Tag: loyalty programmes

Source: Tech Financials

The judgment again serves as a cautionary tale where contracts are drafted without an understanding of the tax implications, which can make for a nasty surprise down the line.

On 21 May 2021, the Constitutional Court handed victory to SARS in a decision that may have sweeping ramifications for retailers who operate loyalty plans similar to the Clicks ClubCard loyalty programme.

What was at stake for Clicks and other retailers?
The matter of Clicks Retailers (Pty) Limited v Commissioner for the South African Revenue Service [2021] ZACC 11 involved the application of section 24C of the Income Tax Act No. 58 of 1962 to its loyalty programme.

Section 24C allows taxpayers to defer paying tax on income if it accrues in terms of a contract and that income will also be used to finance future expenditure. The taxpayer may then, in terms of section 24C, claim a deduction in respect of such future expenditure, provided the income and the obligation to incur the future expenditure arise from the same contract.

In this case, Clicks sought to utilise this provision on the basis that its ClubCard loyalty programme creates an obligation to incur future expenditure when cardholders earn loyalty points by making purchases at Clicks stores. The loyalty points awarded translate to a cost that Clicks will incur on the merchandise provided to customers upon redemption of cashback vouchers. In other words, when Clicks makes a sale for which it receives income, an obligation is created at the same time to incur a cost at a future date.

Clicks return 2% of the value of all qualifying purchases to customers and its inability to deduct this cost will have a significant impact on its cash flow. The import of the judgment, however, extends well beyond the interests of Clicks. The court acknowledged that other retailers such as Pick ‘n Pay, Dischem, Ster Kinekor and Exclusive Books, to name a few, will also be impacted by the court’s decision.

The dispute
SARS maintained that Clicks is not eligible for the section 24C deduction, as the income it receives and the obligation to incur the future expenditure arise from separate contracts.

Clicks succeeded in the Tax Court, which concluded that the income-earning contract and that which gives rise to the obligation (the ClubCard contract), are inextricably linked. SARS appealed to the Supreme Court of Appeal (“SCA”). It is important to note that Clicks’ appeal was heard shortly after the SCA handed down judgment in Commissioner, South African Revenue Service v Big G Restaurants (Pty) Ltd [2018] ZASCA 179; 2019 (3) SA 90 (SCA) (“Big G”), which dealt with the same issue.

In Big G, the SCA rejected the notion that section 24C applies where the contracts are “inextricably linked” – the income and the obligation must emanate from the same contract. The SCA, therefore, set aside the Tax Court’s decision. But Big G took the matter to the Constitutional Court, where the interpretation of section 24C was widened, albeit slightly. The Constitutional Court confirmed section 24C may apply where there is more than one contract, provided they are so inextricably linked that they satisfy the requirement of “sameness”.

Big G lost the appeal, but it gave Clicks another bite at the cherry. Clicks filed its appeal to the Constitutional Court, which accepted that there is significant factual overlap and an inextricable link between the ClubCard contract that imposes the obligation to incur a future expenditure and the contract of sale. However, it is not sufficient for the two contracts to be inextricably linked; the link must be of such a nature that they give rise to a “sameness”.

In the present matter, the Constitutional Court found that the link between the two contracts do not render either dependent on the other for its existence; they operate together but they do not meet the requirement of contractual sameness. The upshot is that section 24C does not apply to Click’s ClubCard loyalty programme and the retailer incorrectly claimed these deductions.

Analysis
While the matter does not involve a constitutional question, the Constitutional Court accepted, as with Big G, that Clicks should be granted leave to engage its jurisdiction on the basis that the matter involved an arguable point of law which is of general public importance. The court held that this is evidenced by the divergent approaches taken by the Tax Court and the SCA, and the importance to the general public lies in the potential impact for other operators of such loyalty programmes.

The decision to entertain the matter must be welcomed, as it allowed the court to shed some light on the application of section 24C, by giving definition to the sameness test where two or more contracts are involved.

What does the judgment mean for other retailers?
Other entities that similarly sought to claim the section 24C allowance must carefully study the judgment against the operation of their own loyalty programmes. But with a model that is hardly unique, it is difficult to see how their fate would be any different and it is possible that they might inadvertently find themselves in a position of non-compliance.

The judgment again serves as a cautionary tale where contracts are drafted without an understanding of the tax implications, which can make for a nasty surprise down the line.

 

 

Source: Supermarket & Retailer

South African consumers have saved billions of rands in loyalty programme rewards offered and are increasingly taking advantage of their reward points given the country’s tough economic climate, which is having an impact on consumer goods including fuel, electricity and food.

According to Clicks customer marketing executive, Heloise Janse Van Rensburg, the Clicks ClubCard loyalty programme, one of the oldest, which was introduced in 1995, was doing exceptionally well, especially given the tough economic climate the retailer was trading in.

Janse Van Rensburg says this speaks to how the retailer’s ClubCard customers valued their cashback rewards.

“Our Clicks ClubCard has 7.5 million active members.We provide simple, easy rewards that are accessible and convenient to our customers. In 2017 alone, over R320 million was paid to ClubCard members in cashback rewards,” says Janse Van Rensburg.

She says ClubCard cashback could be used to pay for purchases in Clicks, Claire’s and The Body Shop stores.

Consumers have saved billions of rands in loyalty programme rewards offered and are increasingly taking advantage of their reward points.

Janse Van Rensburg added that ClubCard had an array of ClubCard partners like Shell, Discovery HealthCare, Sorbet, The Body Shop, Musica, SpecSavers and Execuspecs, City Lodge Hotel Group, Europecar and Netflorist where customers can earn further ClubCard points and benefits.

John Bradshaw, Pick n Pay’s head of marketing, says the Smart Shopper rewards programme was launched in 2011 to reward loyal customers, the retailer’s way of saying thank you to its customers.

Bradshaw says customer reaction to the launch of the programme exceeded Pick n Pay’s expectations and the retailer currently had more 7 million active customers.

He added that Pick n Pay modernised Smart Shopper early last year to introduce more personalised discounts and during this financial year, offered R3 billion in personal discounts to its Smart Shoppers.

“Accessibility is critical and we always look at ways to make this easier for customers across multiple platforms. We have already gone digital with the launch of our mobile app which as proved very popular. Innovation has played an important role in Smart Shopper’s success,” says Bradshaw.

He added that every Thursday, Smart Shoppers receive personal Just for You discounts on the products they buy most often.

“These are worth over R500 per customer per year. These personalised discounts are automatically loaded weekly for each Smart Shopper. Customers can claim these by loading the discounts onto their card at the Smart Shopper kiosk in-store, via email or on the Pick n Pay mobile app. The card is then swiped at the till with the qualifying products to get the savings. These personalised discounts have been well received with customers and over a million customers are using their personalised discounts,” says Bradshaw.

Woolworths says the Woolworth WRewards programme was not a traditional points based programme and customers enjoy instant savings at point of sale (POS) on their till slip and on the Woolworths App, product voucher offers and up to 3 percent Cash back when buying with their Woolworths Credit card.

Woolworths says the WRewards in its current format had been in operation since September 2010 customers have saved a total of R538m during the period June 26, 2017 to June 24 2018.

Consumers have saved billions of rands in loyalty programme rewards offered and are increasingly taking advantage of their reward points. Picture: Nabeelah Shaikh
“No other programme gives you the opportunity to give back via a Community Loyalty programme such as MySchool MyVillage MyPlanet. To date the MySchool MyVillage MyPlanet programme has given back over R570 since its inception in October 1997,” says Woolworths.

South Africans love loyalty programmes

By Stephen Cranston for Financial Mail

According to research firm AC Nielsen, SA has the highest penetration of loyalty programmes anywhere, with almost two-thirds of the population belonging to more than one programme.

There are two broad categories of reward programmes in financial services. One is rewards for doing business, which would apply to all the bank programmes.

FNB’s eBucks has been the most successful of these (the eBuck itself was an online currency long before anyone had thought of bitcoin). The other bank programmes — Nedbank’s Greenbacks, Absa’s Rewards and Standard Bank’s UCount — have similar methodologies to eBucks.

Then there are the wellness programmes, which were pioneered in SA. Discovery Vitality is dominant in this sector, with Momentum Multiply in a respectable second place. They both encourage fitness, particularly through discounted gym membership.

Johan Moolman, head of eBucks, says the programme has paid out more than R10bn in its 18-year history.

Customers can spend these rewards on regular purchases such as groceries, fuel and airtime, or they can save them for Christmas gifts or travel,

To stay competitive the number of points needed to move to a higher level has reduced. The ability to accrue eBucks at level 5 is quite substantial, with a 3% accrual on credit card payments, 0.25% on cheque cards, and 15% discounts at Shoprite/Checkers, Gautrain and Uber, the airtime provider FNB Connect and even on FNB Life Cover.

Absa Rewards differs from eBucks in that it pays cash rather than a phantom currency. Head of Absa Rewards Sonja Fourie says Absa’s experience shows that it drives engagement. “Many loyalty programmes are engineered with an overriding goal to drive deals with partners. We need a shift so that programmes are engineered to drive value for the customer and provide the customer with a choice of where to use the rewards.”

Fayelizabeth Foster, the executive head of loyalty and rewards at Standard Bank, disagrees. She was one of the founders of Absa Rewards, but when she was hired to start Standard’s UCount programme five years ago she took a different approach.

“Just giving cash which then gets swallowed up by the monthly bills isn’t the best way to build up loyalty. It is better when a rewards programme gives you something specific that is important to you.”

This could mean a bucket-list holiday, or for example the opportunity to participate in crowd-funding for students.

Nedbank Greenbacks has been successful at encouraging its clients to use their points to buy unit trusts.

It enhances the value of Greenbacks by more than 20% for those who choose to buy unit trusts instead of goods.

The bank programmes do not have the paternalistic approach of Vitality which, for example, only gives discounts at Woolworths and Pick n Pay when it comes to paying for healthy foods.

Foster says UCount is more concerned about helping its clients through the month and pays back up to 20% of the shopping baskets at Pick n Pay and Woolworths. It includes nonfood items such as shampoo and washing powder.

It even has KFC as a partner as it believes that a monthly family treat is valuable for many of its clients.

Unlike its main competitors, UCount points expire after five years. Foster believes this boosts engagement as it forces customers to make an active choice about what to do with their rewards, as they don’t accumulate indefinitely.

Setting up these programmes is complex, time-consuming and expensive and it does not work for everyone.

In March 2017 Liberty cancelled its Own Your Life rewards programme. It was no longer considered to be aligned to Liberty’s strategic direction, with its focus on nice-to-haves such as car hire, accommodation and flight bookings.

Old Mutual has been conspicuous by its absence from rewards programmes, but Jean Minnaar, GM for customer solutions, says the new Old Mutual Rewards programme is being rolled out to staff. It is designed to encourage good financial habits: taking control of finances and working towards financial goals. It will be available even to people who do not own an Old Mutual product though, of course, the group plans to build up enough goodwill to win them over.

In contrast, its rival, Sanlam Reality, encourages people to take out as many products as possible from the life office and its strategic partners, such as Santam and Bonitas medical aid. Ultimately, these programmes would not be worthwhile if they did not add new business.

In today’s retail and shopping centre landscape, it is becoming increasingly difficult to compete for consumers’ attention, says Steven Burnstone, CEO and head of analytics for Eighty20 Consulting

Standing out and being attractive to consumers is not impossible-all it takes is an understanding of your customers.

Burnstone says that understanding one’s customer base is key. “The way businesses communicate to customers is one of the many areas that need to be focused upon. Businesses need to shift away from traditional, product-focused advertising models and focus on delivering advertising and promotional messages that are customer-focused and tailored to specific individuals.”

Burnstone shared invaluable insights at the eighth annual South African Council of Shopping Centres’ (SACSC) Research Conference on 9 May 2018.

South African customers are members of multiple programmes, receiving countless marketing messages across all channels. How can retailers set themselves apart and be heard in this competitive environment? Big data and artificial intelligence is enabling retailers to speak more accurately to customers and better understand what marketing strategies work best to drive feet in stores and grow customer satisfaction.

Customer behaviour changes achieved by promotional campaigns and loyalty programmes can be assessed.

“In highlighting the data required, methods used and the common problems encountered, we can uncover some of the nuances of customer behaviour change and what to look out for. We can look at some of the insights gained from these analyses and see how they can be used to systematically optimise these campaigns and programmes.

“These can improve the efficiency of marketing to customers, through personalised targeting of messaging and communication channel.”

Who has SA’s best loyalty programme?

Clicks Clubcard has taken over the top spot as the most used loyalty programme at 67%. The Clicks brand took over the top position from Pick n Pay and their Smart Shopper card system, with Pick n Pay, ranked in second place with 66%.

The third spot belonged to Dischem with a sizeable jump down to 44% who climbed two places compared to last years list.

These are results from the 2017 Truth Loyalty Whitepaper, which is a complete annual look at the loyalty habits of 28 273 adults with a gross monthly income of R10 000 or more.

Loyalty programmes are up 8% compared to 2016 which makes the number of loyalty programme users stand at 79%.

With four out of five South Africans now using loyalty programmes, people view memberships as something that is worth their while.

The CEO of Truth, Amanda Cromhout, said that it has been another tough year for South Africans and political and economic instability always ends up hurting the consumer’s pockets.

Clicks reported that the loyalty programme membership has grown to 6.- million members which make up 77,4 % of sales.

The Edgars Thank U card retains their spot in fourth place but Woolworths fell two places to fifth place this year.

FNB has remained the most used loyalty programme for banking while being ranked in sixth place and Spur at the seventh place is the only restaurant on the list.

Loyalty programme users have increased since 2016. Male loyalty programmes users stand at 74%, a 5% increase since last year and 84% of women are loyalty programmes users, an 11% increase compared to 2016.

Consumers should be selective about the programmes that they join. Cromhout said that her advice to consumers is to focus on the brands you use most often and whose loyalty programmes rates are fairly high. The ideal rate should be between 2-5%.

Some of South Africa’s other loyalty programmes are:

1. Exclusive Books Fanatics
2. Discovery Vitality
3. SAA Voyager
4. Standard Bank UCount
5. MTN 1-4-1

Source: Supermarket & Retailer

Follow us on social media: 

               

View our magazine archives: 

                       


My Office News Ⓒ 2017 - Designed by A Collective


SUBSCRIBE TO OUR NEWSLETTER
Top