Annette Tarlton, marketing manager, EMEA, for card reader/writer manufacturer, Star Micronics, looks at the loyalty card systems market, analysing why its growth has faltered to date and how manufacturers and systems integrators are working together to win through.
Loyalty card system technology has really taken off. We are all aware of the success of projects like flagship retailer, Boots, whose combination of kiosk and loyalty cards has uplifted sales considerably and the marketing muscle that is now the Nectar project. But colossal projects aside, the predicted pervasion of smart cards throughout life has been somewhat faltering, and for a number of distinct reasons.
The market is still in its infancy. Loyalty cards were a relatively unknown quantity less than ten years ago whilst considerable progress has been made in the areas of secure ID, communicating display panels and more recently, RFID, technological and security standards have still yet to be set. With immaturity come higher costs and some user uncertainty. Whilst card manufacture costs are now coming down, until very recently they were often prohibitively high for all but the big-budget boys. It is also only now that the reducing costs in conjunction with a wider understanding of the real potential of loyalty cards that many smaller and mid-market companies are considering them as a serious option. And with all these forces against them, loyalty card sales initiatives have not historically been top of the priority list: why climb the mountain when you can merely cross the road to achieve your goal?
There are those systems integrators however who have found a viable route to investigating the potential of loyalty card systems and are now reaping the rewards. What has happened during the last few years is that some systems integrators have in the main elected to ignore the massive loyalty card projects, cutting their teeth instead on smaller ventures, in which the ROI is easier for the end client to recognise.
Leisure clubs have implemented card-based systems as the key component in cashless bar solutions. Members are identified by their card, which they periodically up-load with cash. In the case of the those cards with the a communicating display on to which personalised messages can be rewritten to hundreds of times, individual marketing messages can be conveyed to the card, either of a general nature or based on historic purchasing behaviour and members can always see the remaining balance available to them.
Independent garages are using these communicating card systems as a means of implementing personalised marketing campaigns to retain customer loyalty in a bid to retain customer loyalty in the face of the marketing budgets available to the multi-nationals.
Various elements of the transportation industry have implemented re-writable card solutions to satisfy their requirements for driver ID and to track freight and trailers to their ultimate destinations.
And so the list goes on. But with each of these innovative solutions, ROI has been proven, but not without its problems. The manufacturers of reader/writer systems and the systems integrators have had to work together to overcome problems associated with writing to the cards in wet bar environments or in transportation, atmospheres where there is a disproportionate degree of dirty particles in the air not issues one might immediately consider but ones which have to be resolved to win the deal.
It is this type of apprenticeship in a relatively immature market that has changed the ways in which systems integrators and manufacturers work together.
In the last six years, we have witnessed an evolving relationship between the two to win the sale. In todays environment, the two parties communicate with the end user customer as a joint team. The systems integrator concentrates on the gluing of legacy software to that of the card system software and the manufacture concentrates on modifying the hardware to exactly meet the customers application needs. And it is this latter point that draws the distinction between a no sale and a win.
There are few big brand manufacturers of loyalty card systems with whom systems integrators can work and it is the willingness of the manufacturer to adapt their technology that is often a stumbling block.
A distinct differentiator between Star Micronics and its would-be competitors is our willingness to be responsive to customer needs, adapting product to deliver their expectations. Our relationships with systems integrators are solid on this basis alone, before one starts evaluating product quality and performance benefits. Integrators new to us are often shocked, recalling that in instances where the potential solution varies from the norm even slightly, other manufacturers walk away, not willing to deal with the hassle factor. For solutions in any area to be successful, to develop solid working partnerships and to continue to innovate technologically, this cannot be the approach. Both the end user customer and the systems integrator should be confident of the manufacturers willingness to modify their products, providing of course that the numbers stack up. No one is suggesting that card systems market is a charity.
Manufacturers and systems integrators must present a united front to the end user customer. Responsibilities are clear. The manufacturer adapts the hardware to fit the application; the systems integrator develops the software to link all the disparate component parts together. The manufacturer generates profit on units sold via its distributor and the systems integrator, through initial development costs and subsequent royalties. Its that simple.
Having forged a means of working together that capitalises on the skills available from the distinct parties, where does the loyalty card industry go from here? From a European viewpoint, the use of loyalty cards is not endemic. In the UK, Germany and France, interest in the potential of loyalty card systems is intense, with an embryonic interest now emerging in Spain.
But to quickly develop new markets, card and system prices need to come down. For prices to come down however, products require volume sales, derived from mass market interest, both vertically and geographically or from applications where the card carriers return to the card issuer regularly, e.g. supermarkets, leisure clubs, large retailers. The majority of Europe is illustrating marginal interest in loyalty cards and in those countries where their potential has been recognised, sales falter at the price. We should also not expect the retailer of luxury goods to adopt a loyalty system, when he sees his customer annually. The potential ROI for a retailer experiencing high footfall of customers from whom he wants to attract a larger spend, is a far more compelling argument.
In essence, the relationship between systems integrators and manufacturers can now be a comfortable one, with each knowing the part they need to play to win the deal and because each now have experience of those projects that are truly financially and technically viable from their own viewpoints, as well as that of the customer, given the costs of communicating card manufacture. As to the future, the inevitable reducing costs and increasing pervasion of RFID technology should provide systems integrators with new opportunities as should the trend and associated cost-justification for multiple-application cards (ID, loyalty and cash for instance). As with many markets that have gone before, its merely a case of having the vision to know when to make the right investment!