Recent reports in the Fairfax press and Australian Food News suggested that Coles Supermarkets is about to review its customer loyalty strategy.

According to Joe Blundell, the Coles Marketing Director, the current Giant Gift Card Giveaway promotion May 7-July 31 2009 is in part, a trial of a new process that provides shoppers with instant cash rewards for their regular shopping. It was suggested that this more instantaneous approach will see FlyBuys phasing out domestic flights rewards and developing a new program model.

Furthermore, the news of the alliance between Woolworths and Qantas Frequent Flyer prompted Coles CEO Ian McLeod to comment that Coles would continue “to run its own race” rather than compete head-to-head with Woolworths new store development and loyalty card scheme (SMH 3/6/09). Mr McLeod also downplayed the importance of loyalty rewards in driving supermarket shopping choice whilst supporting FlyBuys retention.

Nonetheless the Woolworths-Qantas announcement does raise the interesting prospect of a winged EveryDay Rewards offer versus a flightless FlyBuys.

Given the investment and progress being made by Woolworths, should Coles be reviewing its participation in the FlyBuys program and be assessing other possible loyalty solutions?

Should Coles go it alone?
There appears to be little support for a coalition-style loyalty program within Wesfarmers Group. Head office is allowing the divisions to be autonomous on their future participation in FlyBuys. The Bunnings group hasn’t joined the program and have stated publicly that they will not in the conceivable future. Kmart and Target appear passive and Officeworks will exit the scheme at the end of June 2009.

That leaves Coles as the major player in the FlyBuys coalition and a Coles only program will provide the brand with greater control of their own loyalty agenda. The downside may be a more costly program and given that loyalty and the utilisation of customer data appear as low strategic priorities for Coles, a stand alone model may be unacceptable. Going alone will be in direct contrast to Woolworths who are trying to expand their customer base through their strategic alliances and corporate stable of brands.

Keeping the FlyBuys brand?
If Coles were to go it alone would they retain the FlyBuys brand? It would be appealing for Coles to start afresh rather than try to prolong FlyBuys. The FlyBuys brand was ideal when the program launched in 1994. FlyBuys is now in its 15th year and needs serious investment in brand marketing and technology. With the emphasis on flight rewards decreasing perhaps a new direction is advisable.

There will be some risk in pursuing a rebrand given the large costs involved. (Tesco are reported to have budgeted £150m (A$310m) on their ClubCard relaunch later this year). There will also be an impact on the existing FlyBuys membership base. Any change may provide members with a reason to actively exit the scheme rather than just stop using their cards. The net result will be that a Coles only program will have fewer members than the current FlyBuys scheme.

No more flight rewards?
The move away from flight rewards within loyalty programs is not new. This has occurred for many years and is consistent with the successful international reward programs like AirMiles Rewards (Canada) and Nectar Rewards (UK) and has even been adopted by the Qantas Frequent Flyer program. These programs have downplayed flight rewards in favour of expanding offers like gift cards and merchandise.

There are three main reasons driving this change. Firstly the cost of providing flights is generally more expensive than merchandise rewards. Secondly demand for flights has been dropping over the last 10 years as low-cost operators like JetStar and Virgin have made air travel more accessible to the mass market. Thirdly customers have demanded greater choice for reward redemptions.

Program Strategy
Having already flagged some changes to how FlyBuys works, any new program design will need to be relevant to Coles customers, in particular the higher spending and more profitable customers. How do you retain and reward their value to your brand? Another challenge will be to determine the core features to differentiate it from other programs.

As Woolworths are replicating a large non-personalised program, a case could be made for developing more affinity type programs that provide a basis for greater interaction between company and customer.

The greatest challenge facing Woolworths and more so Coles, is how to combine all elements of their rewards program (shopping points/credits, Fuel Discount) into a single integrated process that is easy for their customers to understand and use.

Woolworths EveryDay Rewards incorporates more sophisticated front end technology allowing their customers to carry the fuel discount electronically on their cards putting it a generation ahead of FlyBuys. The recent strategic alliance with Qantas Frequent Flyer allows Woolworths to quickly acquire customers to its program platform.

Given the above, Coles should conduct a review of their loyalty strategy, sooner rather than later. The brand needs a differentiating narrative on customer acquisition and retention from that of Woolworths. A more relevant and improved loyalty offering could be a valid starting point.

The challenge for Coles is to take FlyBuys members on the strategic journey with them and ensure that their frequent shopper members continue to have their loyalty recognised and more importantly rewarded.

Let’s hope for the sake of healthy competition and the interests of 6 million FlyBuys members that Coles does meet Woolworths challenge and makes the strategic review count.

This article was contributed to Australian Food News by Roger Blachut and John Di Natale.

Roger Blachut held several senior marketing roles in the Coles Group (Supermarkets), most recently as Marketing Manager of FlyBuys from 1999 to 2008. John Di Natale has over 15 years loyalty marketing experience with large retailers including Myer and Coles Group.

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