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August 17, 1998 - Strategy Magazine

Strategy DirectResponse: Loyalty plots next step for Air Miles: Purchase last month by Alliance Data Systems allows Loyalty to tap its parent's database management expertise

by Mark De Wolf
page SD 10

Executives at The Loyalty Group say the company's recent sale to u.s.-based Alliance Data Systems sets the stage for rapid growth of the relationship marketing specialist's Air Miles program.

Even without the help of a deep-pocketed partner, company executives say the pace of growth has picked up substantially in the last 12 months, pushing Loyalty to a new threshold in terms of its ability to effectively manage an ever-fattening database. To make the next leap, however, it needed help.

"These guys (Alliance) manage a database of over 50 million customers," says John Wright, vice-president and general manager of Air Miles business programs for The Loyalty Group. "We have a very large database - one of the largest active databases in the country - but certainly nothing of that scale. So as we grow in terms of consumer participation, their expertise in managing large databases is very helpful."

Consider the following indicators:

In the last 12 months, the number of enrolled collectors has jumped by 15%, bringing the total number to about 7.4 million across Canada. More meaningfully, Wright says that looking strictly at active collectors (versus those who are just enrolled in the program), Air Miles has penetrated nearly 44% of all Canadian households.

That growth can be attributed, he says, to the addition of high-profile national sponsors like Amex Bank of Canada (which has issued a co-branded Air Miles-American Express card), as well as The Bay. A test project with Molson Breweries in Western Canada could open up the program to other brand-specific sponsors by offering collectors points for purchasing Molson products - regardless of the retailer.

Wright also notes the importance of the Ontario market, saying a good chunk of new collectors have joined since the Liquor Control Board of Ontario and A&P, along with its sub-brands Dominion and Superfresh, signed up. On the business-to-business side, Air Miles has added nine new sponsors in the last year, the largest being parcel delivery giant UPS Canada.

Perhaps the best indicator of the program's success was the issuance of the one-millionth Air Miles award in February. Wright says increasing the breadth of its sponsorship network has increased satisfaction with, and interest in, the program - so much so that he predicts the next million milestone is just around the corner.

"Our forecast right now is that, between February of '98 and February of '99, we'll issue another million rewards. So it took us six years to issue the first million, but only 12 months to issue the second."

As previously reported in Strategy, Alliance Data Systems plans to use Loyalty's expertise to enhance its credit card management business in the u.s., possibly by offering tailored loyalty programs to clients like retail clothing chain The Limited.

"They have a proven consulting group in the loyalty and database marketing arena; and frankly it's a real enhancement to our product lines," says Beth Kuzela, a spokesperson for Alliance Data Systems.

The deal, which Loyalty executives say will have zero impact on the Air Miles program, leaves the corporate structure essentially intact with no staff layoffs at any of Loyalty's three offices. Wright says the management team remains in place with founder and president Craig Underwood retaining the helm of the company, though now reporting to Alliance chairman and ceo Mike Parks.

The relationship with Air Miles programs in the u.k., the Netherlands and Spain also remains untouched by the deal, says Wright. Those programs are managed by the Air Miles International Group - a separate company. Loyalty in Canada retains the trademark licence for Canada and will continue to observe the knowledge-sharing agreement between the two companies.

See the Aug. 3, 1998 edition of Strategy for more on the Alliance/Loyalty Group story; or, check out the Strategy Web site at (www.strategymag.com), search term: Air Miles.

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