Professional Documents
Culture Documents
Volume 1 Number 2
Sneak Preview:
LOYALTY
EXPO
2009
DataCo EMPLOYEE
The Retention INCENTIVES
Imperative Do They Work?
DEPARTMENTS FEATURES
6 Letter from the Editor
8,10 Contributors 20 Your Customer — Version 2009:
Understanding the New Consumer Mindset
Sandra Gudat – Customer Communications Group, Inc.
LOYALTY FORUM 22 Upside and Challenges of a National Coalition
Roger L. Brooks – ValueCentric Marketing Group, Inc.
12 Your Voice
What Creates True Loyalty?
24 Do Student Discounts Build Loyalty?
Bjorn Larsen – Edhance
14 Q&A: Ask the Experts
A small hotelier asks,
“What Creates Loyal Customers?” 26 Is the “Customer Insight Gap”
Limiting Your Loyalty Program ROI?
Andy Cutler – Mercury
16 Behind the Brand/People
Interview with Rich Phillips, President –
Maritz Loyalty Marketing 28 What Consumers Really Want
Justin Barrie – Perkler
18 Behind the Brand/People
Interview with Jill Noblett, SVP – 30 The Retention Imperative
Wyndham Hotel Group John Dawson & Tom Salutz – DataCo
(continued on page 5)
“I converted
my credit
card points to my debit card.”
56 Your Voice #2
Loyalty Management
Do Employee Incentive Programs Really Work?
Editorial & Production Team:
58 Loyalty Program Profile:
Erin Raese – Editor in Chief Southwest Airlines Rapid Rewards
Caitlin Schar – Editorial Director
Victor Wilcox, Graphics Plus Inc. – Layout & Design
Jet Lithocolor – Print Production
Contacts:
Article Submissions: Erin Raese (630) 235-8251
PR and News: Laura Rusche (513) 545-5612
Advertising: Toni Dore (513) 226-0925
We are only a month away from the 2009 Loyalty Expo! This issue previews the conference,
giving you an introduction to many of the fabulous speakers and their exciting topics. Sandra
Gudat, from Customer Communications Group, introduces you to the “New Customer”, Karen
Webster of Marketing Platform Dynamics guides us through the jungle of social networking, and
Brent Harms, of ID Loyalty, shares a great new way to track loyalty programs without the need
for additional plastic in your wallet.
In Your Voice, we share your many opinions on the topic of employee incentives. We’ve posed
many questions to you over the last year, but none have received the amount of feedback and
insights we received from this question. You’re very passionate about this subject! We’ll be delving
deeper into this topic in future issues and at the 2009 Loyalty Expo.
Thank you for your continued feedback and sharing your voice, keep it coming!
Sincerely,
Erin Raese
Editor-in-Chief
Loyalty Management
erinraese@loyaltymanagement.com
MANAGEMENT
Behind the counter: You’ll enjoy the benefits of an agency with more than 30 years of experience
developing and executing customer relationship marketing programs in the retail industry. Our team
members are thought leaders and sought-after speakers who are committed to using their expertise
to help retailers attract, retain and grow profitable customer relationships.
On the menu: Select the services you need from our full slate of offerings, including …
Strategic CRM consulting Customer research
Loyalty marketing program development Creative execution
Loyalty program alternatives Production services
Data analysis and data management ROI measurement
Five-star rating: CCG has developed, launched and managed dozens of CRM and loyalty marketing
efforts for top retailers in the U.S. and Canada. Let your store be the next to take advantage of our
complete, proven approach — and start on the road to fresh sales and revived profits today.
800.525.0313 • customer.com
Greg Sultan, SVP, Strategist • ext. 122 • greg.sultan@customer.com
MANAGEMENT
800.932.1JET • imaginejet.net
Offical direct mail and print partner for Loyalty 360 and Loyalty Expo.
April 2009 | Loyalty Management 11
LOYALTY FORUM: Your Voice
G reat question, since the concept of loyalty has become so watered down by ubiquitous
rewards programs that are great for incenting desired behavior, but do little to generate true loyalty or
devotion to a particular business.
To earn customers’ loyalty companies must do two things:
1) Be excellent. 2) Be consistent. Only one of the two will not suffice. Occasional excellence will not generate
devoted customers, nor will consistent mediocrity.
Excellence, of course, is in the eye of the beholder. To me, Trader Joe’s fits the
bill for its unique products, great value and friendly shopping experience.
In the research I’ve conducted on mass merchandisers, I often hear
Wal-Mart (customers trust they are getting the best price possible) and Target (for affordable fashions in
apparel and home).
Adam Fox Experienced Strategist and Consumer Marketing Executive
B usiness with knowledgeable personnel. Most of the time I am apt to be most loyal to
the Mom and Pop stores (like my seed store or neighbor’s produce stand).
At my local garden store they know me by name, have all the right answers and seldom do they have a sale.
Yet, I return to buy all my seeds, plants and supplies. I recommend them not for prices but for quality,
friendliness, and because they care and educate me about my garden.
Caroline Cooper Owner/Artist at Grapes Galore L
A: We all want loyal customers. They spend more, stay longer (churn less), engage in insightful dialog that
can help us to make smarter decisions, and they tell others great things about our brand. There’s plenty of value
being added in every one of these outcomes. So what should you do to make more of your customers loyal?
It should come as no surprise to learn that offering an incentive alone—e.g. a discount, a rebate, a better
customer experience, points, prizes and rewards—is not enough to create loyalty. In simple (and universal)
terms, to create loyal customers, you need to build
relationships with them.
“This is why you have your loyalty program— Assuming you have repeat transactions/interactions
it is your customer insight machine.” with your customers, the resulting relationship is
complex. Different industries, brands, and even
different customers each have different relationship
drivers. In service-based industries for example,
the customer experience plays a significant role in building the relationship. The foundation of creating loyal
customers is knowing how to build stronger relationships with them.
This is why you have your loyalty program—it is your customer insight machine. The data
your program generates helps you to understand: what motivates your customers; what
elements of your brand, product or service they most value; how they prefer to engage
with you; what their past behavior reveals in terms of their interests and needs; what
their future value is likely to be; what incentives will encourage them to change their
behavior. Once you have these insights, you can deliver a more relevant value exchange
(customer experiences, offers, content, etc) through a 1to1 dialogue that creates
reciprocity, and ultimately, more loyal customers.
There are a lot of ways to think about loyalty, particularly for a small group of hotels. One
is to recognize that while there’s no way that a small group of hotels can compete on the
same level as a large chain like Marriott or Hilton, there’s no reason you should. Being
small means your organization is more manageable and nimble. That alone means that
there are things that your group can do to connect with customers and build a level of
trust and intimacy that simply can’t be replicated by larger competitors.
Beyond customers, loyalty starts with employees, especially in a business like hospitality, —Phil Rubin
where there is so much direct contact between employees and guests. So the first thing CEO & President
you have to do is make sure your employees are taken care of. Do this and they will take rDialogue
care of the customers.
A: Hotels typical value proposition: “ Spend money and stay with us, and get free lodging in exotic
locales, or free merchandise, or gift certificates, etc.”
Rich Phillips
Loyalty Management looks
“Behind the Brand” at Rich Phillips,
President, Maritz Loyalty Marketing.
the marketplace will be Think like a consumer. Be aware as you walk in your
own shoes—as you live your daily life—and the needs
self-evident.” of the marketplace will be self-evident. L
Jill Noblett
Getting to know
Jill Noblett, SVP at
Wyndham Hotel Group
Join us at the Loyalty Expo and hear Jill share
how Wyndham—the worlds’ largest hotel What is your favorite vacation destination?
company—is continually innovating its’ I have a tendency to pick a different destination each time
versus going back to the same place again. I guess it’s a sense of
customer loyalty strategies.
adventure driving that, and also a strong desire to experience a
variety of places and cultures. There are certain countries I have
visited several times that I can site among my favorites—I love
Jill is responsible for the the west coast of Mexico for the relaxation and the weather,
strategic development and management of I love Italy for the diversity it provides in terms of places to
the Wyndham Rewards loyalty program, see—Venice, Florence, Rome, the Amalfi coast—all such
customer loyalty initiatives, the Hotel beautiful locations and all so different in terms of experiences.
I would describe France in that same way—you can go back
Group’s customer database, direct-
several times to locations that are very different—one of my
marketing programs, strategic marketing favorite trips was the Route du Vin in Alsace Lorraine. The
alliances and promotional initiatives sheer physical beauty of Switzerland always takes my breath
across WHG brands. She spearheaded away and in the past several years, I have really rediscovered the
the design, development and 2004 joy of traveling right here in the wonderful US.
launch of TripRewards, the company’s
first system-wide, multi-brand customer When traveling for fun, what is your packing
loyalty program, its 2008 rebranding into secret? I wish I could say packing light, but that is not my
forte!! I like to be prepared, so I tend to pack on the heavier
Wyndham Rewards and the program’s side depending on how accessible things are where I am going.
global expansion. The Wyndham Rewards But, I am usually glad for what I have brought. Since I carry
loyalty program is the largest in the liquids, I typically check baggage now but have learned to
lodging industry based on the number of always pack at least for one night in my carry on just in case of
lost luggage (which has happened to me more than a few times
participating hotels, which include the
unfortunately). And, I will bring a bag for dirty clothes so that
Wyndham®, Ramada®, Days Inn®, Super when I come home, I can just dump it all in the wash.
8®, Wingate® by Wyndham, Baymont Inn
& Suites®, Hawthorn Suites®, Howard Which books and magazines would we find in
Johnson®, Travelodge®, Knights Inn® and your luggage? I use long flights as an opportunity to catch
Microtel® brands. Prior to her current up on work reading. So often, it will be industry publications,
role, Noblett held marketing positions but I make sure to bring along a few entertainment pubs
(People!) for some light reading. I have recently become a fan
with Bertelsmann Corporation, Columbia
of historical fiction—Philippa Gregory is one of my favorite
House, Prudential Direct Inc. and Rapp authors in that genre. She wrote, “The Other Boleyn Girl” and
Collins Worldwide. several others in that series.
Frugality Gets Chic to interact easily via online, mobile and kiosk self-service
Layoffs, pay cuts, battered investment portfolios and a channels versus a retailer that does not.3
general worry over the state of the union and “what may n They’ll appreciate new technology that enhances their
be” has caused vast numbers of consumers to cut back shopping experience. For instance, IBM’s Virtual Mirror
on spending and redirect their budgets around the near- Kiosk lets consumers “try on” makeup using a digital
forgotten art of saving. photo, then share the results with friends via e-mail and
n More than 50 percent of consumers say they have less social networks.
discretionary funds than in 2007.1 n F orty-six percent of U.S. multi-channel shoppers want
n Two-thirds are buying fewer items or delaying to receive price comparisons, product reviews, coupons,
purchases.2 promotions and store sales information online or via
e-mail.3
n 60 percent are shopping for sale items and using more
coupons.2
Indulgence and Escapism Won’t Be Forgotten
Trust and Value Are the New Hot Buttons Embattled and anxious they may be, but consumers will
still want to indulge and escape momentarily from the stress
With retailers discounting merchandise up to 90 percent
of day-to-day life.
over the holidays, some customers have grown distrustful
that merchant pricing is a true reflection of product value. n They’ll look for small, affordable luxuries (i.e., premium
chocolates and coffees).
n Nearly 50 percent of consumers are switching between
n They’ll seek out light-hearted experiences, entertainment
retailers to get better values.3
and products that promise to enhance their mood.
n And they want real value, whether from value pricing n They’ll bring more experiences into the home, such as
or value-added services, such as free consultations or a pre-packaged gourmet meals and home spa products.
knowledgeable staff that can answer their questions.
Adjust Now for a Stronger Future
Convenience and Service Rival Price
In a tough economy, customers rule more than ever.
From faster checkouts to seamless multi-channel Understanding their current mindset and making
integration to more customization options, customers want a appropriate adjustments to your business and marketing
faster, easier, more personal shopping experience. And, they strategies can help you maintain your customer base. Play
may be willing to soften their focus on price if they get it. it right, and you could even emerge from this downswing
nN
early three-fourths of consumers say they are more with customer relationships that are stronger — and more
likely to shop with a retailer that gives them the flexibility profitable — than ever.
1. “Shopper advocacy: Building consumer trust in the new economic environment,” IBM Institute for Business Value survey, http://www-935.ibm.com/services/us/gbs/bus/pdf/qr_gbe03143-
uwen_nrf08.pdf, released Dec. 2008, accessed Jan. 22, 2009. 2. “IBM Helps Retailers Respond to Changing Consumer Behavior,” IBM Press Room, http://www-03.ibm.com/press/us/en/
pressreleases/recent.wss, posted Jan. 12, 2009, accessed Jan. 22, 2009. 3. “Consumers are shopping on price and want more self-service help, study says,” Internet Retailer, http://www.
internetretailer.com/dailyNews.asp?id=29126, posted Jan. 20, 2009, accessed Jan. 21, 2009. © Customer Communications Group, Inc. (CCG); first published in The Profitable Customer, Spring 2009
Upside and
Challenges of a
National Coalition
by Roger L. Brooks – ValueCentric Marketing Group, Inc.
friendly neighbors; “Anything You Can Do, I Can Do Better” AIR MILES had the will to:
(lyrics from the song “Anything You Can Do” from the 1946 n Issue a non-payment loyalty card which they call the “Blue”
Broadway musical, Annie Get Your Gun.) Canadians would argue card.
however, that this egotistical philosophy falls short when it comes
to their fancies like hockey, maple syrup and loyalty. Yes, I said n Open negotiations and partner with national merchants.
“LOYALTY”. n Overcome point-of-sale and technical challenges.
Roger L. Brooks had a chance to catch up with Bruce Kerr, President of LoyaltyOne US
(the parent company of AIR MILES) to provide his view on coalition-loyalty in the US.
Can loyalty-marketing in the US replicate what is being Coalitions are notoriously difficult to
done in Canada? orchestrate, but once they launch and
achieve critical mass with consumers,
[Bruce Kerr] “Yes it can, the overall household penetration they demonstrate formidable longevity
may not be as high, but the avidity of the customer base and are difficult for competitors to
will be equal if not greater. The ramp up of penetration will replicate. And with coalitions now
outpace that of Canada, due to the high embedded base of operating from Brazil to Malaysia
loyal customers across the partners. and points between, the case studies Bruce Kerr
suggest that most markets eventually
What makes the coalition model so strong is its ability to evolve toward coalition loyalty. The US is
leverage consumers’ everyday spend in high-frequency poised to be next.”
categories to offer them attainable rewards and benefits they
can’t earn as easily in a proprietary program. The everyday Are things different today, and if so, how?
spending component is key. Proprietary programs tend to
focus on a subset of consumers, like road warriors or the [Bruce Kerr] “The current recession may ironically open a
affluent. But the high-frequency categories really open your launch window that finally allows a U.S. coalition program
reach into middle-class consumers, which allows a coalition to take flight. Lack of liquidity and low consumer confidence
to naturally build a much bigger customer database from may lead to a short-term weakening in company investment
which to generate results for sponsors.” in proprietary loyalty strategies. Conversely, the same
environment will fuel a need for U.S. Companies to share
What are the obstacles that have stood in the way in marketing costs and control program liability, which will
the past? drive demand for partner and coalition loyalty models.
[Bruce Kerr] “Obstacles of the past were the unwillingness Companies are now prepared to evolve or integrate current
of US companies to work together cooperatively — sharing strategies with coalition opportunities. Consumers craving
marketing costs and issuing a shared currency. Plus the sheer differentiated programs allow them to quickly earn great
size and diversity of the US marketplace is challenging. rewards for their everyday spending.”
When you see a young college student standing at the sidelines of a football game with his face
painted in school colors and three letters proudly written in permanent marker on his chest, screaming
from the top of his lungs something that might resemble his school chant, it’s hard to argue that
students aren’t loyal. The question is, how do you make them loyal to your brand?
A
s freshmen students haul their parents from Manhattan’s Fifth Avenue is a common strategy to acquire
up and down the aisles at Target every fall, something customers who are less willing and able to pay full price. By
unique is happening. The dependent kids are turning offering discounts to affinity groups who are more price sensitive
into independent consumers, and over the next four years they than the general public, merchants can achieve the same effect.
begin shaping their brand loyalty for decades to come. While In fact, if they could charge a different price to every customer
parents often get the honor funding the spending, students take in a socially acceptable manner, merchants would ultimately
more and more control of what is being bought and why as increase overall revenue. A perfect example of this is demonstrated
they progress through college. This is the defining time when by colleges and universities themselves. These organizations
they decide which bank to trust, what apparel brands represent typically offer need-based and merit-based tuition discounts to
them, and which beer to enjoy on a warm afternoon in their own their customers through financial aid. Through this strategy, they
backyard 40 years later. are able to dynamically set a price students and their families
are able to pay, while maximizing the future income from that
Another benefit to marketing to young adults is that they customer. Students with better grades tend to get higher-paying
are excellent brand ambassadors. How many students have jobs, and are more able to donate more to the university in the
convinced their parents to purchase an iPhone, versus the other years to come. Schools have found a socially acceptable way to
way around? Who put Facebook on the map, now the hottest charge a different price to every customer, and by offering student
thing amongst stay-at-home moms? Students are demanding discounts, merchants can follow their example.
consumers, and by giving them special treatment, companies
can get on their good side. It’s hard to build an effective college program
But how can we build lifetime brand loyalty when today’s The college market is extremely scattered: in the United States
young adults have amongst the lowest participation in loyalty alone, there are more than 6,500 higher education institutions,
programs across the board? Research tells us that young adults each with different trends, audiences, and policies. It’s hard to
filter out traditional push marketing more than any other group, find a common denominator that resonates well with everybody.
both online and offline. It’s also a known fact that students Students at some of these institutions like to dress professionally,
have less disposable income than the general population and are some wear alternative clothing, and some don’t seem to wear
constantly trying to save a buck. So, even if merchants are able to anything at all. While competitive college athletes spend every
get students interested in their products, students might simply extra hour of the day in the gymnasium, others spend all night
not be able to afford to spend the money. building their own virtual world in Second Life. Sure, most of
them are on Facebook, but what they do in social networks varies
Student discounting does not discount the brand enormously from person to person. In fact, that is why it’s so
appealing to them—it’s personal.
A common misconception among marketers is that price
differentiation towards students is considered discounting, How do we, as corporations trying to sell products and services
which is just not something they should associate their brand to this demographic, get their attention? An old adage offers some
with. However, several well-established brands with solid great advice: Everybody likes a good deal.
student offerings, including Apple, Microsoft, Dell, Jetblue,
Amtrak, J.Crew, and Club Monaco, have proven this wrong. For If a merchant decides to offer discounts to students, they are
companies like Apple, in fact, student discounts are perceived as still facing some very real challenges. It’s important that the offer
corporate contributions to making education affordable, which is is only available to a closed audience, meaning currently enrolled
certainly a positive association for the brand. students. Coupons or special online links can be easily shared
with non-student friends and family. Secondly, the discount has
A far more familiar practice for marketers is geographical price to be operationally convenient. Training a sales force of thousands
differentiation. Lowering prices for consumers who live in a lower of employees to evaluate 6,500+ different kinds of student ID
income area or choose to drive to an outlet mall area far away cards, many of which never expire, isn’t very scalable. But perhaps
On STUDENT DISCOUNTS:
Top Uses:
Movies & The Apple Store
most important of all, it must be measurable. If a merchant can’t track the Thoughts:
success of the program, they will never know if they are offering the right “I love student discounts…
discount at the right locations at the right time. The key is to get into the
transaction. wish there were more of them.
The next generation of student discounts
It’s always a nice surprise when
I am out and see someone
At Edhance, we are building a no-fuzz merchant-funded rewards program
for college students by seamlessly processing discounts behind the scenes.
is offering a special price
Edhance is free to join for students and completely pay-for-performance for because I am a student. Makes
merchants. All members are actually students and all participating merchants
deliver real value. me feel better about what I
am spending to know they are
We have direct relationships with universities and colleges that allow us
to verify enrollment and market to students on-campus. Students register thinking of me.”
their credit or debit cards with us, and through integration with payment
processors, we get visibility into their transactions with our partners. From What Loyalty Marketers
there, we calculate the discount, charge it to the merchants and credit
it back to the students. Our partners get online access to a multitude of Need to Know or Better
reports, detailing which schools their customers are from, their average time Understand About Your
to graduation, which locations are most popular, and so on. Limited time
promotions can be customized and targeted towards specific store locations, Generation:
transaction amounts, or universities. No staff training is necessary, since
everything happens magically on the back end.
“We want everything to be
fast and easy. We don’t want
While many of us perhaps try to forget many of the things that happened
in college, the reality is that these few years are some of the most influential
to have to fill out forms or wait
times of our lives. Let’s learn from the best, the universities, and build lifetime for regular mail. We want…
brand loyalty through price differentiation. It’s a proven strategy that still gives
us a warm and fuzzy feeling every time we spot a rusty old car with our old or I want anyway, ‘Instant
school name in the window, decades after we graduate. That’s brand loyalty. L Gratification.’”
Is the “Customer
Insight Gap” Limiting
Your Loyalty Program ROI?
by Andy Cutler – Mercury
Most companies spend a lot of time and money figuring out how they want to configure their loyalty program. Should
it be points-based? Do we offer redemptions through partners? When should accrued-value expire? These are all critical
drivers of success when designing your program—and most companies do a good job in this area.
Here’s how to read this chart: of those customers who way is to evaluate responsiveness to communications with a
were in the Very High value group in 2007, 50% stayed in discount vs. those without. Once you have done this, you can
the Very High group in 2008, 23% slipped to High, 13% experiment with replacing discount offers with more relevant
fell to Medium, etc. Conversely, 15% moved from High to product (full price) offers for those customers who appear to be
Very High. less sensitive to discounts. Over time you will find out the right
mix of discount and non-discount oriented communications—
The percentages provide focus as to where the largest shifts and your ROI will be the better for it.
are in terms of the number of customers, but overlaying revenue
onto this chart (average annual revenue by segment) will reveal Realizing the untapped potential of your loyalty program
where the large ROI opportunities lie. starts with asking questions that go beyond the traditional
measures—questions that lead to increased customer insight
For this client, the most obvious place to start was with once you have answered them. These insights will enable you
customers who lapsed in 2008. In total, this group represented to make key changes to your program that in turn drive your
over $130 million in potential revenue that was not realized. ROI higher. L
This information could possibly lead to the development of a
new retention strategy or a lapse/recapture program.
While the current focus is on the need to have tools and Instead of being caught in this cycle brands have another
campaigns that differentiate one program from another, a option. Turn loyalty into entitlement shopping. At a time when
culture of ‘winning the consumer and bringing them home’ consumers are universally looking for any advantage to making
seems to have developed. This is played out by dragging the their purchasing more economic, why isn’t the loyalty industry
consumer to a brand’s own collateral only, interacting with positioning it’s perks as a standard and immediate entitlement
specific offers and messages direct to the consumer. In short that enables the consumer to have greater purchasing
attempting to silo them into a direct relationship. power. Imagine a time when retail prices are attached to an
Entitlement Price! Linking the outcomes of the loyalty program
If loyalty is to evolve, at least some of the energy put into deeply with the purchasing process is a great way of describing
communicating directly with consumers should be put into the inherent value of a program.
Allow the consumer to ‘pull’ On a mobile level, pull technology is essential. People make
significant purchasing decisions on the spot. By enlisting a tool
Everything we have seen and heard from consumers tells us like a Smartphone application, you can allow consumers to search
that they are overwhelmed by the loyalty industry. Multiple offers, their entitlements right at the point of purchase. Capturing them
non-stop communication from tens of retailers and programs, but allowing them to dictate when and how they were contacted.
different styles of websites and other channels can lead to a The Perkler iPhone application customizes the consumer
disengaged and passive audience. experience across hundreds of loyalty programs to facilitate this
right now.
Certainly the industry research on active memberships as
opposed to actual memberships in US households seems to Engaging with social media is the last plank in the information,
support this. mobility, engagement cycle that we have identified as crucial.
Taking part in Twitter conversations, monitoring blogs and
Rather than trying harder to ‘get the message through’ to linking into niche communities such as Perkler and other
consumers, we’ve learned that allowing them to seek answers shopping and flight communities isn’t a necessary evil, it is
when they want it is essential to building trust in the sector. It just necessary. By engaging with the community a range of
also allows for a lower cost if programs have data available and the quantitative data can be accessed and true brand and program
consumers choose when to interact with it. value gauged.
The potential tools to enable this are varied and exciting. In lots of ways we haven’t learned anything new. Consumers
Perkler has done this in a web platform by building an ability to move about between brands, they define themselves by a brand
build and search across a virtual wallet. This enables consumers but purchase at others, and they are passive within the loyalty
to search their entire portfolio when they want to based on program market. What is new are the tools and approaches that
likes, purchases and location. For programs, they get to see what will allow programs to engage within the purchasing process
members are searching inside and outside of their own program so that loyalty drives the purchasing decision and isn’t a passive
(the great missing link from the inclusive/reclusive debate). bystander. L
The
Retention
Imperative
by Tom J. Salutz & John Dawson – DataCo
C
hurn has become the major issue for many The key to maintaining margin and successfully addressing
businesses in today’s economy, and it may threaten their churn is pre-emptive retention. Most retention programs do not
existence if they panic and lose sight of some key drivers address the person who is about to leave, and most acquisition
to address it. Unfortunately, as budgets get stretched, shortcuts programs are structurally too inefficient to economically deliver
get taken, and desperation takes residence in the Marketing the new customers the business needs to survive. When you
Department, the chance of a miscalculation increases dramatically address both the need for more new customers and can slow
down attrition rates without destroying your margin, we have
Recent work on the relative efficiencies of using pre-emptive found that you have the elements required to stabilize and grow
retention programs versus acquisition programs to stabilize your customer base.
customer populations has led us to a counter-intuitive conclusion.
It is not just: the convergence of growing recession forces, general The analogy we like to use is a bucket. Probably because when
consumer dissatisfaction, and the failure of programs designed to I was a lad, my father told me that one of the ‘truths of life’ was
hold on to customers, which forces marketers to measure, test, that no matter how small a hole in a bucket is, the water would
and evaluate their acquisition techniques before they commit still eventually run out. By the same token, most people realize
shrinking budgets to them. It is the need to avoid miscalculations that if you are losing customers—even at a very slow rate—you
that can destroy a business. Our current modeling makes it clear will eventually be out of business if they aren’t replaced. But in
that acquisition programs alone are not the best or even most a highly competitive world; in a world of commodity products
efficient way to stabilize your customer base. In fact, they must and pricing; in a world of fluid consumers with almost no barrier
be teamed with pre-emptive retention efforts to offset the costly to movement; and in a world which is increasingly uncertain
inefficiencies of most acquisition programs. By the same token, economically; the problem that most marketers face is that, the
ill-conceived or margin-destroying retention programs, applied hole in the bucket is actually quite large. Facing double digit
preemptively, can start a tail spin that is hard to pull out of. churn rates, the task of maintaining or growing your business by
In our Base Case, as in many continuity businesses, the “Acquisition programs alone
length of time that the customer has been with the company
is a critical indicator of likelihood to churn, and, that value are not the best or even most
changes over time. Consequently, to make the model sensitive
to a significant predictor like ‘years as a customer,’ we actually efficient way to stabilize your
age the entire 1.5 million hypothetical customers in our Base
Case to reflect a typical customer mix. customer base.”
Consequently, the model is going to act upon attrition
patterns and performance in the same way we would see it
Given their own dismal projections, we can imagine that
with a client.
the Base Case company’s Marketing Department would be
actively pursuing a better way to handle their residual attrition.
We have set the Base Case, and the scenarios we will test,
So here is what they are going to look at through the following
to run over a five year period. This will demonstrate the affect
scenarios to better handle their churn. First, they will compare
the scenarios make on the model dynamically, and allow us to
two diametrically opposed scenarios, in an effort to answer the
create a more realistic idea of what is happening over time.
burning questions of:
Creating any model relies on making assumptions. In order
“Am I better off by continuing to focus on acquisition and
not to be overly distracted by that caveat, we have included a
pouring even more money into that tactic/program,
graph titled ‘Annual Attrition Rate by Year a Customer,’ which
is our decay curve. That curve affects the performance of the
or
scenarios we are running against our Base Case. Consequently,
the model is predictive against the real world companies that
Am I better served by starting a pre-emptive retention
this curve reflects, and is derived from actual experience, not a
program to retain customers who are getting ready to bolt?”
Ouija board.
Summary of findings
Let’s take a look at how the two scenarios affect
the Base Case model, and then try to see if there
is way to improve the performance by combining
the different tactics.
Scenario 1 Scenario 2
Rely solely on Implement a Pre-emptive Retention
increased acquisition spending Program on top of the Base model
“We would recommend Second, slowing down the attrition of the newer customers
you have acquired has a significant effect on their lifetime
that you build value value in the model. Consequently, reducing the attrition rate
of this customer can have significant revenue impact even if
with the customers your overall churn rate reduction appears to be modest. Saving
a more stable customer for several dollars a month, instead of
who have the highest acquiring an unstable one for hundreds per individual turns out
to be a more efficient tactic. Think of it as the process by which
Almost every indicator went south except the fact that the
model remained positive on net revenue. So while it actually Scenario Results Scenario 1 Scenario 2 Scenario 4
made some money we had to consider this approach to be a Comparison
failure.
Net Revenue after
Many people think that they can ‘prune’ their way out of $3,958,028,656 $4,124,482,644 $4,163,598,839
Marketing
this market, by surgically cutting back. However, in the light
of this scenario, we remain convinced that cutting expenses
Increase in Ending
for acquisition and retention in the current market will come 614,149 496,897 759,046
Customers
with significant consequences. Many that will turn up in the
out years. It is just as important to realize that indecision—and
compromise based on cutting-the-baby-in-half—is not a Increase in New 419,341 -1,250 160,382
strategy that will serve your company well. Marketers who Customers
want to do more than weather the times and challenges we face
will need to test, analyze, make an informed directional choice Increase in Attrition 241,405 -151,667 -67,296
and then fund the strategy to the level it needs to be effective.
Anything less is a prescription for failure. Half-way measures Increase in Revenue $335,746,844 $267,958,735 $410,415,977
may be worse than none at all
Increase in $280,875,149 $46,633,052 $149,974,100
Marketing Cost
“Cutting expenses for acquisition and
retention in the current market will Increase in New
Customer Cost $280,731,708 $599,400 $102,498,312
come with significant consequences.”
Increase in Net $54,871,695 $221,325,683 $260,441,878
Revenue
Scenario 4
Match Pre-Emptive Retention With ROI of Incremental
Net Revenue as
New Customer Increases a Percent of 20% 475% 174%
Incremental
I n the fourth scenario, with a combination of both aggressive acquisition and aggressive retention, the company will end 2013
with a customer base of a little over 1.491 MM customers, which has actually begun to grow. You can see that growth as a rise in the
top line of the graph [Scenario 4] comparing the ending customer numbers.
Acquisition efforts and costs were helped substantially by the lower cost retention program which also increased the lifetime value of
the customers, and required fewer new customers be added to the base. In effect you can have your cake and eat it too—with an approach
that has low costs, high revenue, and still ends with more new customers. Significantly, the same approach without regard to the model
[Scenario 3] turns in the worst performance of the four scenarios and provides only a negligible improvement to the Base Case.
In Conclusion…
As we said earlier, the particulars of any business can be quite different, but the universal lesson that this exercise demonstrates is
that prudence requires marketers to always model and test their assumptions about customer growth and the interplay of acquisition,
attrition, and retention dynamics. It is far too easy to make decisions based on faulty intuition and assumptions that could prove to be
tragically wrong.
The most important conclusion you can draw from this analysis is that a pro-active retention program is an imperative. If you could
only pursue one tactic, then retention is clearly it. Contrary to your intuition, the models demonstrate that retaining your existing
customers performs almost as well—from a revenue point of view—as aggressively acquiring new ones. The difference is that with a
retention approach your risk is lowered, your costs are lowered, and consequently you keep substantially more of what you make.
Our message for the bold leaders who actually want their companies to grow in this environment is: a tactical strategy is available to
you. Integrate a pro-active retention program with an effective acquisition strategy. Use analytics to help you achieve the balance you
need between those efforts, and you will keep more customers longer, and grow a larger customer base by adding fewer new ones. It has
never been more important to analyze, understand, reward, and retain. You will benefit from the efficiencies you will be able to achieve.
Growing your business with lower costs and higher margins is a strategy that works in any economic climate.
Footnotes:
[1]Teleconference: The Science of Churn, Sally M. Cohen, Analyst, Forrester Research PowerPoint, March 4, 2009
http://www.forrester.com/rb/teleconference/science_of_churn/q/id/5474/t/1
[2]T-Mobile Aims To Keep Subscribers with a $50 Plan, by Frederick Lane, http://www.newsfactor.com, February 19, 2009 3:09PM
[3]Deep Discounts During the Recession Can Damage Brands, New Yankelovich Study Finds, PRNewswire, Chapel Hill,
NC, March 11, 2009 http://news.prnewswire.com/DisplayReleaseContent.aspx?ACCT=104&STORY=/www/story/03-11-
2009/0004986557&EDATE=
399 Knollwood Road White Plains, NY 10603 April 2009 | Loyalty Management 35
www.incentivegroup.com
TRENDS & REWARDS
T
his article provides a new way of evaluating
the critical components of a successful social strategy
and offers a “five forces” framework for turning these
networks into net revenue. These five major forces—me-driven,
peer-driven, trust-driven, time-driven and cause-driven—will Cause-driven Peer-driven
shape the development of social strategy for years to come.
Understanding and then managing these five interdependent
influences will help to anchor the development of an effective
social strategy.
Me-Driven
Time-driven Trust-driven
People often use social networks for voyeuristic reasons. Once a
presence is established, they often find sub-groups of people who
work in the same place, went to the same school, like the same
F igure 1
causes, follow the same music, read the same books, among many
other things. But, no matter what the age nor the reason they join MPD’s Five Forces of Social Strategytm
and then visit, users are in control of who they are friends with,
who they interact with, what conversations they want to join, and
what information they want displayed. Creating a community on friends, friends of friends, co-workers, old classmates or whether
the user’s terms. they are simply there to make new connections, it is one’s peers
that drive users to stay connected within their social networks.
Building communities, therefore, is about the community, first, It is also those peer-driven interactions that increasingly drive
and not about the advertiser. Advertisers have to be invited in; decisions about everything from movies to merchants. Peer-to-
and will only be invited if their offer strengthens the relationships peer word of mouth has always been a highly valued source of
among the friends in that network. Pull, not push, is the name of credible, dependable information, and social networks make those
the game. interactions more efficient and more visible.
Breaking through the clutter and into the community requires Marketers must keep in mind that these communities are
that you demonstrate how your offer strengthens and efficiently already vibrant ecosystems who haven’t invited you in and who
enables the interactions with those within the community. will ignore you—or worse - if you barge in uninvited. Earning
Competing for time and attention means that relevance is now their trust and building relationships must come before the sales
the name of the game. Users need a return on the investment pitch. Heed that advice, and you’ll find that in the end that both
of the time they spend on these networks in the same way that your company and your bottom line will be “friended” by them
marketers need ROI on their marketing dollars. even more. L
Everyone leaves the house in the morning with their cars keys, wallet/
purse and cell phone or mobile device. Leave any one of those behind
and you’re off balance the entire day.
n Within the next four years, over half of the top 50 brands Creates Dialogue. Send regular and time sensitive alerts
in North America (52%) expect to spend between 5-25% about events, special offers, coupons, discounts to their mobile
of their overall budgets on mobile marketing efforts. Of phones. Your customers want to hear from you about special
these brands, more than 40% have already invested in text offerings. This makes them feel valued and rewarded.
messaging campaigns, still the most popular mobile service
to date. Creates Loyalty. And when your customer feels valued and
rewarded, they become loyal. You have now developed a unique
n According to research firm eMarketer, the U.S. mobile- bond with them through their mobile phone. It may sound
advertising industry is expected to balloon from $421 corny, but isn’t this what you trying to already do through other
million in 2006 to $4.7 billion—and to $11.3 billion channels?
worldwide—by 2011.
Low-cost. Today all small businesses can easily afford to get
n By 2010, mobile phone subscribers will climb to 75% of into mobile campaigns and compete with the big dogs. Like I
the US population or approximately 236 million users, mentioned earlier, turnkey platforms absorb many of the costs
according to The Diffusion Group. associated with certain aspects of SMS marketing. SMS costs
about $0.07 per message, down from$0.15 just a few years ago,
n About 63% of Americans from age’s 18 to 27 text message, with even bigger discounts being applied for bulk purchases.
according to a Pew Internet & American Life Project survey
out in March. Those teens are bringing texting to their It’s Brand Building. Mobile Loyalty will build your brand
parents - or are moving into the workforce and texting with in the eyes of the customer and portray your business as being
older colleagues. Now 31% of cell phone owners ages 28 at the forefront using technology for their benefit and reward.
to 39 use text, and 18% of those 40 to 49 do, Pew reports. It also offers a bit of the “cool” factor which isn’t a bad thing,
Any of your customers in here? especially to customers under the age of 35.
GET STARTED
The key message here is to keep is simple. Run a simple text messaging (SMS) campaign the first time. Almost every mobile
device can send/receive texts and everybody understands how it works.
Customers like deals. Offer something of value to get customers to opt-in and join your VIP Club. Make them feel they are getting something
special and unique that no one else is getting. That’s why we can them VIP Clubs! You know best what sort of special offers will appeal to your
audience. Many customers spend more at your business because they are a part of a loyalty program vs. customers who are not.
Results can be easily measured and tracked. At the end of the campaign, you will have a valuable list of loyal customers you can stay
connected with and who want to hear from you. That’s why they opted-in.
Some people still think e-mail is evil but that didn’t’ stop marketers from building email clubs, newsletters and e-coupons. Don’t let
the nay-sayers or over analyzers stop you.
This year big brands, agencies, marketers and business owners will be dipping their toes into new waters of mobile SMS campaigns to build
loyalty. They already are researching the possibilities, compiling data, determining metrics and figuring ROIs. That’s good. They should.
But as with all things new, the early adopters are the ones that will win. At some point, they realize the time to jump in is now
before the other guy does. Others will sit on the sidelines and wait see what happens with the industry. They call that research.
Unfortunately, we live in a “speed is life” sort of world and if you wait too long, then it’s too late. Assume your competitors are days
away from launching their own mobile campaign. And when that happens, they are going to capture your customers first and never
let them go! You can be like Nike and “just do it” or you wait until everybody else is in and you are fighting for the scraps. L
An Integrated Approach
As marketers seek to incorporate new technologies,
economic factors require tactics that build loyalty,
guarantee ROI and motivates purchases
by Constance Baker – edōInteractive
As the economy continues to take unanticipated turns, consumers are looking for new
ways to economize. Studies show that, more than ever, consumers are not embarrassed
to use coupons as they have been in the past and are seeking such incentives. In October
2008 the fastest growing website category was online coupon sites beating out other
retail sites such as apparel and jewelry. This emerging trend is providing many businesses
an excellent opportunity to market smartly under these conditions.
consumers are looking for these deals, marketers are finding One newcomer, that feels they are integrating many of these
innovative ways to reach targeted consumers and motivate their approaches (integrating the parts that work while streamlining
purchases. the more tedious parts), is a Nashville based start-up called edō
Interactive. In 2007, edō launched the edō Marketing Platform
However, the traditional coupon process can be lengthy and (EMP) which is a marketing channel that provides the ability to
expensive, inhibiting ROI for both manufactures and retailers. load electronic coupons, called Prewards®, directly onto selected
While consumers are most accustomed to using paper coupons prepaid debit cards while utilizing email, text, and behavioral
there are limitations for the consumer - cutting, carrying and marketing to give advertisers an integrated way to reach targeted
expiration of coupons—as well as for the retailer—inability to audiences and motivate purchases.
target specific deals and gain valuable behavioral information
about the customer. According to the company and several restaurants and
retailers that have utilized the EMP, it guarantees advertisers
ROI which can be monitored online in real time—not exactly
since it is not self-service. By using the EMP, advertisers are
edōInteractive will be speaking at the Loyalty able to use valuable data allowing them to further refine future
“campaigns” as well as other ongoing marketing efforts they
Expo 2009. Join their session and learn more plan to undertake.
about the edōInteractive Marketing Platform!
Simply put, the EMP can be used to drive incentive purchases
and loyalty in a number of ways. The most common campaign
utilizes Prewards. When an advertiser conducts a Preward
Online and promotional codes are proving popular with campaign, they begin by setting the demographic parameters
consumers because of the relative ease to enter the code at point of the customers they are seeking to reach (i.e. males and
of sale. Coupon or promotional codes also present their own set females between the ages of 25 and 34 in the ten zip codes
of limitations including the potential for fraud and unintended near a business location). Next, the advertiser will determine
viral spreading of the codes, which can limit the targeting the incentive amount that will be offered to customers. The
capabilities. offer can be a specific dollar amount, a dollar off amount or a
percentage off amount. The advertiser also selects the duration
Additionally, mobile coupons are gaining traction and are of the offer and which locations or websites in which the offer
interesting to some marketers, but technological restraints such can be redeemed.
Breaking
Through
the Clutter:
Building Loyalty
in a Digital World
by Mike Reynolds – Parago
customers, employees and channel partners. We are living in an Staples’ groundbreaking approach to paperless rebates
era of “everywhere advertising,” infinite choice and rapid-fire shows us how technological advancements can lead to positive
access to information. The convergence of capitalism and social post-purchase experiences, too. Years ago, who would have
dynamics has created the need to develop deeper connections in guessed that rebates could drive loyalty? Yet today, an innovative
order to achieve the new measurement of loyalty: brand affinity. paperless rebate solution directly supports the corporate brand
position and delivers brand affinity. Through technology
integration, fast rebate validation, enhanced fraud prevention
and efficient rebate delivery, customer surveys have shown an
Hear more at the Expo! Mike Reynolds will lead a discussion increase in brand affinity and stated intention for re-purchase.
about the need for innovation, choice of incentives and reward
mix to drive better ROI and long term participant loyalty. Technology integration has increased brand affinity in
the sales channel as well. Sales associates can now get fast,
automatic recognition of their efforts and rewards can be
Brand affinity refers to connecting with your constituents received in as little as 24 hours through electronic cash
in a way that turns them into brand ambassadors. They root disbursement on a reloadable prepaid debit card. Ongoing
for you, promote you and fiercely defend you. With every brand engagement happens through branding on the payment
communication they become deeper entrenched in their card, communication of rewards received, online and automated
commandment and affinity for your organization. Creating card balance information and visits to the incentive website.
this connection is critical to drive a consistently good customer As a result the sales associate can focus on selling and, because
experience and the strongest brand affinity. of a great experience, has a brand affinity that governs which
products or services get greater share of mind.
But with constituents overwhelmed with loyalty point
banks, key chain loyalty cards and coupons, how do you gain As technology continues to advance, so do the opportunities
brand affinity beyond a good product or service? One very for connecting with customers, employees and partners, and
powerful way is to create a technology-based reward system rewarding them in ways that are meaningful to them personally.
that recognizes and acknowledges loyal behaviors, simply and A new generation of employees and consumers has grown up
efficiently, without breaking the bank. during the “connected” age. Providing customized rewards is no
longer a blue sky idea due to advancements in technology and
Amazon.com’s approach to exceeding customer expectations communication mediums. Re-examining your audiences and
through its technology platform provides a good example. approaches, and maximizing technology-based loyalty initiatives
A great customer purchase experience with product to reach them is a cost-effective and powerful way to increase
recommendations and ease of use drives customer loyalty, your brand affinity. L
and the social media aspects of the site (product scoring and
Driver’s License—
The Many Uses Today—
Tomorrow Loyalty
by Brent Harms – IDLoyalty, LLC
Loyalty programs tied to plastic cards have existed for years. Some have their own
uniquely branded cards, others use credit cards. Both have challenges with participation.
The branded cards have to be carried and there is only so much room in a wallet.
The credit cards require that you qualify for credit and want to charge items instead
of paying cash. A new alternative eliminates both of these issues and makes loyalty
programs easier for members—use the card they already carry—the driver’s license.
Loyalty Applications Begin to Surface one of its loyalty partners, Tecmark, Inc.. Tecmark provides
the loyalty points engine for the program and another partner,
With this new customer identifier and the emerging group Posatech will be managing the program.
of companies that provide hardware and software tools that can
read the state licenses, new uses are surfacing for the license as the The use of the license in other existing and new loyalty
accurate, cost effective customer identifier for loyalty programs. programs is expected to grow rapidly over the next few years as
this new marketing technology approach can save businesses
Many casinos nationwide including MGM and Harrah’s up to 25% in the cost to run their program, and will increase
are using new technology to scan the license and use the data participation of the members by up to 25% or more since it
to enroll customers in their loyalty programs. The scanning will be easier to participate. They can use the card they already
captures the customer’s name, birth date and address information, carry – their driver’s license as an alternative ID for the marketing
eliminating the need for the customer to manually fill out a form program. Specific marketing analysis will be presented at the 2009
and/or the clerk to manually enter the information in the system. Loyalty Expo in May.
This has reduced errors, significantly shortened the process to
enroll in programs, and is saving the casinos a large amount
The Technology
of money in the operation of their customer management and
marketing programs. There are new emerging companies that provide the
technology, both software and hardware to scan and track the
license information. These firms provide the software to parse the
More to come! IDLoyalty will be presenting necessary data from the license into a usable format. They also
provide the hardware to scan and read the mag stripe and bar
relevant market research that addresses this codes; frequently one device that can read either.
opportunity at the Loyalty Expo 2009.
The bar code and magnetic stripe contain several data elements.
In most cases, the customer’s name, license number, address, city
Other companies are also introducing these new capabilities state and zip, and birth date are available after the data is scanned
such as the new convenience store loyalty marketing program and parsed. Each company pulls the information necessary for
launching in New York this year. Noco Express will use driver’s their solution such as birth date for age verification.
licenses to enroll new members in their Friends and Family
Program. In addition, the license can be used as an option instead Most state laws are evolving to limit the use of the scanned
of the loyalty card to redeem rewards and track store purchases. data to the specific purpose such as age verification or check
This capability and service is being launched by IDLoyalty and verification tracking. In many states, this information cannot be
One Time
Incentives
Do Drive
Engagement
by Dennis Propp – Propco Marketing
Loyalty is an increasingly hot topic among managers, executives, and consultants. With client acquisition
costs rising and the competitive landscape becoming progressively more crowded, companies are realizing
that client retention has become the key to growing the bottom line. Yet despite increased interest in the
subject, there remains widespread confusion about what exactly loyalty is. In fact, much of what has been
branded as “loyalty” research relates primarily to “satisfaction.”
Satisfaction:
Necessary but not Sufficient
Simply put, client satisfaction is a prerequisite
to creating loyal business relationships, but by
itself is not enough. The implication is that while
client dissatisfaction will undoubtedly create
disloyal clients, merely satisfying clients is not
enough to make them loyal. One of the pitfalls
in understanding this dynamic is the fallacy of
equating retention with loyalty. Obviously a
client who defects is disloyal, but just because
a client is retained does not make them loyal—
they may simply be satisfied.
Satisfied with the water you received from me, you rate me all 1. Integrity: Can you be counted on to act in a predictable
10’s. Does this mean you’re loyal to me? Sure, if you’re nearby me manner? Do I believe what you say? Are you reliable,
next time you’re thirsty you will repurchase, but will you walk dependable? Are you trustworthy in your business dealings?
an extra block to buy from me? Would you feel guilty going to
that guy with the hot dog stand across the street if I had a line? 2. Competency: Can you actually deliver the product or
Probably not. service you have promised? Do you have the people, skills,
experience, systems, and processes needed to perform as
Contrast this to stories of Starbucks clients who routinely walk expected?
past one branch to go to another branch of the same chain. Why
walk further to buy a commodity item? In a word: Relationships. 3. Recognition: Is our relationship important to you or am
If you are going to walk a block further to buy a cup of coffee, it I just a number? What have you done to demonstrate and
is likely because you have a relationship with, and are loyal to, the reinforce the importance of our business relationship?
person serving it.
4. Proactivity: Do you only do what has been contracted for,
Now imagine the “If you only focus on or do you go above and beyond? Do you look out for me
same dynamic at and ensure that I don’t encounter any surprises?
work in a business to satisfaction in your client
business relationship service and sales efforts, 5. Savvy: Do you understand the bigger picture? Do you
rather than with know what my day is like, how my firm makes money,
consumers. The risk you’re missing most of how our business operates, how we succeed, and have you
of non-loyal behavior the puzzle pieces.” demonstrated how you can help me achieve my goals?
isn’t just a dollar, but
potentially millions. 6. Chemistry: Do I enjoy working with you? Do I look
The weight placed on personal relationships is also exponentially forward to our next meeting, or is each interaction a series of
higher in a B2B partnership, so while the downfall of client churn missed communications and disappointing appointments?
is larger, so too is the benefit of retention. If your clients are truly
loyal, they will go out of their way to call you first for new pieces If you only focus on satisfaction in your client service and sales
of business, refer you to their network of family and friends, give efforts, you’re missing most of the puzzle pieces. Many companies
you inside information about competing offers and pricing, spend get stuck focusing on Integrity and Competency, which in essence
a larger share of their book with you, and a whole host of other are satisfiers. If you don’t have those, your clients will not be
benefits. If they’re just satisfied they might stay with you if you’re satisfied, but if you only have those, chances are they aren’t loyal.
lucky; why not strive for loyalty? Recognition, Proactivity, Savvy, and Chemistry are what we call
motivators. These are the Dimensions that will put you ahead of
Six Degrees of LoyaltyTM the game, creating and fostering true loyalty.
Building upon research into human motivation and When I sat down and really thought about these Dimensions
Organizational Climate originally conducted at Harvard in regards to my own clients, it was truly eye opening. I challenge
University and The University of Michigan, my team at you to do the same. Once you recognize what is most important
Brookeside and I have captured the six Dimensions of Loyalty to your clients, not just about your service or product, but about
that translate into long-term, mutually beneficial business your relationship, doing something meaningful becomes much
relationships. Read through the descriptions and ask yourself how easier. What would be the impact on your revenue if you were
you think your clients would evaluate you on each one—because able to expand your best client relationships to their maximum
that is precisely what they are doing. potential? My guess is it would make a world of difference. L
Payment
Strategies
are Critical
to Successful
Loyalty
Programs
by Julie Bohn and Stuart Kiefer – First Data
P ayment strategies are integral to loyalty programs for retailers and financial institutions (FIs), although the program
objectives and the role of payments vary significantly by market, business, and payment type. Loyalty programs seek to
drive program relevance that result in increased consumer purchases, frequency or overall spend, making the payment
type and process critical to program participation. In addition, payment habits may be the consumer behavior change the
loyalty program works to drive. Successful loyalty programs must be relevant to consumers, easy to use and include meaningful
rewards, ultimately affecting how the consumer pays at the point of sale.
Following are payment strategies and best practices that retailers and FIs can use to build or enhance effective loyalty
programs to meet their marketing objectives.
Retail loyalty programs should be part of a larger payment strategy. Offering customers a mix of payment options makes it
easier for them to do business with the retailer, but some types of payment are clearly more profitable than others.
In general, consumers should be recognized and/or rewarded no matter what type of payment they choose, a strategy that
benefits both consumer and retailer. Recognition can be in the form of discounts, earning points, or a targeted communication.
According to First Data’s 2008 Consumer Loyalty Study, more than half of retail rewards members aren’t required to use a specific
form of payment to earn rewards, an indication that the majority of programs adhere to this philosophy. The ability to recognize
or reward every payment is critical to driving program relevance and helps engage the consumer in profitable behavior.
do affect which card they Retailers and FIs are under significant pressure to reduce
Today’s FI reward program is quickly becoming a Begin with the Customer in Mind
commodity in the marketplace, and FIs must continually
work to remain at the top of the consumer’s wallet. It may seem like an obvious notion, but it’s easy to
Consumers belong to an average of 2.1 credit card rewards forget the consumer experience amidst discussions about
programs, and 76 percent of consumers are enrolled in at increasing spending, rewarding frequency or establishing
least one credit card rewards program, according to the a place at the top of the wallet. Whether a loyalty program
First Data’s 2008 Consumer Loyalty Study. However, the encourages a customer to purchase at a retail location or pay
same research shows that the majority of consumers (71 with a specific card, rewards must be valuable to customers
percent) said rewards programs really do affect which card with a program that is easy to use.
they pull from their wallet at the point of sale, indicating
the importance of a relevant, well-branded program. The Consumers have choices about where to shop and how
pressure is on to differentiate oneself from the competition, to spend. It’s critical to consider the consumer’s payment
and loyalty programs continue to be an important aspect of choice at the point of sale and create meaningful, valuable
the competitive strategy. reasons for customers to choose you—or your card—over the
competition. L
Credit and debit cards encourage customers to choose
their card more frequently to earn rewards faster. Most credit
card programs are based on a traditional “point-per-dollar”
program, while debit programs typically accrue at a rate of Learn more about how retailers and financial
one point per $3 or $4 in purchases. FIs are continually looking institutions, of all sizes, can use analytics to make
at ways to increase consumers’ ability to earn points around smarter offers to the right customers without
the highest-value activities, which include greater transaction
amounts, increased transaction volumes, and spending across huge upfront technology costs. Join First Data at
more categories. In the case of debit, FIs also can use rewards Loyalty Expo 2009!
to encourage customers to make more profitable decisions
at the point of sale—for instance encouraging consumers to
select signature-based transactions.
1. Timing nC
heck and double-check product names, model
numbers and phone numbers in the rules. Finding out
Is this a one-time incentive offer (such as a rebate or gift with
you’ve posted an incorrect phone number will not only
purchase), a short term loyalty plan (such as collecting points
hurt your promotional efforts, there may be claims or
over a 6 month period and redeeming them for prizes) or a long
damages payable to the person whose phone number was
term loyalty program (such as an airline frequent flyer or credit
accidentally referenced.
card rewards program that continues for years)? The longer the
program is, the greater the potential rewards, but also the higher n For longer term programs (such as frequent stayer, shopper,
the risk for disputes, claims, and problems. When it’s a one-time flyer programs going over many years) you’ll need more
“gift with purchase” program, regulators don’t scrutinize too than just a list of rules, but you’ll need indepth terms and
closely, consumers don’t often sue, and fraudsters don’t try to conditions to cover issues such as how to enroll, point
“game the system.” But when someone has spent years accruing value, transferring points, error resolution, choice of law,
500,000 frequent flyer miles, the stakes are higher as are the risks. limitations on liability, and conduct that may result in point
forfeiture (such as failure to pay).
2. Rules
The program rules are at the heart of most loyalty or incentive 3. Choosing and contracting with a program
programs. These lay out precisely what the consumer must do, or fulfillment partner
when and how it is to be done, in order to earn a stated reward. Having a good program or fulfillment partner is another key
Sounds simple, but these require incredible care in drafting. to a successful program. Choose your partner carefully. These
Unfortunately I’ve seen many well-meaning programs turn are your best customers, after all, and so while cost is of course a
disastrous because of unclear, incomplete or flawed rules. Here are factor, you don’t want to risk having your customers’ experience
a few lessons learned: be disappointing. Get references. See sample promotions. And
make sure you have a good contract that makes clear your and
n Include clear program dates—start AND completion—
their respective roles in a number of areas, such as: (a) who is
and don’t forget to include the YEAR of the program as well.
responsible for legal and regulatory compliance (keep in mind,
n Seriously consider some limits, such as “1 per customer,” many states have specific laws about rebates, gift cards, advertising
“no more than 5 redemptions per month,” etc. requirements, sweepstakes, etc); (b) who takes the risk of loss,
n Make sure you have the right (to be very judiciously used) including fraud or negligence; (c) are there “service level”
to make changes or to terminate the program. commitments which protect you if program doesn’t work or the
system goes down; (d) who holds customer data and how is it
protected, and (e) what happens to the customer data in the event
of termination.
Creating a Successful
Employee Incentive
Program
by Dan Paulson – InVision Business Development
Employee incentive programs can work, and they need to be structured very
carefully for continued success. Clear measures have to be put in place, and it
is the responsibility of the leadership to follow these measures.
I
n the past I have seen companies take the “close is good enough” approach and give incentives even though the goals were
not achieved. This often leads to entitlement. The incentive is no longer a reward for accomplishing a stretch goal. It becomes an
expectation as a benefit. Incentives need to be balanced between realistic expectations and stretching beyond what’s expected out of
the job. If the goal is too easy, the incentive is achieved without extra effort (see entitlement). If the goal is too hard to reach, then the
people are set up to fail and quit working toward the goal. Below are elements I have seen in successful incentive programs.
The right people —Incentives work well when you have the right people doing the right things the right way for the right reasons.
The right culture—A dysfunctional culture will often have difficulty with incentives in the long-term. Exceptions exist, and that is
usually when there is little or no competition, which leaves the consumer with few choices. Competitive environments require a strong
culture with the right people to perform at their best.
Clear measures —The employee must know exactly what they are working towards and have the ability to get it.
Communication —Regular communication, coaching and reinforcement is needed by the leadership team. Talking about the
incentive once a week is not enough. Incorporate it into regular daily communication.
Individual vs. Teamwork —Determine what incentive approach is right for you. Individual incentives allow each person to control
their destiny. Sales positions are often the best for this. Team or department incentives require all members working together and
leveraging their strengths to accomplish a goal. Strong leadership is needed here to make sure the work is evenly balanced and all staff
members pull their own weight.
Achievement is black and white —There is no quicker way to turn incentives into entitlement than allowing people to still win
when they fall short of their goal. Giving an incentive when goals are not reached just conditions the staff that goals do not have to be
met to be rewarded. Companies may feel the need to do this when some of the other steps listed above are missed.
Celebrate —Always celebrate your successes. Achieving stretch goals should be a big deal. Reinforce a positive outcome and get
people excited about tackling the next challenge. Adding these elements to your incentive program will increase the likelihood of success
and future growth. L
The reason it worked was the visibility. Most incentives are out of
site and out of mind. People have stresses all day and trust me, when
they are taking actions they aren’t thinking of the stock option award
that may be available. With the pyramid, they see it all the time. I had
employees jokingly put stickers on the top prize like “this is mine!”
Competition would set in. Then, on the day they are awarded, everyone
gets together and recognition and applause occurs. It is a big event at
the normal employee meeting.
We achieved tens of millions of dollars in incremental revenue from these incentives. I would give you the
actual figure, but some people would think I was exaggerating. Visibility, top of mind and recognition. It
works.
By the way, my rule of thumb for incentives… Find something that you don’t have but want. Then
provide incentives until you get it. Once behaviors are changed, find something else you want but don’t
have. Some may be repeatable. Just a rule of thumb. L
Emloyee incentive program intiatves have generated quite a bit of interest! Loyalty Management
is looking to highlight YOUR program as a feature in our next issue. If you run a B2B or Employee
Incentive program, we want to hear from you! What works? What doesn’t? How does your
program run? If you are interested in sharing your expertise…
Contact us at: mailbag@loyaltymanagment.com
We asked:
Do employee
incentive programs
really work?
Does the program motivate
your team to further excel?
opportunity to work in an environment that they enjoy, “A s a reward for good work I bought my
develop as an individual, grow within the company, and lead developer a return trip from New
feel valued/recognized by their organization will more than Zealand to Malaysia to see her family
likely produce results year in year out. Those that turn up
and friends. But she never came back!
for work to achieve their incentive.... well, in an extreme
case, look at the financial markets in the US and Europe
These things don’t always work!”
for your answer. Incentives can work if they motivate Mark Thomas Business Owner
individuals and teams to go above and beyond but if they
are just a part of the job numerous problems will arise.
Jeff Peter Experienced Sales Management & Capability
Development Professional
I feel incentive programs do motivate not just
sales staff but support staff as well. It is always a good
thing when you reward individuals who are internally
motivated to go above and beyond. It gives them not just
S
a challenge, but also a sense of making a difference in the
ome managers get caught up thinking
bottom line of a business.
commissions are the best and only way to motivate
sales people. When we surveyed sales people worldwide we John De La Cruz Financial Professional
actually found many preferred unique “non-cash” programs
that gave them an opportunity to win a tangible items.
In many cases sales representatives also reported bonuses
and/or incentives got lost in the regular payout thus never I t is the recognition that is powerful, and leaders
who understand this are able to effectively integrate
incentive programs into their sales compensation strategy.
really giving them the feeling of achievement. By the
way, you can also include other departments (marketing, Unfortunately, many shortsighted leaders and companies
customer service etc.) in these programs creating a real use or allow incentive programs to replace recognition,
team approach Lastly, if you plan correctly and with which ultimately leads to failure in the program, wasted
proper coaching you can come up with some really creative money, and turnover.
Nothing replaces a pat on the back
programs that will cost an organization less what you for a job well done—especially for salespeople. It is the
would spend for cash payouts… Want to motivate your combination of incentives and recognition of achievement
team? Think outside the box. that make a program compelling and successful.
Steven Duddy Pres./ CEO, Strategic Direction Inc. Jeb Blount Publisher, SalesGravy.com L
Overall take:
While you need to be “trained” on the system, to learn how to make the most of the benefits and travel experience, the staff,
timeliness, ease of booking and making changes has made me a happy convert.
This primary research presentation uses one-to-one How can you ensure your customers stay loyal?
conversations with a diverse cross-section of consumers The conventional wisdom in B2B markets is to bolster
to dig into the current customer loyalty landscape from customer relationships through rational components
an “on the street” perspective, offering frank insights like price, speed and efficiency. While these are
and customer talk about programs and participation. important, Gallup has found emotional components
of the relationship are better indicators of loyalty. They
This data, presented for the first time ever at the also provide a more effective “early warning system” for
Loyalty Expo, offers attendees a unique opportunity to at-risk accounts than typical B2B measures like customer
stay ahead of the competition through deep insights satisfaction, revenue, or profitability alone.
into what customers are thinking right now in 2009.
Insights from interviews are presented and core themes B2B companies can secure customer engagement by
are revealed regarding trends every loyalty program instilling a sense of confidence, demonstrating integrity,
should watch and incorporate into their strategies for and creating pride and passion around their brands and
survival in a tough economy. product/service offerings. In B2B markets across every
industry, this is achieved by shifting the focus from price
to advice — from transactional selling to providing
value — to create client impact.
Dave Tambling: More than twenty
years of building relationships with After this presentation, you’ll understand:
consumers across a broad spectrum of
B:C and B:B brands serving categories nH
ow customer engagement in B2B is driven by
from pet food to apparel and banking to client impact
healthcare. n The three key components that create client impact
Dave’s Customer Loyalty Philosophy: n How to create an “early warning” score for your
While loyalty is a two-way street, it is the responsibility customers
of the marketer to actively monitor and nurture the n The five intervention zones used to address your
relationship. “red-flag” accounts
Bob Fetter
Senior Vice President
Pluris
ALG will offer nearly 30 years of unparalleled experience the most attractive segments of your customer base. Then,
on behavioral incentives and affinity marketing strategies capitalize upon that information to support optimized
to define and reinforce our view of customer engagement customer behavior(s).
and the role it should play during these difficult economic Path Identify your new direction. The luxury of endless
times. We will identity the new 4 P’s of this marketing era to competing marketing strategies is cast aside in this
help readers gain a foothold on what is necessary to truly new era of customer engagement marketing. In a sea
achieve the ever-elusive “customer engagement” goal. of uncontrollable variables, know the path you’re going
Perspective Use your data. Affinion will provide case to follow and understand the importance of measuring
studies to help illustrate the power of customer data , and against goals along the way. Set a clear bar by which to
how it can provide a new way of analyzing unseen truths measure success and develop marketing and product
within organizations. Pairing this data with today’s altered strategies that reinforce those areas of measurement.
perspectives can help generate new marketing strategies
Proliferation Test and learn. Yesterday’s overachieving
in an accelerated fashion.
results may become today’s control amidst a new demand
Purpose Know your brand. During times of extreme for more stringent metrics. Analyze results prudently and
uncertainty, it’s important to understand and promote continue to view your findings back through the lenses of
your brand to your most loyal customers. Start by customer understanding and optimization; delivery of your
understanding the brand promise resonating loudest with brand promise; and customer satisfaction and engagement.
A veteran in the loyalty industry with more than 14 years of experience developing and managing
loyalty programs for some of the most recognizable brands, Marti is considered a visionary
throughout Affinion as well as the industry.
Measuring customer loyalty and relationship marketing is With Comp CustomersTM, you’ll gain new insight
far more complex than counting revenue, especially the into customer loyalty and a new way of assessing
way so many companies do, using “comp sales” aka “same- loyalty marketing opportunities that fit well within
store” sales. your business strategy. You’ll also explore how to
acquire more business from your existing customer
Phil Rubin will introduce you to a better way to measure base—without high acquisition costs—by ensuring that
customer management and effectiveness of your loyalty your brand, messages and offers are relevant, engaging
and relationship marketing initiatives. More importantly, and, most importantly, effective. Join Phil as he takes
this approach not only measures performance, it will be an you through real-world examples and illustrations for
invaluable guide to achieving better results and organic companies with and without loyalty programs that are
growth. relevant to any industry.
Phil has nearly 20 years of strategic marketing experience with an emphasis on loyalty and
relationship marketing, integrated communications, partnership development, promotions and
program development.
Our years of experience ensure we acknowledge, understand and anticipate marketplace and consumer trends, helping us
design programs to motivate your customers’ behavior. Some of the most recognizable brands have employed our services
to develop loyalty solutions to meet their profitability goals. We believe loyalty should be a business strategy with a positive
ROI. And our proven loyalty solutions repeatedly result in profitability for our clients.
Hands-on workshop session! When determining your measurement plan for any type
of a relationship building effort, there are all kinds of
Sign up at LoyaltyExpo.com business challenges to drive how you will choose the
appropriate measurement treatment or approach. In
Topic: Reward Business Models this exciting session, you will hear about the traditional
ways to measure your relationship building effort
Detail: Loylogic is a reward services provider to airlines, and the obstacles that can get in the way. But most
hotels and credit card loyalty programs. Rewards are the important, we will highlight two innovative ways to
biggest cost factor of any loyalty program. Therefore measure your relationship marketing effort to help
deciding on the ‘right’ reward business model is critical inform the best way to build stronger relationships.
to success for the program. The Loylogic session at the
LoyaltyExpo2009 will provide an opportunity to learn Key takeaways:
about how reward fulfillment models have evolved from
nA
review of the traditional ways to measure
traditional mail-order delivery to on-demand services
relationship building programs
in the digital age. It will also focus on how such models
drive member engagement and satisfaction. nA
discussion of the obstacles that get in the way
nA
n exploration of two innovative ways to measure
The discussion will address questions such as: your relationship building program
n How do traditional reward models compare to new,
digital models? Wayde Fleener
n Which model delivers the best value to program Director Decision Sciences
Carlson Marketing
sponsors and members?
n What are the underlying financial models that Wayde Fleener ensures the right
can be applied (service fee based, transaction fee measurement and analytics are
based)? in place for Carlson Marketing’s
n How can program sponsors control reward cost and clients, and then uses the data
steer their loyalty investments towards the most to design programs that will
valuable customers? drive maximum value.
Dominic Hofer
Chief Executive Officer
Loylogic
In this session, David Rosen , Loyalty Lab’s senior vice Key points that Tim will cover are:
president of Strategy and Channel Development will
moderate a panel of CPG marketers and social media, n Identifying the right agent for sales and support
loyalty, and interactive marketing experts to show how
loyalty concepts are changing the way CPGs develop nA
ligning business objectives of the company
relationships with end customers. with the agent for seamless communication and
engagement
Attendees will learn:
nU
sing contact center transactions as touch points to
n Strategies that enhance individual campaigns to improve customer engagement and loyalty
drive long term relationships
n Methods for collecting data and engaging n I mproving the customer experience by simplifying
customers in many channels the contact center process
n Ideas for incorporating social media in measurable
and meaningful ways
More and more, global loyalty programs are becoming the Derk Möller
normality/standard rather than the exception in today’s Managing Director
loyalty market. Nowadays consumers — informed by Rewards Arvato Services
the internet and empowered by their mobile devices —
are actively engaged in the way their favorite brands or Derk Moller has more than 10 years
companies behave in the marketplace. This allows the experience in the marketing, services
and loyalty industries. Since 2004,
consumers, and with this, the world of loyalty to grow
he has been the Managing Director
together. Cross-country and even global loyalty programs of Europe’s largest rewards solutions
such as Miles & More and The Emirates High Street (present company and Vice President of
in 62 countries) are wide-spread. Arvato Services.
We know who they are and understand their general Bill Hanifin
make-up. The challenge remains to create and execute Managing Director
strategies to engage the Millennial generation in our Hanifin Loyalty LLC
Loyalty programs. Effective communication is a challenge,
as Generation Y spans an age range that deserves to be Bill Hanifin, a recognized leader in the
addressed in three or more distinct segments. The myriad areas of loyalty marketing, payment
of emerging social media tools remain unfamiliar to many systems, and technology with an
marketers and complicates the task. impressive history of developing and
implementing loyalty and customer
Join Bill Hanifin, Hanifin Loyalty LLC, and Bjorn Larsen, strategies for leading organizations
CEO Edhance, Inc. to share the experience of seasoned around the world.
marketers who are actively involved in engaging and
building loyalty across the three segments of Generation Bjorn Larson
Y – Teens, University age, and Career Starters. In addition Founder and Executive VP
Edhance
to other panelists, a leading Social Media expert will share
insight into how social networks and micro-blogging tools
Bjorn has helped build some of the
can be incorporated into communication plans to drive
most successful student discount
engagement and build loyalty.
businesses in the world. Bjorn is
also a board member for Mecenat,
Long term brand loyalty is dependent on a successful
an organization offering thousands
first step—engagement. Don’t miss this session if you want
of discounts to more than a million Swedish students
to be in touch with this increasingly powerful consumer
through a partnership with the Swedish government.
group of over 80 Million people.