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Value in Loyalty Trends: Show me the money in loyalty

by Bruce Conradie

Just how much value do loyalty programmes provide to their members? The vast majority of programme members do not know.

Now, for the first time, a research project has revealed the relative performance of South Africa’s major loyalty programmes.

“The Value in Loyalty Programmes, 2002” survey shows that no single loyalty programme provides members with a full value offering.

Each of eleven national loyalty programmes that used information technology to manage them were analysed according to six categories, namely:

* Cash value of the rewards;
* Range of choice among rewards;
* Aspirational value of rewards (something exotic the consumer would not normally buy may have greater appeal than a cash-back offer);
* Whether the amount of expenditure needed to obtain a reward is within reasonable reach (attainability);
* Ease of using the programme;
* Psychological benefits.

In cash value of rewards, the joint leaders were the airline programmes, namely British Airways Executive Club, SAA Voyager and the Virgin Atlantic flying club.

In rewards choices, the banks tended to dominate, with Bluebean, eBucks, American Express Membership Rewards and LeisureLink jointly topping the ratings.

Reward appeal was led by American Express Membership Rewards and LeisureLink.

Ease of use was led jointly by Digital Planet, Ster Kinekor Movie Club, Clicks ClubCard and My School.

The traditionally most popular programmes, frequent flyer programmes, lead only in two of the six categories of value. While they may have led in two of the most important categories – cash and psychological value – the finding does emphasise the vulnerability of such programmes to better options provided by other programmes.

At the same time, considering the lack of performance of other programmes in these two categories, the findings underline the need for greater attention to be paid to “value mix”, a concept that is explored in greater depth in the full report.

World Wide Worx managing director Arthur Goldstuck, who worked with the author of this article on the survey, points out that cash value of loyalty points is usually so difficult to calculate that few members make the effort.

“Even when the cash value of loyalty points is known, the total value offered by a programme remains obscure,” says Goldstuck. “This was a major motivator for the research.”

Value depends on, among others, the range and value of rewards offered, the possibility of collecting enough points to earn a reward, the rewards’ inherent appeal, and any value-added benefits offered.

The report also includes a categorisation of South African loyalty programmes, excerpts from international studies, illustrated with South African loyalty programme examples, and a spreadsheet detailing the full feature set – more than 50 features – of each of the programmes.

It is rounded out by recommendations to South African marketers, based on the findings on the survey.

Please visit World Wide Worx for the latest information on the “Value in Loyalty Programmes” research.

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Posted in the category: Trends

Legal trends: Directors in the litigation firing line

by Eric Levenstein

There was a time a company directorship was valued for its prestige and easy income, with little thought given to the duties, responsibilities and liabilities the appointment carried.

Today, a company directorship is fraught with hazards, not to mention a much higher threat of litigation. Far greater accountability is demanded of company directors from shareholders, law makers, employees, consumers, environmentalists, creditors and the courts than was the case in the past.

The Second King Report on Corporate Governance (King 2) provides shareholders who believe they have been poorly treated by directors with further grounds to hold errant directors liable for mismanagement of companies in South Africa.

King 2 outlines the responsibilities and accountability of directors towards shareholders and stakeholders. It applies to all JSE-listed companies in South African banks, financial institutions, insurers, public sector enterprises and local government.

King 2 applies to all companies preparing their financial statements after 1 March 2002. It places the board of directors at the heart of the corporate governance system, and places the responsibility for the performance and affairs of the company at board level.

Delegating authority to board members or management does not absolve directors of their duties and responsibilities. The consequences for lapses of good corporate governance can be serious, including suspension from the JSE for listed companies and the shame of having one’s name appear on a proposed register of delinquent directors to be kept by the Registrar of Companies.

Directors’ liabilities are addressed in both common law and statute, notably Section 424 of the Companies Act.

The courts have been divided on whether directors who allowed companies to trade in insolvent circumstances should be held personally responsible for the debts of the company.

Limited liability can discourage directors from continuing to trade in technically insolvent situations, as the major risk passes from the shareholders (whom the directors represent) to creditors.

Traditionally, a company is regarded as technically insolvent when its assets exceed its liabilities, but this is a limiting definition as a company in such circumstances may still be able to pay its debts.

In the 1997 case Philotex (Pty) Ltd & Others vs JR Snyman & others, the court stated that when a company traded recklessly or with intent to defraud, any person who was knowingly a party to such conduct could be held personally liable for the debts of the company. The court found that the directors had acted recklessly in incurring debts of R1,6 million, knowing the company was incapable of paying its creditors. Directors also secured a claim over the company’s assets prior to liquidation, thereby prejudicing creditors.

Far more worrying for directors is the recent case of Kalinko vs Nisbert, where the judge stated that directors who drive companies into liquidation through reckless or fraudulent trading may soon be forced to reimburse shareholders for losses. This is in line with English and US legislation. Kalinko was given leave to sue the directors for damages. Assuming a final judgment is granted, this would prevent directors hiding behind the corporate veil to avoid fiduciary accountability and liability to shareholders.

Increasingly, society recognises that companies are guided by ordinary people who, acting as a team, should behave according to the same standards expected of individual members of society. King 2 provides clear guidelines on risk management techniques that can be employed to protect directors.

The following are some key issues requiring proactive attention from directors to limit the threat of litigation:

*
the company’s ability to meet financial obligations;
*
withheld and misleading information;
*
compliance with legislative and regulatory requirements;
*
insider trading;
*
public announcements;
*
multiple directorships;
*
takeovers and mergers.

Generally, any director who fails to exercise care, skill and diligence in the discharge of his fiduciary responsibilities will be personally liable to the company for any loss arising from the breach.

The bottom line is this: directors, as a result of King 2 and recent court decisions, will be expected to demonstrate far higher standards of corporate governance than was previously the case, under penalty of potential litigation. Some may balk at the additional liabilities they now face and chose not to accept board positions. But with proper care, diligence and attention to compliance issues, it will and should remain a rewarding and fulfilling endeavour for the benefit of shareholders, creditors, and the corporate community in South Africa.

Eric Levenstein is a partner in the Corporate recoveries, liquidations and insolvency department at Werksmans Attorneys. He can be contacted on tel. (011) 535 8000 or by e-mail on mailto:elevenstein@werksmans.co.za

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Posted in the category: Trends

Altech – a TMT strategy that works

By Eyal S Shevel

Altech‘s results for the year to 28 February 2002 were the latest in a line of excellent earnings to have been reported by the company. Headline earnings per share (HEPS) grew 21,5% to 268,1c despite the depressed global climate for telecoms, multimedia and technology (TMT) companies.

Over the past five years HEPS has grown at an annual rate of 33%. The operating improvements within the group were also significant with margins increasing to 9,9% from 7,7%. This translated into R357 million operating income notwithstanding the marginal decline in revenue. A dividend of 100c was declared.

Strong earnings performances were apparent throughout the group. In the telecoms division, both Autopage and Netstar entrenched their positions as the market leaders in their respective fields. Keep reading →

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Posted in the category: News

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The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

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