this Airpoints card customers can now earn even more Airpoints Dollars (earned instead of Fly Buys points) at any of the Fly Buys merchants. This is a significant innovation and not one we've seen elsewhere. It's a collaborative local solution which is in contrast to the development of Qantas's programme in Australia.
6. The unexpected piece has been last week's release of an online Airpoints gift store. Airpoints Dollars can be used to buy goods and gifts from a $50 digital camera up to a $1,670 high end camera. Some goods are delivered in the same fashion as Fly Buys such as the new iPod Nano which must be picked up in store from Noel Leeming.

There are strong arguments in Australia to support the primacy of either Qantas Frequent Flyer or FlyBuys. In New Zealand - it looks like Air New Zealand's trumped them all.

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."

3,000 Foursquare users in New Zealand (maybe).

On Saturday, the mighty All Whites drew 1 all with Honduras at North Harbour Stadium. The official crowd was 18,153. There were 12 Foursquare users checked-in there ( I checked - I was one of them).

Foursquare had a penetration of 0.0661% of that crowd. If that is true (probably not) and all other factors remain constant (they definitely don't) this implies that 0.06% of Kiwis are Foursquare users. Or : of the 3 million Foursquare users globally - 3,000 are to be found in New Zealand.

Foursquare seems made to be part of a loyalty programme. Air New Zealand's adoption of a Foursquare special attached to it's Airpoints Frequent Flyer Programme almost makes it a mainstream technology in New Zealand. But - it's not. Not yet anyway.

Maybe straight up penetration is the wrong way to view a social tool like Foursquare. In social technologies we know there's a very strong distribution operating. The most voluminous poster in a community posts twice as much as second highest poster and they in turn post twice as much as third highest poster. We also know that the 1:9:90 rule is in play :

• 1% of people post lots a frequently
• 9% of people comment on these posts
• 90% of people do nothing other than read them (and maybe in Facebook 'like" things)

Foursquare check-ins can be shared on Facebook and Facebook is now the biggest site in New Zealand (bigger than Trade Me, bigger than Google). So - maybe sharing by the few to the many is what's important here. And Facebook Places is coming : we'll all be able to share where we are Foursquare style inside Facebook (on smartphones and some feature phones).

In general : we over-estimate the impact of a technology in the short term and under-estimate it's impact in the long term (which I thought was coined by Bill Gates but is actually from the head of the Human Genome Project).

New Zealand credit card loyalty programmes rated by Cannex in their inaugural study

Cannex - the research company which reviews banking products and gives the best ones 5 star ratings - have undertaken the difficult task of doing the same for credit card loyalty programmes. In their inaugural review in August they rated 33 rewards programmes tied to 44 credit cards in New Zealand.

It's difficult because there's a multitude of variables and special options in these programmes which don't lend themselves to standardisation, but it can be done. To achieve this they've split the rewards cards into 2 main buckets:

• General rewards programmes (that give you gift cards, merchandise. experiences, trophies and the like)

• Flight rewards programmes - all of which give you Air New Zealand's Airpoints Dollars (they appear to have missed ANZ Bank's Qantas offering)

What's more difficult (maybe impossible) to asses is the benefit to the customer because there are no average customers. However Cannex have done a solid job of identifying two different customers who use these cards :

• Those who spend $24,000 per annum on their credit cards

• Those who spend $60,000 per annum

The results? The best card in the market if you want General Rewards and spend $24,000 a year is the Warehouse MasterCard. This delivers $137.42 return for that $24,000 spend according to the Sunday Star Times review of Cannex's ratings. [Full disclosure - Carlson Marketing deliver this programme for The Warehouse].

Cannex dished out 5 Star ratings (Outstanding Value) to:

• General Rewards - ANZ's World Visa programme and Westpac's hotpoints programme [Full disclosure - Carlson Marketing deliver these programmes]

• Flight Rewards - American Express's Air New Zealand Airpoints programme and BNZ's Global Plus programme.

The Sunday Start Times article recommends to card carrying customers that "Rewards should not change your spending habits, even if they change the way you pay". Changing the way you pay is precisely what rewards programmes are designed to do.

Foursquare provides mobile loyalty interactions to established loyalty programmes

It's taken a while for the mobile phone to to produce exciting innovations in the world of customer loyalty. Finally though there are two key developments that have achieved sufficient consumer adoption that programme operators are including them in their offerings. Both are products of the mobile app stores delivering cool tools to smart phones.

Cardstar

The first and somewhat more mundane of the two is Cardstar

- a smart phone app downloaded over 1.5 million times globally (Apple, Android and Blackberry). Once on the customer's phone - the app stores the bar codes of all the customer's loyalty cards (which can then be tipped out of overloaded wallets). The customer then presents the selected card's bar code on the phone's screen for scanning at checkout.

Foursquare

Foursquare is much more exciting. Its not the first of it's type of service but it's not generally accepted to be the leader with the largest installed user base. Also an app downloaded to a smart phone (and also usable over the mobile web but not as good) - it's a geo-location app that allows customer's to "check in" at retail or other locations by tapping a button their phone screen. Once in you can see which of your friends is there or nearby and what they recommend you try there (it cleverly gets your friends from Facebook). Foursquare awards you badges (on the screen) for various achievements (earn the Newbie for your first check in). You can also become Mayor if you've checked in to a specific location more than anyone else.

It gets interesting when the local coffee shop elects to run campaigns against the customers checking in. Starbucks (USA) awards Mayors $1 off a frappuccino. All they need do is show their Mayor status on the phone to the barista. In fact - Starbucks have their own barista badge to be earned on Foursqare.

Domino's Pizza in the UK cited their use of these

types of Foursquare promotions as a leading driver of a 29% increase in pre-tax profits on July 12th this year.

Pepsi in the USA is also using Foursquare while developing its own proprietary platform called Pepsi Loot based on a form of Foursquare from Zumobi (where Eric Hertz - CEO of Two Degrees Mobile - was before he hit New Zealand). While it's Foursquare play seems solid - Pepsi Loot has been panned for being "Foursquare, minus the cool and built in incentives".

And in New Zealand ?

Foursquare is just over a year old and in March

had half a million users (globally) and 1 million venues registered. It's small. But it's growing fast - it hit 2 million users on 10th July this year (that's 100,000 new users per week) and pulled funding from Marc Andreessen (who invented Netscape all those years ago). Numbers are hard to come by but in New Zealand we estimate everyone has a phone and 2% have an iPhone while 9% have Blackberrys (Android's not really here yet). Also small.

Air New Zealand has been the first (again) to deploy a Foursquare offering. Mayors at our airports get Koru Lounge access or Airpoints Dollars - an excellent programme tie in. Air New Zealand beat the Intercontinental Hotels Group to market with IHG announcing last week that customers in its loyalty programme can also earn points for checking in at the hotel venues globally.

Foursquare is now integrated through Facebook Connect and last week announced tie up with Cardstar. After flashing their loyalty card bar code at the till customers can also check in to the retail venue.

Loyalty programmes have long aspired to be able to reward interactions as well as transactions. Transactions are generally discovered through the payments cycle. This is an example of interactions being rewarded inside the framework of the larger loyalty programme.

Auckland University research : loyalty programs designed to make sure customers don't get rewards

An article earlier this month in the New Zealand Herald claimed that "Shoppers may be missing out on millions of dollars of savings through unclaimed rewards every year". It referenced research from Auckland University' Senior Marketing Lecturer Rick Starr under the headline "Loyalty schemes rely on shoppers forgetting to cash in their points". Rick's view was that "people often forget to redeem their points. And companies count on customers doing so because full redemption would "cut their profits"".

True - in part. But. It depends what type of program you're talking about. In the programs we operate, the driving principle is to get all the points that have been issued turned into rewards by the customers who have earned them. This isn't some egalitarian approach but a very mercenary one.

[Full Disclosure - the article mentions ASB True Rewards and The Warehouse's Rewards MasterCard - both are programs we work for].

There are two key behaviour changes that occur when a customer joins your performing, well designed, rich, relevant loyalty program.

Behaviour change 1.

The first occurs when they begin to earn points and is particularly marked if you've made them pay a fee or annual subscription to join (always a good idea if possible). For example - credit card customers who join the loyalty program attached to the credit card will almost immediately spend more on that card by a multiple of 2 or 3 times what they were spending on the same card before they joined the associated loyalty program.

Behaviour change 2.

The second and far more significant behaviour change occurs when the customer makes their first redemption for a reward. At this point their spend on the card increases again by a factor of 3 to 8 times their pre-loyalty program spend. This second spend lift is determined by what it is they've redeemed for. Customers who redeem for cash back or against their annual fee don't generally increase their spend markedly after redemption. If they've redeemed for merchandise, gift cards or travel - then the second lift is particularly marked.

Customers who don't redeem don't experience this second lift.

The upshot - redemption is good (very good) and points that don't get redeemed (termed "breakage") are bad. How much breakage is there in New Zealand? Rob Mercer of Forsyth Barr Research reckons it's 10% of all points.

Far from cutting a company's profits - points that don't get redeemed are bad business and a missed opportunity to lift spend for the points issuer.

Wall Street Journal profiles the "Stingiest" airline frequent flyer programs

In an article in today's Wall Street Journal entitled "The Road to Redemption - Which Airlines Are Generous With Frequent-Flier Award Seats and Which Aren't" some of our locally available airline's frequent flyer programs are profiled.

The article reports on research by IdeaWorks Company on the ease (or difficulty) with which members of airline Frequent Flyer loyalty programs are able to redeem their accumulated airline miles or points for free flights. According to IdeaWorks airlines are "killing these programs by not allowing more reward availability".

The IdeaWorks study was comprehensive making 280 different Frequent Flyer Program seat requests per airline Frequent Flyer Program reviewed (both long and short routes). This amounted to 6,160 queries at 22 airline websites.

The worst performer in the study was US Airways in which only 11% of the requested redemptions could be achieved. The best performer was SouthWest Airlines in which 99% of requested redemptions were available.

The study also included some (but not all - Air New Zealand was not part of the study for example) of the airlines that fly into New Zealand. The best performer for our locally available airline's Frequent flyer Programs was Virgin Blue's Velocity program in which 90% of requested seats were available. The results for the locally available airlines surveyed were:

• Virgin Blue's Velocity program - 90% of requested seats available
• Singapore Airlines KrisFlyer - 77.1%
• Qantas Airways Frequent Flyer Program - 72.9%
• Emirates Skywards Program - 36.4%

There are more and more airline miles chasing a flat pool of airline seats and according to the Wall Street Journal the "world is awash in frequent-flier miles partly because airlines have built a lucrative business selling them to credit card companies, hotels and others who use miles as incentives and rewards".

The volume of miles issued for things other than flying is now greater in some airlines than the miles issued for using the airline. For American Airlines in 2009 - 66% of the 175 billion miles issued were through their 1,000 partners (credit card companies, hotels and the like) who pay for them. That rate of issue together with the difficulty customers experience in redeeming them means that the balloon of frequent flyer miles outstanding around the world (currently estimated to be 10 trillion) just keeps growing.