Census Making Sense of Loyalty

Membership tops billion; average household belongs to 12 programs

CINCINNATI -- Membership in U.S. loyalty rewards programs has reached 1.3 billion, more than four times the national population, according to research by loyalty marketing consultancy Colloquy.

Fuel and convenience retail loyalty memberships total 38.467 million, it said. The primary device of loyalty programs in the fuel space is a co-branded credit card that bestows rebates and discounts on the cardholder. Concern over the sustainability of this model is growing. With bonuses and promotions included, what began as a 1% rebate is quickly spiraling to [image-nocss] more than 5%. But for a product that already suffers from razor-thin margins, the copycat nature of this value proposition could do significant damage to profitability. Until differentiated benefits are associated with the card, customers will continue to focus on price and discounts.

Fortunately, U.S. fuel-convenience retailers are beginning to adopt proprietary loyalty models that are already proven successful in other parts of the world, Colloquy said. Speedway launched the multi-tender, promotional-currency based Speedy Rewards to drive business from the front to the back court. ExxonMobil's SpeedPass contactless payment system offers a more convenient customer experience and Sheetz is an innovator in customer experience with their Blink terminals and food-ordering kiosks.

The firm said that its report provides the first comprehensive census-taking of loyalty marketing since the modern loyalty era began with frequent flyer incentives in 1981. Colloquy's measurement of the scope of loyalty marketing, based on a fourth-quarter 2006 analysis of a dozen specific business sectors, revealed that the average U.S. household belongs to no less than 12 loyalty programs.

A loyalty program recognizes and rewards the best customers of a business. Colloquy's Loyalty Census 2007 tabulates program members, not unique individuals.

In a key finding, the Colloquy census shows that "active participation" in loyalty programs is a blended average of 39.5% across all sectors analyzed, a number that Colloquy experts characterized as "dismal." The definition of active participation varies by industry, but at baseline, an active program participant is distinguished from a one-time shopper or flyer, down to an inactive name in a database. Of the 12 programs per average household identified in the census, only 4.7 yield active participation.

Colloquy senior director Kelly Hlavinka addressed a major question posed by the census results: Does the participation data mean the loyalty empire has reached a saturation point? "Loyalty memberships are flying dangerously high. Fat membership roles may look good in a press release, but active loyalty program members are the only members who count," said Hlavinka. "Marketers must adopt highly targeted enrollment strategies and allocate resources where they accomplish the most good. That means enroll the right customers, drive active participation programs, employ reward bonuses selectively and use loyalty data throughout the organization to increase customer insight."

These census results are based on information obtained from more than 1,000 loyalty program sources, including company press releases, program websites, shareholder annual reports, research reports, third-party publications and confidential interviews, Colloquy said. The census covered the following business sectors: Airlines, Financial Services, Hotel, Restaurant, Gaming, Grocery, Retail Fuel, Specialty Retail, Drug and Discount Stores, Department Stores, Internet and Miscellaneous.

Some other key census findings:

Four business sectors, Airlines, Financial Services, Grocery and Specialty Retail, account for 57% of the total loyalty program membership. Airline reward-seat inventory continues to shrink and mileage expiration periods grow ever shorter which means that the devaluation of mileage currency will continue. Financial Service loyalty programs, fueled by credit cards with rewards as primary competitive weapons, are in a "Golden Age" with 239 million members and 164% growth since 2000. Grocers who are fighting a perception of loyalty-program ubiquity and sameness will adopt loyalty models that allow for richer customer segmentation funded largely by packaged goods manufacturers. Hotel loyalty programs will enjoy modest growth as consumers purged from airline frequent flyer roles migrate to hotel programs offering better value. Gaming companies' healthy profits will allow them to incubate the best loyalty practices in coming years; as gaming leads, the rest of the loyalty industry will follow. The restaurant industry is poised for a loyalty renaissance.

"If loyalty program membership growth continues unabated, we may all end up with massive headaches," said Colloquy editorial director Rick Ferguson. "The biggest and potentially most progressive method of making programs more successful is the one thing that loyalty marketers are most loathe to do: trim the fat from their membership roles."

Cincinnati-based Colloquy provides a complete report on the census in a white paper titled, "CensusTalk: Sizing Up the U.S. Loyalty Marketing Industry." It is available free of charge at www.colloquy.com/whitepapers.

Click on the "Download Now" button below to view a graph of U.S. Loyalty Program Memberships by Market Sector.