South China Morning Post

 

Tuesday, January 25, 2005
Smart way to entice Shanghai consumers

SHERMAN SO in Shanghai

Setting up a customer rewards programme in China can present a big challenge.

First, retailers must be convinced of the need to install the necessary equipment, and that includes the counter-top machines that read smart cards. Then, consumers must be persuaded to carry yet another piece of plastic in wallets already thick with ATM and credit cards.

A better ploy is to piggyback off someone else's infrastructure, such as Shanghai's metro system. And this is exactly what SmartClub, a retail loyalty and database marketing programme, has done.

The start-up has an exclusive 12-year contract with the Shanghai Public Transportation Card Co, which provides smart cards for the city's public transport system.

With the same card used to pay for train and bus fares, consumers can collect loyalty points at places such as McDonald's or sporting goods retailer Quest Sport, and redeem them later for prizes.

"People don't want to carry one more card in their wallet," chief executive Henry Winter said. "Also, merchants don't want another card reader on their counters. It's really simple, but many people miss this point."

Since launching two years ago, SmartClub has signed up 130,000 members. The potential market comprises the six million Shanghai commuters who carry transport smart cards, and the number is growing daily.

Just 25 per cent of transport payments in Shanghai are processed through smart cards, compared with nearly 90 per cent in Hong Kong.

Loyalty rewards programmes are a relatively new concept in China, a country where consumers are just becoming comfortable with their growing economic clout. SmartClub has succeeded in getting sceptical retailers to sign up by minimising their risks.

"The most beautiful part of their business model is that they can tap into an existing user base, which is already using the transportation cards, and make that existing user behaviour more valuable by extending its use," said Mithras Group management consultant T. R. Harrington. "It is a true win-win for all parties."

To join SmartClub, consumers register their smart card identification numbers online, providing detailed information about themselves. When consumers make a purchase with a smart card, this buying behaviour information is combined with the demographic details, giving SmartClub clients a powerful marketing database to tap.

"Our rich profile database gives us an edge over other direct marketing firms," Mr Winter said. "Our e-mail delivery-to-actual-sales ad response rate is 10 per cent, compared with the average 1 per cent to 2 per cent."

This allows SmartClub to charge about 50 fen per message for e-mail campaigns, compared with the 10 fen per message others charge.

The company earns a percentage from each purchase, and so one goal is to get members to spend more. The typical SmartClub user currently spends about 70 yuan per month at its partner retailers.

Mr Winter hoped to boost this figure to 700 yuan a month as more retailers joined the programme.

About 20 merchants have signed up so far, including mobile-phone content provider Linktone and online game operator NetDragon.

"Eventually, I want SmartClub to include every type of retailer our members need in their daily life, such as a supermarket, convenience store, petrol station and so on," he said.

Another goal is to move into other cities and sign up 10 million members nationwide, earning a net profit of US$100 million annually in three to five years.

The next stops are Beijing and Guangzhou, but SmartClub must first find another US$5 million in capital in addition to the US$4 million it has already invested.

SmartClub's reliance on transport smart cards can also be a weakness. The company depends on Shanghai Public Transportation Card Co, which in turn depends on its close ties with the municipal government for the right to run the city's transport smart card system.

"It would really hurt SmartClub if the card company were to lose its relationship with the Shanghai government," Mr Harrington said.

To hedge its bets, Mr Winter is exploring the option of basing loyalty programmes on bank cards as well.

"We have signed a contract with Guangdong Development Bank," he said. "Customers using its debit cards and credit cards can register with us and earn SmartClub loyalty points as they spend."