The Toronto Star
Wednesday, June 17, 1998
page D1

Air Miles take off with consumers

Convenience and rewards hook shoppers

by John Deverell

Jo-Anne Kane goes out of her way to collect Air Miles, and in that the Leaside mom has lots of company.

"I've been collecting a long time", Kane says, taking a time out from aisle patrol at the Dominion Store on Bayview Ave.

"Those miles keep adding up".

Yes they do. In eight years, the multi-company program run by Loyalty Management Group has insinuated its blue plastic Air Miles card into the purses, wallets, and habits of 6.4 million Canadian households and issued nearly 4 billion Air Miles.

About 2 million Canadians have signed up over the past 18 months, and indication that Sears Club, Club Z, Sandy McTire, Aeroplan, and other corporate loyalty programs face a very serious rival.

The great public enthusiasm for Air Miles at first blush seems out of proportion to the basic benefit of the card. One Air Mile for each $20 spent turns out to be, upon close inspection, the equivalent of a measly 1 per cent discount. Yet Air Miles is undeniably a hit.

It's appeal lies in convenience - one card instead of many - and the fact that the basic rewards can be doubled easily by using an allied MasterCard or American Express credit card.

The pre-negotiated "deal" applies potentially to a wide swath of family spending for groceries, gas, booze, department store goods, building supplies, video rentals, and more.

Smart money: Loyalty Cards

A family spending $500 a month on food and gas can, by consistent use of an Air Miles credit card and by throwing in a few more purchases from other Air Miles retailers, collect 100 Air Miles per month. That's like finding $20 lying at the doorstep every month. You'd need a good reason not to bend over and pick it up.

Then again, the Air Miles rewards represent good deals on air travel - an enticing promise of escape from the mundane. An Air Mile is an actual mile, so the best redemption values are achieved on the short, otherwise expensive domestic flights.

Along the way, Loyalty Group has learned that many folks don't like flying, so the Air Miles plan now offers the alternative of a variety of entertainment deals right here on Earth. As a final resort for those who resist all appeals to fantasy, 100 Air Miles will buy a $20 grocery coupon at A&P/Dominion.

That deal clarifies the arithmetic. An Air Mile not used for anything else is worth 20 cents at the supermarket.

"The perceived value of Air Miles", says the program's retail organizer, John Wright of the Loyalty Management Group, "is greater than the perceived value of the (equivalent) cash discount".

Loyalty Group has created tremendous momentum for its program by cobbling together an unusual coalition of non-competing retailers.

The terms of each corporation's participation - and the prices it pays to Loyalty Group for Air miles - are secret, but big volume players such as A&P Canada, Shell Canada, The Bay, the LCBO, and Blockbuster video pay less per mile than smaller participants such as Japan Camera, The Shoe Company, or Work World.

The motivation of the sponsoring retailers isn't hard to figure out. They are all respectable operations but most are not the sales or profit leaders in their category. To protect market share, they need to offer their customers a little something extra, and Air Miles - supplied domestically by Canada's Number 2 carrier Canadian Airlines - are an easy way to do it.

As she shops for her family of five, Kane feels a tiny, quiet pleasure when she picks Dominion's house label cream cheese at a price below the national brand and gets a dominion Air Mile thrown in for good measure. "It's like a double bonus", she grins.

In her case the Air Mile scheme is doing exactly what it's designed to do. Kane hasn't forgotten about convenience and price, but she has shifted most of her grocery shopping from Loblaws to Dominion to get Air Miles.

"It's the best promotion we've ever had", confirms Dominion store manager Tom Sanders.

Another recent convert to Dominion, Anne Montgomery just got an Air Miles MasterCard to speed up the rate of Air Miles accumulation. "Let's face it, I'm hooked", she says.

Likes the deal

Montgomery knows she won't always be able to get the exact flight she wants when booking with her Air Miles, but she likes the deal anyway.

No wonder Dominion and its allied supermarkets - A&P, Superfresh, Ultra Food and Drug - pound the loyalty program so relentlessly in their weekly flyers.

They plaster Air Miles "shelf-talkers" throughout the stores on up to 1,500 different items each week, promoting both house and national brands. "The suppliers are just tripping over themselves to get in on this thing", says Sanders.

A&P Canada's commitment to Air Miles was a significant event for both. The supermarket, as a high-volume, frequently shopped retailer, lent considerable profile and weight to the program.

As for A&P/Dominion, it's among several grocery chains being squeezed hard by the Loblaws chain, which has been increasing its Ontario market dominance with an expensive big-store building spree. Air Miles isn't a fundamental answer to that, but it gives A&P Canada a quick, relatively low cost competitive response.

Before A&P signed on, the Loyalty Group's main draw - other than Bank of Montreal Air Miles MasterCard - was the full affiliation of Shell Canada and a restricted arrangement with Sears Canada.

A&P realized that to use the new loyalty tool effectively, it would have to break from the Ontario supermarket cash tradition and accept credit cards - especially cards linked to Air Miles. It wasn't an easy call, says A&P vice-president Bill Sheine, because card service charges bleed a business with thin profit margins.

"Basically you hope that what you lose on the card charges you gain from a bigger spend", says Sheine.

A&P's bet on Air Miles has turned out even better than expected, Sheine says, because Wright and the Loyalty Group quickly parlayed the supermarket's affiliation into a larger marketing coalition.

American Express, for example, has tied Air Miles into a new credit card which took off beyond the company's fondest hopes. The Amex television ads also boosted allied Air Miles retailers.

The Liquor Control Board of Ontario, with $2 billion in annual sales, suddenly began offering Air Miles to its devoted and predominantly male clientele last fall. That neatly reinforced the collecting impulses of the supermarket's mainly female patrons.

Sears Canada, which made customers use the Sears credit card to get Air Miles, left the Loyalty Group coalition this spring to be replaced by The Bay, a department store with $2.5 billion in annual sales. The Bay uses an approach its allies like much better, issuing Air Miles with all purchases and promoting the Bay credit card by issuing even more Air miles for its use.

The combination of MasterCard and Amex mailings, A&P/Dominion flyers, Bay newspaper ads, Shell service station posters, and LCBO cashiers - all pushing Air Miles - has given this loyalty scheme, in a remarkably short time, something close to total recognition across Canada.

Copyright © 1998 by The Toronto Star. All Rights Reserved. Reprinted with permission.