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Woolworths' new loyalty program: what's in it for you?
Woolworths have dumped Qantas in their revamped loyalty program, but is it better and how does it compare to Coles' Flybuys?
PT0M0S 620 349Woolworths could recoup some of the cost of its $500 million loyalty program by asking suppliers to fund customer rewards and by trimming promotional spending.
Woolworths has not ruled out tapping suppliers to contribute to the new program, which offers reward card holders discounts or rewards averaging 15 per cent on about 500 food, grocery and liquor products.
"At this point we are just launching, the multi-million investment comes from new investment and more effective restructuring of our program," Woolworths Food Group managing director Brad Banducci told Fairfax Media.
Woolworths Food Group managing director Brad Banducci says the new loyalty scheme will be an attractive vehicle for suppliers to promote their products. Photo: Anthony Johnson
"We are however very confident this is going to be a very attractive vehicle for suppliers to promote their product," Mr Banducci said. "In the future if they wish to participate we can certainly look at how that works for them."
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Suppliers said they had not been yet been contacted by Woolworths about the new program, which kicks off on Wednesday with a multi-million marketing campaign and a mail-out of nine million Woolworths Rewards cards to existing Everyday Rewards cardholders.
However, one major supplier said it would be "out of character for Woolworths to fund the whole thing themselves."
The estimated $500 million spend was much higher than the cost of Qantas Frequent Flyer points, which was estimated to be between $60 million and $80 million a year. Photo: Louise Kennerley
Customer loyalty expert Dan McMahon, head of retail at ThoughtWorks, said food and grocery suppliers already provided a significant amount of value to consumers through ongoing price promotions.
"Whether this allows them to gather broader support from supermarket suppliers or provide more clarity around the value of that support in return for more of those products being sold remains to be seen," Mr McMahon said.
Under the new program, customers will earn credits averaging 15 per cent of the value of selected products marked with orange tickets - including 45¢ off Tim Tams, $2 off a case of Chang beer, $1.10 off Golden Crumpets and 70¢ off Nurofen. When the value of credits reaches $10, customers scan their rewards card at the checkout and automatically receive $10 off their next grocery or BWS liquor shop.
Woolworths may tap suppliers or trim promotions to fund its new rewards scheme. Photo: Dallas Kilponen
According to analysis by the Australian Centre for Retail Studies at Monash Business School, the average Woolworths Rewards member would earn a $10 reward every 7.4 weeks after spending $107 a week. This equates to an earn rate or discount of 1.25 per cent, compared with an earn rate between 0.22 per cent and 0.42 per cent under Woolworths' existing program (assuming customers redeem their points for domestic or international Qantas flights).
Based on Woolworths' food and liquor sales of $40 billion (excluding Dan Murphy's), the new loyalty offer will cost Woolworths around $500 million a year, according to Deutsche Bank analyst Michael Simotas.
Mr Simotas said this was much higher than the cost of Qantas Frequent Flyer points, estimated to be between $60 million and $80 million a year. However, Woolworths was also spending on other loyalty offers, including discount fuel, grocery promotions, vouchers and gift cards.
Woolworths is scrapping Qantas frequent flyer points in favour of cash back on grocery and liquor bills. Photo: Peter Braig
"It is difficult to tell at this stage whether Woolworths will be spending more on its rewards program post the changes," Mr Simotas said.
Mr Simotas said that by removing the 'middle man' (Qantas Frequent Flyer) Woolworths should be able to deliver more value to customers for the same outlay and if this was communicated well the shift should be positive for Woolworths and loyalty card holders.
Woolworths could reduce the value of discounts on promotional items to fund the rewards and minimise the impact on margins.
For example, a box of Arnotts Shapes may be on promotion at $1.49, compared with a shelf price of $2.00. Woolworths could offer a promotional price of $1.65 and give loyalty card holders 20c in rewards.
Mr Simotas fears the new program could also confuse shoppers, as Woolworths will now have three colour-coded promotions or offers in stores - red tickets under its "Low Price Always" offer, yellow tickets for short-term promotions and orange tickets for the new Woolworths Dollars program.
"While this program is more simple in some ways than the old one, it adds something else for customers to look out for in stores," he said. "In comparison, Coles' in-store value messaging is very simple and resonates well with customers."
However, Mr McMahon said one benefit of the new program was that it delivered "instant gratification" to card holders. "There's no inconvenient process where you need to log in and redeem your rewards," he said.
Coles said it had no plans to tweak its FlyBuys program, even though Woolworths claimed that customers could earn rewards twice as fast under the new scheme.
"At Coles, Flybuys members earn rewards on every dollar they spend in our supermarkets and fuel and liquor stores - not just the specific products we want them to buy," said Coles general manager Flybuys and loyalty, Adam Story.
"When redeeming their points, members can also choose from hundreds of reward options, including using Flybuys dollars to pay for their shopping or to receive gift cards, products, lifestyle experiences and travel."