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Communicating with Frequent Flyers in the Digital Channel

11 December 2007

Introduction
Customer Growth LLC, a US based consultancy specializing in developing “Custom measurable marketing programs that create profitability”©, has released the results of a research study analyzing the use and impact of the email channel by airlines to communicate with members of their frequent flyer programs.

This study of digital communications in airline rewards programs is part of a more comprehensive study underway by the company reviewing use of the email channel across key industry segments which routinely employ reward and recognition programs to retain and grow relationships with their customer base. Results of the study for the hospitality, retail, and online business segments will be released during Q1 2008.

Background
Over the course of its 25 year history, the loyalty marketing industry has seen its share of success and failure. Industry consensus validates the need to build an integrated strategy grounded in transactional data in order that the sponsoring company reach its desired objectives. To engage and maintain the interest of modern consumers, sponsors must set clear and measureable objectives, create a value proposition that includes both tangible reward and recognition benefit, and structure a vibrant mix of reward options.

Once a rewards program is launched, continuing success is anchored principally in two areas: the effectiveness of communication between sponsor and member, and the willingness of the sponsor to maintain a disciplined measurement and reporting system.

As an increasing percentage of loyalty program members become internet enabled, the attraction of using this channel as a prime means of communication has grown. The obvious cost advantages rendered by email communication are a temptation for any marketer and when combined with the level of data collected by most program sponsors, the potential for personalization of messages and offers is tremendous.

This report documents how US airlines are executing digital program communications within their frequent flyer programs, and draws conclusions pertinent to any organization wishing to improve the effectiveness of its email communication to rewards program members.

Project Scope
Email communications from 5 major US airlines were catalogued over a 6 month period during 2007. Both legacy carriers and newer discount airlines were included in hopes of identifying tactical differences between competitors.

All communications catalogued were issued by the airline in the context of its rewards program, i.e. membership in the associated frequent flyer program and configuration of online preferences influenced the generation of messages.

Communications from American Airlines, Delta Airlines, US Air, JetBlue and Spirit were used for this study. The emails collected were analyzed from several perspectives as outlined.

Volume:
What is the gross volume of email generated and is there a consistent pattern of mail distribution? Is there a discernable flow by time of month or day of week? If a pattern exists, do program members have any control over these factors?

Purpose:
What is the distribution of emails by purpose and content? Can emails be categorized in distinct buckets and are the groups complementary to one another?

Relevance:
Was the value proposition transmitted by the email worth the time needed to read and understand it? Was the offer made significant enough to change member behavior?

Personalization:
What element of personalization exists in the email? Is there evidence that the data collected by the airline is being used in salutation, copy, or tailoring of offers made?

Findings
On average, frequent flyer members received just shy of 5 emails per month (to be exact - 4.75). The volume varied greatly by airline with both discount carriers joining American Airlines as the most prolific “e-pen pals”.

This volume was slightly lower than the hospitality segment studied, and significantly lower (less than half) than the amount generated by retailers. Specifics for these industries will be released in Q1 2008, but are mentioned here to establish perspective of airline volume versus others communicating with rewards member populations.

Email seems to be issued on a consistent basis month to month. During individual weeks, we observed skewing towards the latter days of the work week, possibly with the goal of capturing the mind of persons day-dreaming about their weekend travel plans.

Customer Growth categorized email into these 3 buckets of “Purpose”:

Membership requirements (statement & rules)

Promotions (fares & partners)

Transaction & Behavior (promotions or other communications triggered by purchase or other interaction with the airline)

The chart below illustrates the distribution of emails by Purpose. Two types of Promotional emails are shown in the chart and, when combined, represent the majority of emails by type.

Promotion - 62.5%
Membership issues - 25%
Transaction behavior - 12.5%

The composition of email by purpose varied more significantly by the type of airline surveyed as 83% of the total promotional emails generated by all airlines were sent by the discount carriers and 100% of the Transaction Behavior emails were sent by the legacy carriers.

Fare promotions were the subject of approximately 75% of Spirit emails, while JetBlue heavily emphasized its cobrand card relationship with American Express. In addition to fare and card promotions, we observed a variety of partner promotions including contests, online malls and experiential rewards.

Cobrand credit card promotions were at once creative and attention-getting while sometimes bordering on “bait and switch”, presumably in an attempt to gain eyeballs. At least one attempt at creativity crossed the line of good taste, depending on the reader’s interpretation of the acronym used.

Spirit was the most prolific and creative purveyor of promotional emails and apparently works hard to capture the attention of web surfers with diminishing tolerance for generic communications. Headlines that caught our eye included “We’ll pay you to Fly” and “Fares from $9 each way”.

Spirit entered into treacherous communication territory when the eye-catching headline disconnects from the message. For examples:

• “Give to others this holiday season, and get something back”. This wholesome message would thaw the heart of most email scrooges around the holidays. Further reading revealed however that the message was about credit cards, not charity, as members were pitched an application for a FreeSpirit MasterCard.

• MILF – It may be strictly an acronym known in America, but “Many Islands, Low Fares” was not the first thing that came to mind upon opening this email. Clever is good, but borrowing from pop culture and potentially offending your best customers should be carefully weighed.

American Airlines led the way in offering sweepstakes and contests, a tactic not used by competing carriers, legacy or discount. One engaging holiday themed contest - “Depart from the HO-HO-HUM” sweepstakes – is worth a mention. Highlighting the aspirational nature of travel, American headlined one of its monthly e-statements with encouragement to “Win 1 of 5 Unforgettable Experiences”. Members could click through to enjoy a colorful and engaging micro-site while signing up for the contest.

Membership emails are synonymous with monthly statements and program rule changes. Monthly statements were structured in a nearly universal fashion with three components; communication of account standing and membership tier, presentation of a variety of fare promotions, and reinforcement of any ongoing contests or expiring promotions. Statements were the only format which carried a level of personalization, normally limited to a salutation including the member’s first name.

Transaction & Behavior emails may have represented the smallest percentage of the whole, but, in our opinion, are most powerful for members. By definition, the emails in this category are “triggered” by a purchase, flight, or change in preference to an online profile. Several types of behavioral triggers were observed during the period:

• Purchase of a day pass to the Crown Room generated a series of emails from Delta offering trial membership and ability to apply the price of the day pass to the cost of annual membership.
• Booking a ticket on an airline not recently patronized triggered an offer to recover miles frozen due to inactivity or to purchase one’s way to a higher priority tier in the frequent flyer program (USAir).

• Redemption of miles on American Airlines resulted in an offer to purchase additional miles to “reach that next trip”.

• Bounce back emails acknowledging sweepstakes entry were diligently sent by American.

These Trigger emails represented a bright spot in an otherwise uninterrupted flow of credit card and fare promotions. The link between recent behavior and the offer made was clearly outlined, and despite the absence of significant personalization, these messages strengthened the personal link between airline and member.

Relevancy is the real test of email value. Managers of frequent flyer programs can saturate members in volume and can offer promotions ad infinitum. Eventually, the well-written headlines must signify relevancy if members are going to remain engaged.

Relevancy and Personalization are closely related topics and we will not keep the secret that outside of monthly statement emails, there was exactly zero (0) evidence of tombstone, preference, or survey data being used to craft relevant emails. Mentioning surveys, they were scarcely witnessed during the observation period.

Noting this lack of data leverage, it is not surprising that multiple examples of irrelevant promotion can be cited:

• Offering a cobranded credit card to an existing cardholder tops the list of data offenses. Any potential benefit from addressing a monthly statement “Dear Bob” is erased when the top offer on the list is for the credit card that “Bob” already holds.

• A “Board First and Sit in First” campaign by Delta also fell short. Higher-tier Delta flyers can routinely obtain an upgrade to first class seating on domestic flights and achieve both of the benefits mentioned in the headline. Reading the email uncovered that “special fares” ranging between $335–479 one-way were required for purchase, a high cost for negligible benefit.

• “Free shipping” is normally welcomed by consumers. Why one of the airlines chose to offer this benefit when redeeming a certificate based award is perplexing. Since we are speaking in the context of the digital channel, wouldn’t downloading the certificate make sense?

Conclusions & Insights
The volume and timing of email issued by the airlines surveyed seems reasonable and not invasive.

The positioning of email by the discount airlines is consistent with their strategy to win market share through attractive fares. Continued weighting of emails to fare and credit card promotions however, could have negative impact over time. The ennui created by these messages might obscure a more valuable data driven trigger message offering a relevant promotional offer. The discount airlines should equate the information they possess to a valuable asset, and take an innovative step in the direction of personalized messaging.

Considering the detail of customer information that all the airlines possess, (tombstone data, flight history indicating frequently visited business destinations or favorite travel locales, fares paid) it is shocking that more personalization is not in evidence. Though the legacy carriers surveyed showed more dedication to matching offers with customer behavior, there remains tremendous unrealized potential.

Leadership in the industry is up for the taking. Driving lower fares and eliminating in-flight services to pay for them is a strategy that has a dark future. It is not too late to revive a high level of customer service in the airline business and frequent flyer populations are the logical foundation to build upon.

The airlines which use the data they possess and carefully survey to add personal preferences that don’t show up in travel records, will have the clearest path to success. Leveraging data into personalized and relevant offers is the frontier that has beckoned the airlines for at least the past 10 years. Who will answer the call?

Playing in the frequent flyer game should not be about simply matching competition or being content to give away margin as a price of doing business. There is potential for so much more. Some industries struggle just to identify their customer base and to link this basic information with products purchased, They invest heavily to bridge this gap and still they cannot do so with as much confidence as the airlines.

Our survey of frequent flyer email showcased that promotional creativity and good copy writing exists in abundance. The next generation of digital communication strategies however will be achieved only by those airlines that resolve to use the data they possess and enhance it on a regular basis.

We will continue to track progress and hope that airlines evidence this resolve in the future.

Goats

Of Marketing and Goat Testicles

The author of a new book shares insights for
identifying and resisting irrationality in marketing

By Steve Cuno

There was no Viagra in 1918, but there were plenty of goats.

At the time, the alleged sexual prowess of goats enjoyed legendary status. So it was that Kansas physician John R. Brinkley made a small fortune surgically implanting goat testicles in men seeking to enhance or restore their own virility. Never mind that the procedure failed to deliver the promised benefit; that Brinkley was a medical school dropout who bought a diploma for $100; or that most of his patients died during or shortly after surgery. A steady supply of men handed over their cash to Brinkley’s scruples, and their privates to his scalpel.

I hope you agree with me that the decision to undergo Brinkley’s procedure was irrational. The risks of infection, mutilation, sterility, and death were clear, yet otherwise presumably intelligent men convinced themselves to go ahead with implantation anyway. It begs the question, why?

Of course, you already know the answer. People who really, really want to believe, will believe—regardless of where the evidence points. Brinkley’s patients really, really wanted the promised benefit, so they embraced his trumped-up “success stories,” and disqualified the negative outcomes.

We haven’t changed much in 90 years. Consider the people you know who set aside evidence and common sense in favor of staying in bad relationships, racking up charges on psychic hotlines, lending money to losers, or wearing magnets to ward off arthritis—all motivated by an acute desire to believe.

Or, consider marketers who believe that their programs are working, even when the evidence says otherwise or, more often, when there is no evidence at all.

Do you make these irrational leaps in marketing?

All people, even marketers, are subject to irrationality. It’s not a question of how smart you are, but of having evolved in an environment where impulsive actions kept us alive. Hunter-gatherers who paused to ponder if a nearby roar signaled a hungry lioness versus a mischievous parrot didn’t last as long as those who simply ran. Indeed, magnetic resonance brain imaging indicates that we are wired to believe the first possibility that enters our head. Taking a rational, second look isn’t instinctive. It’s something we must train ourselves to do.

Much of today’s marketing works, but a good deal more has little or no effect, and some actually drives sales down. That much shouldn’t surprise anyone who understands bell-curve distribution. What is surprising is how few marketers have a clue as to where in the curve their marketing falls. This is not to imply that most marketers willfully deceive. Many have simply and unwittingly embraced time-honored marketing myths—usually based on leaps that someone made long ago without checking for parrots.

Here are six out of many possible examples.

Irrational Leap #1: “Everyone knows...”
Bad ideas are often embraced—and good ones dismissed—thanks to what “everyone” knows. “Everyone knows” that no one reads long ads, watches late-night TV, or buys when they sense that you’re “trying to sell them something.” So marketers keep copy under 100 words, spend a fortune on Prime Time, and sacrifice selling to subtlety. Trouble is, these are case in which “everyone” is mistaken. Long ads outsell short ones, advertising on late-night TV generates more orders than on Prime Time, and blatantly promotional advertising outsells holding back.

Given how often “everyone” is right, deference is understandable. Everyone knows—and rightly so—not to play catch with a hornet’s nest, stick a finger in a fan, or pick on someone bigger that one’s own size. But on the other hand, not too long ago “everyone” knew that our planet was stationary, time was constant, stress caused ulcers, and Iraq was stockpiling WMDs.

Marketing is rife with what “everyone knows” that turns out not to be so. Some of marketing’s most prevalent and damaging myths are “my gut is always right,” “focus groups are predictive,” “awareness means success,” “sales are up because of the ads,” and “award-winning advertising is effective.” These happen to be the subjects of Leaps 2 through 6.

Irrational Leap #2: “My tummy tells me…”
Raise your hand—or just roll your eyes—if your boss ever embraced a bad idea or rejected a good one with, “I’m going with my gut on this one—and my gut is never wrong.”

It’s doubtful that anyone’s gut intuition is right even most of the time. More often, hindsight and selection biases cause people to overlook times when the lower half’s prognostications don’t pan out. Or, they never know about those times, because employees fearful of Shot Messenger Syndrome avoid bearing bad news.

Remember that every restaurant that went under, movie that failed, new product that languished on the clearance rack, and business venture that capsized had the full vision and support of someone’s gut that was allegedly never wrong.

Irrational Leap #3: “Research shows…”
If you show story boards to groups of 10 to 20 people who say, “Yup, that commercial would make me buy,” you have a winner, right? If you phone 5,000 people and 80% say they’ll switch to your brand if you change the tagline, they will, right?

Nope. Focus group participants told Telebrands CEO A. J. Kubani that they would cheerfully pay $19.95 for his RoboMaid product. But when he opened up a trunk of ready-to-purchase RoboMaids, no one bought. And you may remember from history that in the 1948 U.S. presidential race, both the Roper and Gallop organizations predicted a win for Dewey. This was based on asking statistically valid samples of Americans how they were going to vote. In case you missed it, Truman won.

Such cases are not unusual. If you ask people what they do, why they do it, or what they think they would do in a hypothetical situation, you’ll learn much about their self-concept and nothing about their behavior. Don’t believe me? Ask people—even in an anonymous survey—how often they wash after using the restroom. Then hide in a stall and count how many actually wash. The difference between what people believe about themselves and what you observe them do (or, not do) will surprise you. It may also discourage you from ever accepting another handshake.

Irrational Leap #4: “Awareness is up…”
Advertising was invented to deliver a pitch in place of a live salesperson. Its measure of success was the number of people who purchased. Later, advertisers began judging their work by the number of people who noticed or remembered a campaign. Today, many advertisers believe that an ad has “done its job” if it draws notice.

To put this silly notion to the test, think about the Ford Edsel, New Coke, Wendy’s pigtail-wig campaign, and the Subaru “liar” campaign. All of these failed ventures still enjoy top-of-mind-awareness.
Irrational Leap #5: “Sales are up...”

It sounds convincing to say, “Sales went up when we ran the ads, so the campaign worked.” Unfortunately, that line of reasoning is based on a logical fallacy well-enough known to have its own Latin name: Post hoc, ergo propter hoc. “After this, therefore because of this.”

It’s an easy leap to make, since what happens first often does cause what happens next. If you experience indigestion after overeating, you can safely blame the overeating. But coincidence can fool us. In the early 1980’s, sagging Harley sales picked up at about the same time the company cranked up the creativity of its advertising. So the new ad campaign obviously caused the sales increase—or did it? Also at the same time, President Reagan increased the tariff on imported motorcycles from 4.4% to 49.4%. Maybe that had something to do with the company’s sales turnaround.

If sales surged in the wake of your marketing campaign, congratulations. But you’ll need more than that to establish that the campaign caused it.

Irrational Leap #6: “But it won lots of awards...”
A quick look at advertising award competitions reveals categories like “Best Photography,” “Best Use of Humor,” “Best Design,” “Best Editing,” “Best Original Score,” “Best Copy,” and “Best Directing.” Everything, it seems, except “sold the most widgets.”

Funny thing. Awards given to salespeople are tied to numbers. I bet you’ve never seen a salesperson receive an award for funniest pitch, best jingle, or most original attire.

If you want to prove that award-winning marketing is de facto successful, you’ll need to exclude from your data: the many straightforward ads, like those for common household products, that produce sales; the many corny ones, like those for Ronco, that make fortunes; and the many highly-praised creative ones, like the Taco Bell Chihuahua, that fail to increase sales.

Or, you could spare yourself the trouble. Admit that the number of awards your work garners is great for your ego, but has nothing to do with selling.

Toward rational marketing
Good news, marketers. You needn’t be subject to the above-referenced or other irrational leaps. Here are some tips for making rational marketing decisions.

Conduct a valid predictive test. The trick is to quit asking people to tell you their behavior, and discretely watch it instead. How do you suppose the retail industry learned that people in the U.S. tend to move to their right upon entering a store? Hint: not by asking them in focus groups or phone surveys. Researchers hid in stores and watched.

There are many ways to put customers in a position to show you how they’ll behave; all it takes is a little imagination. Here’s one example. Say you want to choose between Headline A and Headline B. Create two mailers that are identical but for the headline. Include a free incentive offer. Send A to half of a sample list of your market, and B to the other half. Now, count the replies. You can be pretty sure that the headline pulling more replies is stronger. To be more than just pretty sure, retest. If you get the same results, the evidence is that you’re on solid ground.

Take the emotion out of your decisions. The passion to be right is intoxicating. Sober up. Your objective is to sell widgets, not to bolster your ego. As you design a valid test, resolve in advance to accept the results, even if they fail to support your hunches.

Maintain control groups as a matter of policy. A sales increase during
a campaign might or might not be a coincidence. You can find out by establishing a control group—a representative selection of customers who aren’t exposed to your campaign. A quick comparison of control-group versus other-customer purchases will tell you what effect, if any, your campaign had.

Resist the urge to jump to conclusions. Logic leaps are beguiling. Force yourself to collect valid evidence. Remain skeptical about what the evidence says—as opposed to what you want it to say.
Warding off bean counters

The more you train yourself to eschew unwarranted leaps and instead approach marketing from a sober, rational standpoint, the more you will find yourself creating and refining campaigns that are demonstrably and measurably successful. Then, next time a bean counter turns a greedy eye on your budget, you won’t have to defend your work with dodges like, “but it’s so creative,” “it did well in focus groups,” or “I feel in my gut that it works.” The numbers will speak for themselves.

It’s too late to save Dr. Brinkley’s patients. I’m afraid it’s also too late for the goats. It’s not too late for marketers.

Steve Cuno is chairman and founder of the RESPONSE Agency, a direct response marketing firm in the Salt Lake City area. He is the author of the book Prove It Before You Promote It: How to Take the Guesswork Out of Marketing, due in bookstores November 2008 from publisher John Wiley & Sons. Steve welcomes your comments. His email address is Steve@ResponseAgency.com.

Loyalty Asterisk™

We have created a world with so many things that we cannot live without.

Cell phones, instant messaging, and unlimited texting all qualify, with prioritization based on your age and techno-savvy quotient. If kids were cowboys, the six shooters on their belt would be IM on one side and unlimited mobile phone texting on the other.

The highway billboard I recently passed shouting “dnt txt whl u drv” hints that we’ve let the devices exert too much influence over us. But, as Stuart Scott advises on Sportscenter “don’t hate the player, hate the game”, I would urge you to not hate the devices or the technology, just the way they are often put to use.

In the business world, we have indispensible items as well. One of them is so implausibly small that it defies logic. It’s the Loyalty Asterisk™!

This little character is making a name in all corners of life, not just in print ads for cars and trucks, but also in sports record books – thanks to Pete Rose, Barry Bonds, Marion Jones, and Floyd Landis.

The asterisk even landed among the top 10 internet searches on Ask.com. We don’t really understand why, but a spokesman who declined to elaborate further said the symbol is “linked to illicit activity the company blocks”.

The television equivalent of the asterisk is the paragraph of fine print that is so small it can only be deciphered by hitting the TIVO pause button. In radio, it is the gushy blitz of words that signifies the end of most ad spots.

The meaning of the Loyalty Asterisk™ is simple. A suitable synonym would be “disclaimer”. Need a modern definition of disclaimer adapted for the world of commerce? It’s the legal department’s hedging of lofty promises made by the Marketing department.

A few examples of notable disclaimers in action clearly illustrate why marketers have become so dependent on the asterisk to ply their trade.

Some restrictions apply
Imagine that you and your significant other have just spent the morning reading through ads and looking for that perfect furniture set for your new family room. Having just identified the perfect mix of fashion, color, and price, you are delighted to see that if you make the purchase today before the 4pm closing time, you can have the items delivered to your home the next day. Then you see it…the Loyalty Asterisk™. Just as quickly as your balloon inflated with expectations, it is immediately burst by sighting of the asterisk. You don’t even need to read the fine print to know that some condition is included that will ruin it all. Disgusted, you throw the paper aside and decide to watch yet another Law and Order repeat.

Results not typical
Bitten by the triathlon bug years ago, I consider myself to be a pretty healthy guy. A few Rogaine ads later, I was beginning to think that improvements could be made. The acceleration of ads promoting prescription drugs designed to better us from head to toe – and in between - has me scratching the hair I have left. If I were ever convinced to look for a magic pill to solve a physical problem that I am purported to have, I would still apply the brakes upon sighting of the asterisk at the bottom of the ad accompanied by the words “results not typical”. Even the devoted optimist would pause, wondering if he could be in the 1% of the sample where the drug not only failed to work, but actually triggered the nasty side effects enumerated on the inside label.

Actual mileage may vary
Who among us would not agree that buying a vehicle tops the list of unpleasant consumer experiences? The first point of reference for most potential buyers wandering the car lot is the sticker on the side of the vehicle. Now that US fuel prices seem destined to reside in the neighborhood of $3.00 per gallon, more and more people are seeking mileage estimates as their second data point after price.

Trust plays a big role in influencing purchase decisions and unfortunately American consumers recently discovered that the mileage estimates used for the past several years were not representative of normal driving conditions. The Environmental Protection Agency recently disclosed that the tests conducted to determine fuel performance of new vehicles were conducted in unrealistic conditions, for instance driving an average speed of 48 mph in low humidity and with no air conditioning. The EPA disclosed that tests conducted in more typical conditions would reduce mileage numbers by 10 – 20%.

What’s the connection between the Asterisk and Loyalty Marketing?

It seems that over the relatively short 26 year history of the Loyalty Marketing business, marketers have steadily exhausted their reservoir of creativity and increasingly relied on their version of the asterisk to make up ground.

Loyalty Marketing versions of the asterisk include:

Increasing the points required for a reward
Adding fees for redemption
Tightening expiration rules

These are all conditions that lessen the value of the program for consumers. It’s a game of perception that marketers are too often losing. Insiders know these rule changes must be made, though it does not prevent consumers from viewing them as evil.

It is counter-productive to attempt to influence a particular consumer behavior with rewards and recognition while placing a myriad of constraints on the same behavior. Customers end up feeling confused and frustrated, two emotions bound to engender anything but “loyalty”.

As loyalty marketing has evolved from a novel tactic to become a standard tool in the marketing mix of most major consumer facing organizations, the articulation of most programs is increasingly similar. In airline, hotel, and financial services companies, offering a program that awards points or miles for consumer patronage is essentially a cost of doing business.

Whether this form of marketing strategy continues to influence consumer purchase behavior as intended will depend on how quickly the next wave of innovation emerges and can be practically applied.

As they tweak their program rules to reign in benefits and reduce cost, companies should understand that cheap talk in their annual reports about commitment to a customer centric strategy is heavily diluted by the proliferation of the Loyalty Asterisk™ in their program communications.

It’s time for marketers to “say what they mean and mean what they say”. Building enduring customer loyalty is complicated enough. Don’t undermine your substantial investment in customer centricity with a generous sprinkling of the Loyalty Asterisk™. Let’s hasten the next wave of innovation in the Loyalty marketing business and stop changing program rules from becoming the most commonly communicated message in our e-newsletters.

Online Retailer Case Study

Please visit http://cli.gs/BikeWar to read the case study and download a copy from Hanifin Loyalty LLC site. Thanks!

Research Lessons from the Restroom

Research Lessons from the Restroom
By Steve Cuno

There is a right and a wrong way to predict customer behavior. To illustrate, I shall invite you to accompany me to the office restroom.

But first, circulate a survey asking people if they wash before leaving said facilities. Make sure they know they’re answering with complete anonymity, or 100 percent will answer in the affirmative.

OK, time to visit the restroom.

Choose a stall from which you can tell, without recognizing individuals, when people wash. Hang an “out of order” sign on the outside and then hide inside with the door closed. Now, count. (Tip: don’t get caught hiding in there. It will be hard to explain, and I won’t back up your story.)

If your results are typical, between 60 and 80 percent of survey respondents will say they wash, but only about 10 to 20 percent actually do when they think no one is watching.

This exercise tells us something important about research: even in anonymous surveys, asking people to explain or predict their behavior is pointless. Some people lie, but more often they simply haven’t a clue about what they do or would do, much less why they’d do it.

This may surprise marketers, but not brain surgeons. When human brain hemispheres are surgically separated, you can communicate with one side of the brain while the other side remains oblivious. Tell a split-brain patient via the right brain to walk, and the patient will comply. Now stop the patient and ask via the left brain, “Why are you walking?” Though the only truthful answer is, “I don’t know,” the left brain won’t admit it. It will always fabricate an explanation—like, “I wanted to get a drink of water”—and mean it.

In The Blank Slate—The Modern Denial of Human Nature, author and Harvard University psychology head Steven Pinker explains, “We have no reason to think that the baloney-generator in the patient’s left hemisphere is behaving any differently from ours as we make sense of the inclinations emanating from the rest of our brains. The conscious mind…is a spin doctor.”

So the wrong way to predict the success of a marketing campaign is to ask people in focus groups or phone surveys how they think they’ll react to it. The right way is to find the marketer’s equivalent of a restroom stall, hide inside, and take notes.

For instance, to promote an MBA program, we took a small sample of a mailing list, divided it in half, and sent each half a separate offer. No recipient knew that a test was afoot. One offer outsold the other by eight times and produced a profit. Moreover, this response was projectable, so when we mailed the winning offer to the remainder of the mailing list, we knew in advance what results to expect.

For a software client, we alternated two TV spots, each with its own phone number, and counted calls for two weeks. One spot earned one dollar for every five spent in media; the other earned one dollar for every 29 cents spent in media. The second was the clear winner and profitable. And because the results were projectable, our client could then count on about $100,000 in sales for every $29,000 spent in media.

Asking people which offer or spot they liked better would not have yielded projectable data. Reliable information emerged when we created real situations and watched, unobserved, what people did.

The late John Wanamaker famously lamented, “I know that half of what I spend on advertising is wasted; I only wish I knew which half.” Good news, marketers. With a little imagination and restraint, and without spending a bundle, you can prune the losers and identify the winners early. Which means, if you’re smart, you can avoid wasting that elusive half in the first place.

Steve Cuno is chairman and founder of the RESPONSE Agency, a direct response marketing firm in the Salt Lake City area. He is the author of the book Prove It Before You Promote It: How to Take the Guesswork Out of Marketing, in bookstores November 2008 from publisher John Wiley & Sons. To save 40%, order from www.ResponseAgency.com. Steve welcomes your comments. His email address is Steve@ResponseAgency.com.

State of the Loyalty Industry - Hanifin Loyalty LLC

When I think about the State of the Loyalty Marketing industry today, I see a business that is somewhere between adolescence and adulthood. From the launch of American Airlines AAdvantage in 1981 to the GM MasterCard launch in 1992, our collective experience in two pillar industries is equivalent to children between 17 and 28 years of age.

It’s not a stretch to say that the vast majority of strategic thinking and program design evidenced in Loyalty programs today have been built by Boomers for Boomers. That’s right, we are the creators of the strategies for which we are also the target audience. Reminiscent of GM’s campaign to invigorate a troubled brand in the 1980’s by proclaiming "This is Not Your Father's Oldsmobile", we’ve built the “loyalty” car that we’re comfortable riding in, but we are learning that an increasing number of others don’t necessarily want to go along for the ride.

There is at least one group of consumers who are not sure they want to jump in our car and they are 80 Million strong, representing almost 25% of the U.S. population. Generation Y (the Millennials) are largely disconnected from traditional loyalty models, and it is not surprising given that some of the oldest in the group were born in 1981, the year AAdvantage was launched. To illustrate how the world has changed since then, in that same year IBM launched its first Personal Computer and Arnold Schwarzenegger was still walking around in a Speedo.

The benefits from investment in Loyalty Marketing programs have never been more evident. Creating a community of customers that are recognized and rewarded for their patronage is the precursor to understanding their preferences, needs, and desires. Loyalty works - whether in booming or troubled economic times.

If there is any criticism to be leveled towards the mirror, it is simply that we may have spent too much time on planning with not enough emphasis on executing our recommendations thoroughly and with flawless perfection. Why else would we be still urging clients to leverage the valuable data they have collected to engender more sincere two-way communications with their customers. Or, why do we plead to invest in the disciplines of program measurement to understand performance, justify budgets, and proactively manage financial liability?

As Marti Beller stated in her article in this series, it is clear that the market is demanding innovation and we, as practitioners, must re-tool to deliver the next wave of thought leadership to benefit both our clients and consumers. The challenge is more formidable than it first appears, as we are comfortable with current structures and consumers have adopted a strong sense of entitlement to their rewards. We need to tap into a way to migrate the foundational elements of building successful Customer Strategies to meet the needs of Generation Y specifically, but also the demands of an ever evolving marketplace.

An area of focus that deserves attention is communications. Peppers and Rogers coined the term “1 to 1” Marketing and almost everyone today promotes the concept of creating meaningful two-way dialogue in the context of loyalty and rewards programs. It was not long ago that the tools available to execute a communications plan were direct mail and catalogs. Adding websites as program portals added functionality and email became the preferred communication medium with its low-cost structure and potential for personalization.

Web 2.0 came along and handed the reins of relationship building to the customer. We now find ourselves in a world offering a range of communication channels, many of which have not earned our full confidence and which we don’t even use on a personal level. I am speaking of all the options that fall under the umbrella term Social Media Marketing and includes communities, blogs, social networks, micro-blogging, and content or feed aggregation. We know these as Facebook, Flickr, LinkedIn, MySpace, Twitter, and many more.

Everyone knows about Social Media, few understand it, and there are proponents and opponents voicing opinion with increasing volume. To some, employing a social media strategy can accelerate achievement of business objectives, to others it is a greater waste of time than watching your teenager play one more round of their favorite video game. The one unifying question is “how do all these pieces fit together?” Almost every business person I know expresses interest in executing a social media strategy that is right for them.

If you are skeptical about incorporating Social Media into the communications stream of your rewards program, even hoping that the world will just “grow out of it”, let me provide encouragement. Peppers and Rogers had the right concept with “1 to 1• Marketing, though execution was too costly for most companies to absorb. It is one thing to craft promotions, offers, and communications by segments, but to drive personalization to the individual account level was not financially sustainable. After the first wave of failed CRM installations, the ambitions of “1 to 1• Marketing were softened to a more practical “Mass Customization”.

The unfulfilled potential of CRM and “1 to 1” communications is made possible with the range of Social Media tools available, and it will be interesting to see how our industry embraces the opportunity to transform program communications and, in doing so, find clues to engaging Generation Y with its favorite brands and creating the enduring brand loyalty that benefits all parties.

This article was originally published by Loyalty 360 Blog

The 22 major factors that will shape the future of customer loyalty

In this article, we've drawn guidance and data from the 36 chapters of The Loyalty Guide III (April 2008, Wise Research), to offer practical insights into the technological developments, market trends, business strategies, and behavioural shifts that will define and shape successful loyalty initiatives up to 2010. We have purposely kept our focus on practical developments rather than merely expounding theory.

The most obvious way of predicting future trends is to examine what has happened so far and then make projections from that. But that is fraught with danger because paradigm shifts have a nasty habit of turning up just when they're least expected. Who would have predicted even ten years ago that the mail and the fax would have been relegated to the extent that they have by e-mail? And with the rapid growth of spam and online fraud, e-mail is already getting much harder to use for reliable customer contact. Another shift is already overdue.

Some of these factors we discuss here are already known to loyalty marketers, but their importance in shaping the industry means they shouldn't be dismissed from our attention when planning ahead. But others are new and perhaps even surprising, and are likely to become the key points of differentiation between loyalty programmes that succeed and those that don't.

Loyalty programmes become far more sophisticated
In general, loyalty programmes will continue to get more sophisticated and more useful as time passes. But while they might be much more complex beneath the surface - they will appear simpler to the consumer. Think of the ways in which advancing technology has often led to much more complex and powerful equipment that is much easier to use. Although consumers generally need to be given simple options and rules to follow, the technology behind loyalty programmes will develop (largely using complex rules-based engines) to help marketers offer different sets of options to the right customers at the right times.
Multi-territory loyalty programmes will develop
As international boundaries are lowered and domestic travel cheapens, there is increasing scope of multi-territory loyalty programmes. In the past few weeks we've seen DCS Technologies announce a loyalty platform that aims to span Australia, China, Hong Kong, Malaysia, Singapore, Taiwan and the Philippines - with other Asia-Pacific countries to follow (see 14th June 2006). We've also seen Air Miles announce the extension of its UAE and Qatar operations into Lebanon and Bahrain, followed by Saudi Arabia (see 5th June 2006). There are numerous US-based loyalty programmes that operate equally in Canada and Mexico, and credit card-based reward programmes are also taking loyalty across borders.
An explosion of loyalty coalitions and networks
Multi-partner and coalition programmes will become much more widely used and accepted, both by businesses and consumers worldwide - although some challenges exist in terms of geographic scale in some countries and markets. Coalition loyalty programmes offer a huge range of marketing advantages (e.g. shared marketing, lower costs, cross-partner customer acquisition) which will also become greatly more important over time. Loyalty networks (such as Rewards Network) are also likely to become increasingly popular because of the sheer range of partners they offer consumers. Being a looser version of a formal loyalty coalition, they usually provide consumers with loyalty benefits or rewards at a great variety of outlets and merchant locations (as they don't usually provide sector exclusivity for merchant partners). Loyalty networks are already ideally placed to take full advantage of the new international expansion trend, with many already having partners in multiple territories.
Loyalty programmes become truly multi-channel
According to the database marketing provider Total DM, approximately one-third of the UK's major corporations are making their loyalty programmes multi-channel. Other than providing loyal customers with greater convenience, the big advantage is the comprehensive data that comes from all customer touch points for segmentation and profiling. Not surprisingly the loyalty pioneers (the credit card, retail, and travel sectors) have been very successful in going multi-channel, and most other sectors are catching up as quickly as possible. Total DM predicts that, as alternative channels gain more traction in the next few years, most loyalty schemes will operate consistently across all channels - and the loyalty pioneers are the ones to watch and follow.
A new focus on loyalty data and Customer Lifetime Value
Loyalty programmes are not only a source of data with dozens of practical business-improving uses (see 'The 30 major factors in the success of customer loyalty'), they're a tool for financial metrics. The CMO will increasingly be joined by the CFO, the CIO, and the CEO in finding bottom-line value in the programme's data. Customer Lifetime Value (CLV) is increasingly being recognised as one of the most important measures of the worth of a customer. It takes into account not only the customer's value now but the expected value over their projected lifetime as a customer. It is arguably the best way a marketer can demonstrate unequivocally that a programme is working: the CLV of targeted customers will rise. Being able to identify customers through a loyalty programme means being able to monitor long-term customer lifetime value, and being able to identify the demographic, sociographic, and even purchase profiles that define the most profitable customers - and that knowledge enables you to target and develop even more of them.
Loyalty programme operators turn to predictive analytics
There's a growing focus on predictive analytics (which software provider SPSS defines as "connecting data to effective action by drawing reliable conclusions about current conditions and future events"). Predictive analytics, like ERP and CRM, is both a business process and a technology. It makes it easier for marketers to identify and better understand customers' wants, needs, and priorities by continually analysing all sorts of customer data, such as loyalty programme data, transactional data, and customer service interaction data. The ultimate aim of predictive analytics - rapidly becoming a common reality - is to aid in the making of decisions that lead to changes in how both customers and employees behave. With the adoption rate at less than 1% in the year 2000, a 10% adoption rate in 2005 demonstrates the growing interest in real-time predictive analytics - a trend that is likely to continue for several years to come.
Rewards will become more of a key differentiator
Almost every coalition loyalty programme in each market offers very similar rewards to its competitors. And most single-operator loyalty programmes offer similar rewards to their same-sector competitors. Very few can truly say they differentiate based on their rewards. As consumers grow weary of participating in (and keeping track of) multiple reward programmes, this problem is one that will increasingly attract their attention when allegiances are formed to one loyalty programme or another. There was a time when "a trip into space" was a unique reward - but even that has now been offered by several loyalty programmes around the world. And, big rewards aside, the entire rewards catalogue will have to become even more imaginative in order to give something that still has value but is not too expensive to supply.
Changes in society and populations mean more 'fun rewards'
In the Western world the population is aging fast. In many countries birth rates are falling, and the elderly are living longer. This is already leading to a crisis in funding pensions as fewer people of working age have to fund the pensions of more and more pensioners. This will mean that marketers will have to adjust their approach to cater not only for older consumers, but for older consumers who are living on lower incomes. People now work longer hours than in previous decades, leaving less time for recreation, family life and rest. This can only get worse in the near future and, for many consumers, time is already more precious than money. As a result, the loyalty programmes of the near-term future will increasingly have to offer rewards that focus more on fun and family activities, and at a point or mile redemption level that most people can reach within a few months.
Tiered pricing will help develop real consumer engagement
The data from a loyalty programme can help formulate pricing structures. If enough best customers are happy to buy a product at a particular price there is little point in reducing that price simply to attract "cherry-pickers" (disloyal bargain hunters). Through transactional loyalty data, the effect of changing prices can also be studied (e.g. which customer segments buy significantly more or less). To aid differentiation, smart retailers will increasingly allow their customers to use loyalty points to 'buy' extra discounts on selected items throughout the store (an example cited by loyalty guru Brian Woolf is the offer of nappies for US$9.99, or spend 600 loyalty points and get them for US$3.99 instead). This kind of pricing causes the customer the actively think about their loyalty points balance dozens of times on each shopping trip. Such on-the-spot engagement is hard to achieve any other way, and retail adoption of the technique (which Woolf calls 'Access Pricing') can be expected to grow rapidly.
Lifestyle and Lifecycle marketing take centre-stage
The general trend toward lifestyle marketing is bound to affect loyalty programmes positively. In fact, loyalty marketing is in essence a form of lifestyle marketing - that is, it is activity shaped around the interests, attitudes, opinions, and way of life of the best customers of a business. However, in order to practise lifestyle marketing, it would make sense for any business that doesn't in the course of its business continually collect demographic and purchase data from customers (as would, say, a credit card operator) to do this via a loyalty programme. And lifecycle marketing opens the door to more profit. It can be used to cross-sell and up-sell to customers. It also provides the knowledge needed to develop a truly meaningful (even if still automated) relationship with the customer: How a consumer reacts to an offer usually depends on what stage of their lifecycle they are at.
Consumers will seek to 'punish' impersonal loyalty operators
While loyalty programme managers can now understand their customers in ever increasing detail, their customers are also demanding more and more relevance of the brand message to their life-stage interests. As a result, anything they hear or see from a company that seems impersonal or poorly targeted will increasingly be "punished", whether directly by the individual consumer (e.g. withdrawing their business and switching to a competing brand) or by a more damaging "viral backlash" when they tell their friends and family the story.
Consumer behaviour will continue its path of change
Consumers are making fewer shopping trips, spending more per visit, more willing to travel, experiencing a more competitive selling environment, having more information at their disposal, and exhibiting less supplier loyalty. The phrase for loyalty marketers to bear in mind from now on is that "membership does not equal loyalty". Even now - and more so in the future - the shopping experience has become far too complicated and consumers simply have too much choice and too little time. The behaviour patterns of entire markets and demographics now change more quickly than in the past, possibly due mainly to the ease with large networks of consumers can communicate with each other online.
Dialogue and feedback increasingly driven by customers
Improved communications and CRM systems that provide enterprise-wide customer data will make it possible to have more meaningful dialogues with customers while making it easier for them to get their point of view across to the company, whenever they want to. This involves a distinct move away from mass communications (even personalised ones) and a move toward carefully timed and targeted individual communications. According to feedback solutions provider Comhra, this approach can give marketers much more accurate data for segmentation and can greatly improve campaigns for cross-selling, up-selling, customer profitability, and customer retention. An increasing number of companies are also choosing to open up 'blogs' and forums on the internet for the open public debate of their products, services, brands and image. These will increasingly allow consumers to express their feelings openly. More importantly, companies will be using them to monitor brand reputation, spot potential brand damage, and gather ideas for product/service development and improvement.
Enabling technologies will give innovators the advantage
There are a number of technological aspects that will develop over the next few years, some of which are behind-the-scenes technologies that consumers aren't aware of, and some of which will directly affect and interface with the consumer. Marketers will find new ways of using each technology that becomes available to them, and innovation will flourish. One key to success here is to have skilled technical members in the loyalty programme's development team. For example, mobile phones immediately suggest broadcast advertisements and SMS coupons, but innovative loyalty marketers are now using 2D and 3D barcode images (in MMS messages) as on-screen loyalty programme and reward codes than can be scanned at a retailer's point of sale.
The rise of mobile loyalty management technology
The mobile phone - a device which is now in the hands of almost every consumer in the developed world - is already playing an increasingly important role in customer loyalty initiatives, and that trend can only grow in significance. The mobile phone presents a quick, cheap, and ever-present channel of communication in almost real-time. As we've seen, it can replace any number of loyalty cards simultaneously, and the advent of NFC (near field communication) chips allows them to be used for contactless payments, promotions, coupons, opt-in advertising, and even consumer-to-consumer viral marketing. In markets where mobile phones are ubiquitous, we can expect to see the gradual phasing out of plastic cards and key fobs.
Renewed growth in loyalty-based EMV cards
An increasing number of EMV-based smart credit cards are being issued with electronic purse facilities, and some already have space allocated on the chip for loyalty programmes. This trend is likely to continue for the rest of the decade, both for contact-based and contactless smart cards issued by financial services institutions. Contactless payments have been amazingly successful, with 2005 seeing the widespread introduction of contactless payment systems worldwide. The charge was led by American Express (ExpressPay), MasterCard (PayPass) and Visa (Visa Contactless), in conjunction with numerous banks, and POS and card technology providers (such as VeriFone, OTI, and ViVOtech).
Stored value and gift cards merge with loyalty applications
The market for electronic gift cards (stored value cards) is expanding rapidly. Gift cards have been widely used in the US for longer than in other parts of the world, but the popularity is now beginning to spread, even having a significant impact on holiday season and post-holiday retail sales patterns. Companies using reloadable (pre-paid) gift card solutions have more than just a gift card at their disposal: they have a potential loyalty card that consumers are already attached to because: a) it contains money they can spend, and b) it was given to them by somebody they know. Companies are already adding excitement factors such as sweepstakes and cash rebates (for both spending and re-loading) to encourage repeat purchase behaviour. Gift cards can also be expected to develop into affinity (co-branded) programmes with external partners and non-profit causes, to gain further consumer engagement.
Consumer acceptance of RFID generates new loyalty options
Consumers have been somewhat scared by a number of "big brother" media reports about RFID (radio frequency identification) chips - also see 'Using RFID'. But the reality is that all new auto-identification technologies have met the same kind of resistance (remember how in the 1970s and 1980s the humble bar code was accused of being "the mark of the beast", among other conspiracy theories?) The German retail giant Metro Group briefly implemented RFID chips in some of its loyalty cards during a trial programme for its Future Store hypermarket, but consumers apparently weren't ready to accept it. However, when consumers begin to understand how a new technology really works, and when the benefits start to be felt in everyday life, acceptance and adoption follow. RFID's usage in contactless payments, anti-theft devices, access control, and even in passports will bring about the "consumer comfort factor" that will allow RFID into retail store environments, and ultimately into the consumer's purse, wallet and home. The options for marketers - particularly for loyalty programmes (which primarily serve as data capture programmes) - will be vast, and limited only by imagination... and responsible data usage, of course.
Cardless ID innovations drive loyalty programme adoption
As consumers get tired of carrying a bulging wallet or purse full of plastic cards, it's only natural that they will begin to empty out the ones they value the least. For any loyalty programme operator other than a national or international coalition, that seriously challenges "consumer buy-in". One option is to give the consumer a very strong motivation for carrying the card, although this is always difficult (and usually expensive to keep up). Another is to combine the loyalty card with a payment card, but this tends to limit the consumer to a single loyalty programme for their preferred payment card. Another idea is to swap the card for something else, like a key fob or sticker, but again a person can only carry a small number of these with them. This leaves one alternative: getting rid of the card completely. Examples of innovative ways of doing this include: biometrics (e.g. finger print scanning), using a vehicle registration number, using a mobile phone-based bar code or ID number, using the mobile phone number itself, using a national identity number (in countries that have them), or even using payment card numbers as loyalty programme identifiers (although these change, and most consumers use more than one). These approaches, and others yet to come, will drive loyalty programme adoption by removing an element of inconvenience.
The internet further alters the marketing landscape
The internet is having an enormous effect on the world of retailing in particular. It is possibly the most important thing that has happened to the retail sector since the introduction of plastic payment cards. But its effect is still far from being fully realised: with every passing year, new channels of electronic communication and new methods for e-commerce are being opened up. New security and anti-fraud measures are being created to protect consumers and retailers alike, and consumers' pre-purchase research is being radically changed - for example: makes, models, alternatives, competitive prices, and local availability can be compared before buying; second-hand goods are just as easily found as new goods; consumers no longer buy only from local merchants; and easily-found and highly candid consumer reviews can help make or break a brand. The internet, while having many problems (such as spam, scams, viruses, and bogus e-commerce web sites), is rapidly becoming the first port of call for consumers who want to find a product, check on specifications, find a supplier, compare prices, check availability - even if they then go to a bricks-and-mortar store to physically see and touch the product before making their final buying decision.
Globalisation will make customer loyalty harder to develop
Globalisation has generally made it harder to develop loyalty. For a start, it largely removes any advantage that patriotism might have provided from the equation. It also means that companies are now trading in areas where they are distinctly 'foreigners' and they might actually have barriers to break down before developing loyalty can even be contemplated. Another global factor that will play an increasing role is that of developing countries. As the markets of the already developed countries become increasingly saturated, businesses will turn to the developing markets. They may well find less infrastructure than they are used to at home. This could pave the way for smart card-based programmes because they can operate effectively without the reliable and regular up-loading and down-loading of data. It could also stimulate imagination in the development of small, inexpensive, but still desirable rewards.
The pace and scale of change will continue increasing
This growing trend applies to the way in which people live, the way in which business is conducted, and even who trades with who. Because so many things are changing at once, making predictions is a hazardous business. There is bound to be conflict between what technology can do and how much consumers fear what it can do. The temptation will be for businesses to rely on technology to help improve the customer experience while at the same time cutting costs. But this will not be enough on its own. As far as the customer is concerned - and most would agree this is the key factor in building relationships and profits - technology is of little or no help if front-line employees are not empowered to help them.

The traps, pitfalls, and warnings of the past have always been useful for planning action in the future - the worse the failure, the more widely the lesson is learned. The successes of the past rapidly become role models for the future. But at the pace with which technology, retailers, service providers, general commerce, and even consumers are shifting and changing, the time has come to use increasingly predictive science to find the pitfalls before we reach them. Our conclusion for the future is this: new technology can be costly, but it can also be the marketer's best friend - if it's used smartly. But at the same time, don't forget that the technologies and techniques of the past may still be the most appropriate or reliable for some tasks, particularly when the attitudes and habits of the ever-slow-to-embrace-change consumer are involved.

The Case for Customer Loyalty

Commercial Benefits

Many Loyalty schemes can demonstrate increases in revenues for operators and it is evident that loyal customers tend to spend more than their promiscuous counterparts. As is usual in almost all businesses, the 80-20 rule applies and it has been shown that a small percentage of customers account for a high percentage of profit. Therefore it is proven that having a loyal customer base is one of the most important commercial assets a business can have.

Research indicates that loyal customers spend twice as much as promiscuous shoppers in their "first choice" store and in the grocery market loyal shoppers also tend to have larger shopping budgets.

There are several other key benefits of loyalty schemes including improved communication with the customer, the ability to track and monitor shopping habits and influence customer behaviour, improved promotional activity with focused and targeted campaigns and an improvement in the supply chain efficiency. Customer data that is well-collected and analysed can be used to reward loyal customers to ensure that "marketing spend" is targeted effectively.

NB Only collect data you need and use the data you collect.

It is necessary to be aware that the impact on sales and profit must be closely monitored when evaluating the effectiveness of a Loyalty Programme. The MJA research has shown that a proprietary (store based) Loyalty scheme, if run efficiently, can break-even with turnover increases of 3% to 4%. There are many factors to evaluate when considering a Loyalty campaign and MJA has a structured approach to evaluating and assessing which Loyalty Strategy is best suited for your business.

Potential Costs

It is very important to recognise that Loyalty Programmes must be a long-term commitment and will often require an extended financial obligation. Loyalty strategies must be analysed for cost as well as revenue benefit and research indicates that many costs need to be considered as part of this analysis. As well as the Rewards and redemption costs (estimated to be around 80% of the total cost); there is the cost of IT developments, data collection and analysis and HR investments in a Programme Management team.

Why Programmes "Fail"

Recent research by Colloquy has identified that, out of the 2000+ programmes that they have monitored since 1990, 62% are still in operation although many have "evolved" or had "major" modifications and some 7% have been totally re-launched. Therefore 38% of programmes have "gone by the wayside"! Some may have been shut-down due to acquisition issues but there are some significant and foundational reasons why many have failed.

The main 3 Design Flaws shared by "failed" programmes are:-
• No Bonussing/ Flat Funding Rate.
• No/ Very Weak Soft Benefits
• Single Tender system for Transactional Data Collection (see "Invisible Customer")
The 2 other reasons for failure were:-
• No Dialogue with the Member Base
• Poor or Little use of the Data Collected.

Study shows 4 critical failures in many loyalty platforms
Monday June 20, 2006
Many of the 30+ customer loyalty platforms examined in a new study are failing to provide the functionality required to meet the demands of running an effective loyalty programme in today's marketplace, according to UK loyalty consultancy MJA Associates.
Mike Atkin of MJA Associates carried out a detailed investigation into the capabilities of over 30 loyalty programme platforms being used to operate programmes around the world, and came up with these surprising results. This article is copyright 2005 TheWiseMarketer.com.
Software solutions from New Zealand, USA, UK, Poland, Germany, India, France and many other countries were reviewed as part of the Benchmarking Study and Gap Analysis process that MJA Associates offers its clients.
Just for points?
Atkin notes that many of the solutions examined were merely "points engines" that could increment and decrement the points in a members account but were limited in the functionality required to manage bonussing, lifestyle data collection, surveys, partner management and other fundamental operations.
MJA uses a 550-point checklist for the capabilities required to operate an effective, robust and future-proofed loyalty programme (in either a multi-partner or proprietary application), which is used in a weighted spreadsheet analysis to identify the best solution for a particular requirement.
Critical concerns
According to Atkin: "Many so-called loyalty solution software platforms were sadly lacking in many areas, and should be a cause for concern to many loyalty practitioners. The most important areas that are weak in many software solutions are bonussing, partner management, survey functionality, and contact centre information screens."
As an example of some of the most important points in MJA's list of critical requirements, the following show some of the more essential features needed for a workable loyalty platform:
• Application and member number tracking
• Archiving of programme data
• Audit logs including database table changes and transaction posting
• Awards redemption and all related processing
• Bonussing functions and flexibility
• Card management
• Configuration including currencies, languages and attributes
• Correspondence processes
• Documentation for programme operation
• Events management
• Interactive Voice Response (IVR) provision
• Fees management
• Kits and cards processes
• Location hierarchy
• Member services provisions for call handling
• Member management, transaction and attributes recording
• Partner management
• Pending member controls
• Points expiration controls
• Point types abilities
• Reporting functions
• Security controls
• Software development kits and APIs
• Statement generation
• Survey functionality
• Tiering options
• Financial transactions and points management

It is also important to look at the system architecture and its ability to integrate into existing data networks, how the platform will incorporate, access and update legacy system records, capabilities for high volumes (scalability) and how contact centres can be linked with it - e.g. via wide area network (WAN), local area network (LAN), etc.
MJA found that most of the platforms examined did not fully enable interaction between the loyalty programme operator and the consumer, making segmentation very limited and resulting in irrelevant offers being presented to consumers. Consequently, Atkin offers the following advice on best practice where most of the programmes fell short:
28. Bonussing:
Best practices in running an effective Loyalty Programme requires segmentation of customers to identify Best, Best Potential, Likelihood of attrition and lifetime value. Once this segmentation process has been done it is necessary for practitioners to allocate their funding to the relevant sector i.e. Bonussing. MJA recommends that operators should allocate at least 50% of their funding rate for targeted bonuses to reward Best customers, defend the business and create real loyalty. Platforms need to be capable of creating bonus offers by Member, by Retailer, By Region, By Branch, By Terminal, By Date, and By Activity etc etc.
29. Partner Management:
While this functionality mainly applies to multi-partner schemes it is important that a platform can operate with issuing and redemption partners. Points are a liability and, in some countries, this requires auditable data on points issued by partners and funds sequestrated so that points awarded are paid for even long after a scheme has closed. This functionality is also important if an operator is transferring points from an existing programme to a new one and where an issuer allows members to collect other currencies e.g. Exchange points for Frequent Flyer Miles.
30. Surveys:
MJA believes this is a weakness in many platforms and is critical in the development of effective segmentation and the development of strong customer relationships. Whilst transactional data on members provides very useful data to identify customer spend and spend potential, the lifestyle data that surveys provide completes the picture and enables relevant offers to be made to members. Too often loyalty programme members receive offers that are not relevant to them and are ignored. Software platforms should allow Programme Managers to create surveys for Contact Centres/Websites etc.
31. Contact Centre Information
Another crucial part of any Loyalty Programme is the Customer Care screens. Information should enable call agents to not only, give out points balances, but also enable them to access member activity history, process redemptions, carry out surveys, add lifestyle data and personal information. Similarly Customer Care agents should be able (with security controls) to award points to dissatisfied members. This information should also be capable of being replicated onto a Loyalty Programme website for member access.
Conclusion
The adage "technology enables but imagination wins" is certainly true when it comes to loyalty programmes, and the most successful ones are being kept fresh and interesting as a result of using a highly capable loyalty platform and very creative programme managers.
Loyalty IT

Technology Recommendations

MJA Associates recognise that loyalty programmes change every day and therefore supporting technologies need to be equally flexible. We have worked with many of the leading solution providers in Europe, North America and Australasia and are qualified to recommend a suitable platform to our clients.

We believe that the following criteria should be observed when selecting a suitable software platform.
• An open architecture system that integrates into any data network (probably Oracle-based in any Unix or Windows NT environment)
• Incorporates the Clients legacy system record files.
• Accepts incoming transaction records from any billing, POS, front-end terminal, e-commerce or revenue accounting system.
• Standard XML format for communication with any web, wireless, PDA or POS device.
• Best-of-breed database structure that can relate to many control tables quickly and efficiently.
• Provides the front-end loyalty engine for card-based programmes.
• Supports high volume and great scalability.
• Enables Contact Centres to be linked via LAN or WAN via leased line or Internet connection.
• Provides direct-access capabilities to manage awards, bonuses, programme rules and full reporting at desktop.

MJA Associates recommends that Loyalty Programmes require a four-part system that manages databases of detailed transaction data in these areas:
• Rules Engine
• Comprehensive accounting functions
• Inventory Management
• Customer Service interfaces

What Is and Isn't a Re-brand

What Is and Isn’t a Re-brand
By Steve Cuno

Re-brands are fashionable these days.

No, that’s not quite correct. What’s fashionable is reworking the logo and tagline and calling the result a re-brand. When will marketers learn? Your brand isn’t what you say. It’s what your products and behavior show. If you want to re-brand, strengthen your values and make sure you deliver on them at every point of contact.

Consider McDonald’s. Over the years, their logo has been updated. Their tagline has morphed, morphed, and morphed again. Their menu has broadened. But the chain has not referred to such changes as re-brands. Good thing, for the McDonald’s fundamental brand values remain unchanged: fast, inexpensive, sufficiently palatable pre-cooked food under a heat lamp, a clean kitchen, and a place you can take the kids.

Ironically, a major retailer that really is attempting a re-brand isn’t calling it that. The once-thriving Kmart department store hopes for a comeback as the young consumer’s place for affordable fashion. Rather than insult the market with token changes like an updated logo and new a tagline that says “we’re not your penny-pinching bagperson’s store any more,” Kmart has made substantive inventory changes, replacing its once-dowdy offering with fashions associated with high-brow, with-it stores. Whether young consumers respond remains to be seen, but the marketer deserves credit for making real, not just cosmetic, change—and for allowing the advertising to follow. That’s how you do a real re-brand.

In the direct mail business, we’ve known about branding all along. It’s just that we give it other names. Clearly-defined target markets, compelling benefits, irresistible offers, a generous return policy, and courteous customer service are brand values. When those values are solidly in place, a direct mail package can (and often does) look like hell and still sell like crazy.

Not to say that the look is unimportant. A well-designed logo with consistent graphic standards can help customers instantly recognize a company whose products and policies they trust. A pleasing, accessible layout can help customers easily navigate their way to salient information. But these are the trappings of a brand, not the brand itself. No logo or tagline can save a company without the substance to back them.

Steve Cuno is chairman and founder of the RESPONSE Agency, a direct response marketing firm in the Salt Lake City area. He is the author of the book Prove It Before You Promote It: How to Take the Guesswork Out of Marketing, due in bookstores November 2008 from publisher John Wiley & Sons. Steve welcomes your comments. His email address is Steve@ResponseAgency.com.