WOW. What a fantastic experience to be a guest on Let’s Talk Loyalty and discuss the Polish loyalty market with Paula Thomas. It has been over one hour-long session covering various B2C loyalty activities. Let’s Talk Loyalty is a podcast for loyalty marketing professionals and anyone who wants to learn how to earn more loyalty from your customers. The show is targeted at loyalty industry professionals who specialize in creating, running, and optimizing marketing programmes that drive customer loyalty. The recording took place in early March 2022 and was published on March 16th. You may listen to the entire episode here
Here are my notes taken before the show 😉
My favorite loyalty program
My favorite loyalty program is Share from the United Arab Emirates market. Dubai and Abu Dhabi are places where the most experienced and creative people from around the world come to enjoy life and benefit from what they have accomplished in their countries of origin. Therefore, whatever happens in the UAE is unique in innovation and scale. This also applies to loyalty programs.
When asked which market is the most advanced and worth benchmarking for loyalty programs – I usually point to the UAE, the US, and Japan. So back to Share. It’s an easy-to-navigate mobile app-based program run by the entire Majid Al Futtaim group, with Carrefour, VOX Cinemas, LEGO, and many other retailers as the so-called anchors – most significant participants.
Technically, it is a point-based program, but the points are denominated in Dirhams, which is the currency of the UAE, so from that point of view, it is a money-back program. I like Share because it feels like it works everywhere. I think this is due to the vast network of affiliate partners that allow members to receive membership benefits. This includes online shopping at partner e-shops.
I also really appreciate the attention to detail that the developers put into creating the program. To illustrate this with an example – if you forget to identify yourself with the bar code posted in the app at check-out, you can upload your receipt later – literally scan it through the app to earn points. Share ID, the way participants identify themselves in the program, is barcode-based and presented through the app – no plastic ID cards, of course. The program also has a chat feature built into the app. Finally, we can split our payment and pay part of the bill with points and cash or card. Simple, but still unique.
Structure of the loyalty program market in Poland
When we discussed the geographical demographics of your podcast listeners, you showed me statistics that your target group comes from such far-flung regions as the United Arab Emirates, the United States, the United Kingdom, South Africa, and Australia – countries where the official language is English.
However if we were to do an analysis of a country where English isn’t the official language, such as Poland, I believe we should begin with a few words of introduction about Poland itself. Especially for the listeners, who live far outside Europe. Poland is located in Central-Eastern Europe, is a member of the European Union belonging to the Schengen Area, and home to over 38 million people.
In terms of area, it is the 9th largest country in Europe. In terms of GDP, Poland is the 6th largest economy in Europe and the 25th largest globally. The market economy has been developing since 1989, in other words for 33 years. The first loyalty program was created in 1999, so the history of the loyalty program market is 23 years old.
Loyalty program market size
There are over 130 loyalty programs on the market aimed at the end-buyer. We know this because every year at i360, we count them all up and sign up for newly created ones. In fact, we participate in all of the loyalty programs on the market. We are loyalty freaks here.
In parallel, more than 100 B2B incentive programs target individual links in the distribution chain, mainly in traditional trade. However, today I will focus solely on the consumer market and discuss B2C programs. The above values apply to those ventures that are organized systematically and have their terms and conditions in writing, in which the headline reads it is a “loyalty program”.
I mention this because one of the market trends we’ve seen in recent years, especially during the pandemic, is the emergence of marketing activities whose sets of rules include all the elements that would make us say it’s a loyalty program, but the organizers don’t call it that.
They treat these ventures as part of their basic market offer. This trend is mainly visible in e-commerce. At the same time, some of the actions called loyalty programs are loyalty cards. However, based on the adopted methodology, they are classified as loyalty programs.
Loyalty program market categories
There are four main categories of loyalty programs: points programs, discount programs, hybrid programs combining points and discounts, and money-back programs.
We can also distinguish the categories of multi-partner programs and loyalty programs directed to shareholders within them. The breakdown of programs by category looks like this: points programs cover: 12% of the market, discount: 35% of the market, and hybrid: 50% of the market. It is by quantity not by value of reward market. We have one multi-partner program with over 10 significant partners.
Based on what we discussed above, the impression is that the loyalty program market is very crowded and fragmented. However, this impression disappears when we look deeper into the data. It turns out that only the six largest programs reach a declared level of participation at the double-digit level. Let me expand this thought. The reported participation rate is the percentage of responses to the question “Which loyalty programs do you specifically participate in?”
This question is asked in a nationwide market survey of a representative sample of adult Poles. We will return to the study later in the discussion. At this stage, it’s worth saying that the distribution of responses is such that 35% of the public say they do not participate in any loyalty program. So 65% say they participate in loyalty programs. Meanwhile, 10% of the 65% who say they participate in at least one loyalty program indicate that they participate in one of the six main programs.
This includes three programs from the retail grocery category and two from petrol stations, a drugstore chain program, and a shoe retailer program. At the same time, roughly 25 programs have a declared participation level of more than 1%. And that says a lot about the market. Even though there are over 130 programs, only 1% of the society admits to participating in 25 largest of them.
As always, in the case of the analysis of research results, one has to be very careful, as they are based on spontaneous declarations of the respondents. Ultimately, however, the sum of these declarations makes up the entire market. Concluding the market discussion, it should be noted that the 25 most popular loyalty programs are those of the most prominent market players in their categories. Thus, we have here the phenomenon of scale. The most significant players, who dominate the market and are prevalent in advertising messages, are seen as organizers of the most popular loyalty programs.
Loyalty program market history and development milestones from 1999 to 2022
Development of loyalty programs
The market history is as follows: in 1999, 23 years ago – that’s how old the market is – tests began on the first loyalty programs for two competing chains of fuel stations.
These were point-based programs. Officially, the oldest program is now celebrating its 21st anniversary. When the market became saturated with catalogs of prizes, and after a few years everybody started giving out the same type of prizes, which consequently ceased to provide any diversity on the market, the stage of discount programs began. This category of programs is still the most numerous. Mainly because it is far easier to introduce a simple discount program to the market. The class which is developing very dynamically is the segment of money-back programs. These programs offer a refund of a portion of the price spent on a payment card, bank account, or virtual loyalty program account.
Among the 10 most popular loyalty programs in Poland there are some initiated back in the 20th century and those whose history is only three years old.
Finally, the youngest category of the market is shareholder loyalty programs. Those implemented by joint-stock companies, mainly companies listed on stock exchanges. Such programs offer certain sets of privileges to those who hold shares.
Evolution of the most popular programs on the market
An interesting perspective on market changes is also shown by analyzing the top 6 most popular loyalty programs of the last decade.
In this group, we have 12 programs, which rotated between 2011 and 2021. Some of them stayed at the top the whole time. Others dropped out and were replaced by newly created loyalty programs.
The three most popular programs in Poland are Moja Biedronka – a program of the food retail chain Biedronka, owned by Jeronimo Martins [Portugeese listeners might recognized it – forgive me if I butcher this pronaunciation as Pingu Doce].; Orlen VITAY – a program of the Orlen fuel station chain, owned by a listed company controlled by the Polish government, and Rossmann Club – of the Rossmann chain, which is one of the few entities on the market to run two loyalty programs at the same time.
When analyzing the market, it is always worth looking at events whose organizers would prefer to hide them from the public. I’m referring here to the processes of closing loyalty programs. So far in Poland, we have experienced the closure of several critical loyalty programs, whose membership datasets numbered in the millions.
I’m thinking of a leading telecoms program and several food retail chain programs, including the Tesco Clubcard, probably known to most of our listeners, which disappeared from the market last year.
All of these events were triggered by one of two factors: ownership changes or the bankruptcy and liquidation of the organizer.
Thus, we are dealing here with a particular trigger, when new owners introduce a new order and new set of rules and naturally strive to increase the effectiveness of the activities of the company they bought. As we all know, loyalty programs – especially those with millions of participants – consume millions of dollars of the budget annually – both in terms of operating costs and reward costs. The temptation then is for new owners and new managers to, in one fell swoop close the program and significantly improve the projected financial results, by freeing up budgets that are moved from the expense line of the income statement to the profit line.
Closed Loyalty Programs
To me one of the more interesting studies on loyalty programs is The 2019 Delphi Report: “Why Loyalty Programs Fail!” The second most important factor in loyalty program failure identified is the lack of ability to document and analyze the loyalty program’s effectiveness. More than 93% of the experts participating in the panel discussion, on which the report was based, confirmed that the inability to calculate program effectiveness and efficiency- metrics is a cause of potential program failure.
The lack of these skills leads executives to believe that the program is consuming too much money, leading to ongoing budget pressures. Some of the panelists stated that the inability to demonstrate a correlation between actions taken under a loyalty program and an increase in sales and margins, resulting from the program, leads managers to treat such a program as an additional cost of doing business, which in turn makes them to question its actual value.
Organizers who mainly emphasize the company’s revenue growth perceive the activities leading to building buyer loyalty as another additional cost rather than an investment in the future position of the brand. These factors have led to the closure of top-rated programs on the market several times already.
Loyalty program participant’s perspective. A few words about the structure of households – penetration of loyalty programs
An analysis of the market from the perspective of loyalty program participants should begin with the statistic that there are 14.5 million households in Poland. 65% of Poles say they participate in at least one loyalty program, with the average household participating in 3 programs. From this perspective, the market is still very immature, as, in the United States, the average household participates in 18 loyalty programs, of which it is active making purchases in 8 of them. This 65% penetration rate of loyalty programs has remained more or less unchanged for years.
Loyalty program participant profile
What distinguishes a Polish consumer and their participation in a loyalty program is their activity. If someone engages in a loyalty program, it is an active participation in 85% of cases. Of course, the definition of this activity depends on the market segment – it will be defined differently at a petrol station and a grocery retail chain, but this ratio is far higher than we observe in other markets.
The highest participation rates are recorded in eighteen to forty nine-year-olds. Over 80% of people in each demographic, regardless of the breakdown used, declare membership in at least a loyalty program. However when we talk about university graduates over 85% of those with a university degree declare membership in at least one loyalty program as well.In terms of gender – we have a female majority. 6 out of 10 participants in loyalty programs are women. Of course, this ratio differs in each market segment. In the case of clothing retail chains, 90% of participants are women. Similarly, in the case of gas station chains, 70% of participants are men. Like the rest of the world, the leading market segments in which loyalty programs are organized are food and clothing retail chains, gas station chains, and drugstores.
Preferences for program types and rewards
From the end user perspective, the purpose of participating in a loyalty program, at the end of a day, is to get rewards. Therefore, it is interesting to see what benefits participants receive. The most popular bonuses that households get from participating in loyalty programs are: discounts, then the ability to pay for purchases with points, choosing a prize from a catalog, money back, and the opportunity to support a charity.
This distribution has been consistent for years. What does it mean? First of all, it shows that we are talking about a relatively low purchasing power society, for which rebates are a critical aspect of managing the household budget. The average salary in Poland is only 1300 USD/month, which is the gross value, before taxes. This is over four times less than the value from the US market.
At the same time, the differences in the cost of living are much lower, which means that the purchasing power of polish salary is relatively low. This is why discount loyalty programs are so popular.
Use of mobile applications of loyalty programs
While listening to your interviews with other guests, I noticed that you used to ask what is the favorite statistic about the loyalty program market of each of the interviewees.
For me, that statistic is the loyalty program app usage rate. For the last ten years, this has been the most rapidly growing ratio and is at 74% in 2022. What does this mean in practice? Roughly speaking, it means that 65% of the population participates in at least one loyalty program, and 74% of that 65% use the loyalty program’s mobile app.
We should stop here and talk for a moment about how participants take part in loyalty programs – or looking from the organizer’s perspective – how organizers communicate with participants in their programs. 74% is nearly ¾ of all those participating in loyalty programs. For them, the smartphone and mobile app are used to identify themselves in the program at check-out, and also check the available balance, select rewards, activate coupons, utilize click&collect functionality, and pay for purchases.
This raises the question of how the remaining quarter of participants, who do not use the app, participate in loyalty programs. These people still identify themselves with a plastic card, log in to the program account via the Web, or still use paper catalogs of rewards and call the hotline.
Trends in the market of loyalty programs
There are several. One of the major trends is:
– that user penetration has been hovering at 74% even though these mobile apps functionalities have been increasing namely the range of functionalities embedded in these applications. Such as “pay” type features, self-check-out, click and collect, pay and go and many others
– another is the closures of inefficient loyalty programs, like the Tesco Clubcard. Like I mentioned it was due to the a change in the ownership structure. However, the trend of closing of ineffective loyalty programs will continue;
– Another trend would be the launching of new premium programs as a supplement to the mass market offer. It is combined with the migration of a part of the userbase into a lower tier. For example VISA introduced the Visa Benefit Program, a program offering benefits related to Visa premium cards and at the same time moved Visa Oferty into a white label program for selected banks.
Loyalty conferences. Industry competitions
The leading conference of loyalty programs is Loyalty Planet – which at the time of recording is going to be held in April 2022 in Warsaw. This year, it is being held under the name Loyalty in the Era of Digital-First. It is a two-day event that brings together loyalty practitioners from across Poland. i360 is a gold partner of the conference, and our Key Account Director is the chairperson and moderator of the forum. Of course, we also act as speakers.
The organizers have also launched a new industry competition called Loyalty Heroes. In addition, there is also Effie Awards, Loyalty Summit, and Golden Arrow.
A few words about i360.
i360, of which I have been a co-owner and the CEO for 13 years, is an entity specializing in creating, managing, and optimizing B2C Loyalty and B2B incentive programs. We employ 50 people in 3 offices in Poland and Central and Eastern Europe. We run loyalty programs permanently in such countries as the Czech Republic, Slovakia, Hungary, and many other markets, and more distant countries, such as Serbia and Kazakhstan.i360 is primarily a software house. Our principal asset is i360 Loyalty Software, on which we run our programs.
However, we provide a spectrum of value-added services such as loyalty program strategy development, creation, web design services, purchase and logistics of rewards, issuing prepaid cards, etc, etc. We cooperate with Clients from many segments of FMCG, insurance, automotive, construction, finance, and many others.
If you would like to find out more, please visit i360.com.pl or my blog marketingbusinessblog.pl.
What is the most important lesson you have learnt
There are a few:
1/ the cost to acquire a new client is a tax for not taking enough care to keep existing ones loyal
2/ it is much easier to keep then acquire customers
3/ you cannot buy true loyalty however you can make people repeat their purchases
4/ benchmarking is as important as the creativity
Why companies invest in loyalty programs
We work mainly with large corporations. Most of them are public. So it is important to understand what is the single most important KPI the CEO of a public company? Right? They all want the share price of a company they manage to go up, and the way to do it it to increase the revenue per share. That way they create value for the shareholders. As a result they want to increase their sales and profit and efficiency. And this is where loyalty program would help. It provides steady sales increase without a need for short term investments in sales promotions to gain some extra market share.
Please share any new ideas and innovations you are particularly proud of.
I am proud of our algorytms designed to analyse big data of invoices with implemented machine learning tools. At i360, we get data on tens of millions of transactions and invoices from distributors, which we process in real-time thanks to artificial intelligence algorithms.
Phenomenon of B2B programs
To understand the essence of B2B incentive programs, i.e. programs that target sales intermediaries in the distribution chain, it is necessary to understand that traditional trade, accounts for over 50% of the value of turnover in many market segments – especially of fast-moving consumer goods.
These outlets are not affiliated with any chains or franchises, and all they have in common is that they are supplied by the same distributors and visited by sales representatives of the same distributors.
I mention this because a few years ago, we attended a loyalty programs conference in the USA, and there, when we talked about this market segment, we were met with incomprehension. This is mainly due to the entirely different retail structure in the US and other forms of influence on retailers.
In Poland, all of the distribution chain links, i.e., distributors, sub-wholesalers, sales representatives of distributors, retailers, and even expediters in single retail outlets, are covered by incentive programs whose main objective is to increase numerical distribution and sales volumes. To run such programs, a source of data is essential, as manufacturers and importers typically lose control of their product flow at the distributor level. They sell to a few leading intermediaries, issue invoices, and de facto do not know their product’s path.
So how do you run an incentive program that rewards sales at the distributor-sub wholesaler-retailer level when the manufacturer has no data on their sales below the major wholesalers? This is where i360 comes into play, providing such data through integrating i360 Loyalty Software with the distributors’ accounting systems.
In addition, i360 also offers a systematic solution to collect purchase data from end buyers. In this way, we fill in the information gap, showing the path of product distribution from the distributor (at which level the knowledge of sales of most manufacturers ends) to the final buyer. Such data are the basis for incentivization of individual distribution links: the distributor’s sales representative to sell our clients’ products and win new points for sale to the retailer – to buy them and display them in their store in an appropriate way – and finally, the store assistant – to recommend specific brands in conversations with end customers.
All of these activities take the form of long-term incentive programs. Some of them we have been running continuously for ten years. They constitute the primary medium of communication with our client’s market. In this way, our customers benefit from many parallel advantages: not only do they gain knowledge of what happens to their product before it reaches the end buyer from the distributor, but they can also influence individual links of the distribution chain by incentivizing them. Let’s illustrate it with an example.
Suppose you are a confectionery manufacturer. You have a few leading distributors on the market, who together account for 60% of your turnover. Of course, you have to take care of them and maintain good relations. But at the same time, you are doomed to have no arguments in negotiations for information such as “your product is not rotating well,” “we can’t buy more because the stock level is too high,” etc., i.e. all arguments for giving a higher discount so that the distributor will earn more.
Thanks to cooperation with i360, you not only get arguments in such negotiations but also offer the distributor that you will take care of higher rotation, lower stocks, and better exposition. On our side, we get data on tens of millions of transactions and invoices, which we process in real-time thanks to artificial intelligence algorithms. In the example above, we would allow the manufacturer to reward only those sales reps who met this series of conditions. So the entire incentive program structured this way would be funded by the incremental margin the manufacturer realizes on the additional sales.