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Woolworths' loyalty program versus Coles' Fly Buys
Woolworths have dumped Qantas in their revamped loyalty program, but is it better and how does it compare to Coles' Fly Buys?
PT1M26S 620 349Woolworths' new loyalty scheme is a better deal for existing shoppers but is unlikely to win the struggling supermarket new customers, industry watchers say.
The supermarket announced on Sunday it would ditch its existing system, which rewards customers with Qantas frequent flyer points, with a simpler and more generous scheme that is based around discounts on groceries and alcohol.
The basic simple question I said was 'how much do I have to spend to get a dollar?', and they really couldn't answer.
Dr Paul HarrisonUnder the new system, shoppers receive "Woolworths Dollars" when they buy products with orange price tickets, earning about 15 per cent of the value of those products on their loyalty card.
Woolworths remains the most shorted stock on the ASX by value, Morgans says. Photo: Dallas Kilponen
Customers can then spend their reward at Woolworths supermarkets or BWS liquor stores when they accumulate $10.
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A typical shopper will save about $1.25 for every they $100 spend under the new scheme, according to Monash University's Australian Consumer, Retail and Services Research Unit, which examined the program before it was announced.
ACRS researcher Teagan Altschwager said this "earn rate" of 1.25 per cent trumped that of Woolworths' existing Everyday Rewards program, which was between 0.1 and 0.4 per cent.
A typical shopper will save about $1.25 for every they $100 spend under the new scheme. Photo: Louie Douvis
Dr Altschwager said Coles' flybuys program had a return rate of between 0.5 and 0.57 per cent, depending on how the points were redeemed.
But Dr Paul Harrison, senior lecturer in marketing at Deakin University, said loyalty cards rarely had any substantial impact in the fight for new customers.
"The evidence is they reward people who are already customers, and it may well make those customers feel more loyal, but it rarely works in terms of converting customers across brands," he said.
Dr Harrison said he spoke to representatives from Woolworths' loyalty program last week, ahead of the new scheme's announcement, and said their claims of it being a simpler program did not bear out .
"The basic simple question I said was 'how much do I have to spend to get a dollar?', and they really couldn't answer," he said.
"The problem with these sorts of loyalty schemes is that they are really complex ��� and to pretend consumers are going to understand them more, even if you simplify them somewhat, is a little bit naive."
J.P. Morgan analyst Shaun Cousins said the new rewards scheme was a better program and a "medium term positive" for Woolworths that also showed the company was finally focusing on customers, instead of shareholders.
However, he said that the benefits of the new scheme would need to be carefully explained to customers in order to have any impact on Woolworths' bottom line.
"Unfortunately, marketing has not been strong for Woolworths in recent years," Mr Cousins wrote in a note to his clients.
Mr Cousins said Woolworths would struggle to hold on to a "vocal minority of customers for whom Qantas Points are extremely valuable".
Coles' general manager of loyalty, Adam Story, said customers wanted a choice of where they could redeem their loyalty points, as they could across the flybuys network of Kmart, Target, AGL, Telstra, OPSM, Medibank, NAB.
"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," he said.
The Everyday Rewards program will run to the end of the year, while Woolworths will send out Woolworths Rewards cards to its 9 million existing loyalty club members this week.
Woolworths will announce its first quarter sales results this Thursday, which Deutsche Bank has forecast will be down 0.5 per cent on food and liquor.