Published on March 16, 2014
Loyalty 101 1 The Set Up! All Customers Are Not Created Equally “It’s OK To Play Favorites”
Loyalty 101 2 The Set Up! “If you want to change attitudes, start with changing behavior.” Walt Disney “Attitude is the speaker of our present; It is the prophet of our future.” Winston Churchill
Loyalty 101 3 03/16/143 Developments and opportunities: Maritz true loyaltysm lifecycle engagement marketing consumer loyalty sales channel loyalty
Loyalty 101 4 • over 127 million customers choose Walmart vs 68 million who choose to watch the evening news each week • 70% of purchase decisions are made in-store and 68 percent of in-store purchase are “impulse buys” • investment in Shopper Marketing is estimated to be growing 21% annually; Canadian growth rate is even higher • 86% of Canadians actively participate in a loyalty program vs. 52% in the US • 5 loyalty cards in a Canadian wallet vs over 15 cards in the US • 5650 advertising & marketing companies in Canada Market updates
Loyalty 101 “Consumers seem to be moving faster than the retail industry itself. [They] are less brand-connected, more in control, and in all things mobile “ Kiril Tatarinov, Microsoft Corporate Vice President of Business Solutions, Retails BIG Show NYC Jan 11,2011 “There’s clearly something that’s resonating about the fact that you can feed a family in America just by walking into McDonald’s or help an injured animal by the time you’ve ordered your latte at Starbucks.” Follow The Ad Money Opportunities Benefits Features SuccessImpact Research
Loyalty 101 CMG Study 2009 Loyalty Program Impact On Buying: Customers who join loyalty program attached to a credit card will almost immediately spend more on that card by a multiple of 2 or 3 times what they were spending on the same card before they joined the associated loyalty program. The second and far more significant behavior change occurs when the customer makes their first redemption for a reward. At this point their spend on the card increases again by a factor of 3 to 8 times their pre-loyalty program spend. Do Loyalty Programs Work? Do Loyalty Programs Work?
Loyalty 101 Maritz Top of Wallet Study: - 63 percent of current and prospective debit and credit card rewards program participants said they would choose a card that allowed them to earn more points by shopping with a specific merchant over other cards. Dog Lover SuccessImpact Research
Loyalty 101 • Point based program participants outspend non-participants at an average ratio of 2.5 to 1 • Number of purchasing transaction increase by 53 percent • Value of purchases will increase by 51 percent Loyalty Point Program Research Maritz Loyalty Research Loyalty Point Program Research
Loyalty 101 • Rewards that matter • Easy to redeem • Choice in rewards • Tracking & awareness • Small to big rewards Maritz Loyalty Marketing Almanac Study: Small businesses in loyalty programs redeem points for larger valued rewards and rewards for things they need for their businesses. In addition, business owners redeemed 35% of points for travel. Key To Program Success Key to Program Success
Loyalty 101 10 Lessons From
Loyalty 101 11 A Simple Question Do You Know What Your Best Customer Looks Like? ? ? ?? ? ?
Loyalty 101 12 A Simple Question And If You Do – NOW WHAT? ? ? ? ?
Loyalty 101 13 Customer Is King Not All Customers Are Good Customers Challenged Myth
Loyalty 101 14 "The research shows clearly that the existence of a loyalty card scheme is not associated with a degree of loyalty in shopping habits." -Source: Customer Loyalty Today If I’m In Your Pocket You Must Be Loyal Just Because They Carry Your Card Doesn’t Mean You’ve Captured Their Heart Challenged Myth
Loyalty 101 15 Keeping Customers Is Cheaper Then Getting New Ones Not If You Lose The Bad Ones And Find More Of The Good Ones Challenged Myth
Loyalty 101 16 Loyalty Is… Challenged Myth
Loyalty 101 17 Loyalty Is… Challenged Myth Knowing Who Your Customers Are Understanding Who The Best Are & Why Building A Bond Beyond The Price Tag Finding More Of The Same & Growing What You Keep
Loyalty 101 18 Loyalty Is… Challenged Myth Understanding How Your Best Customers Think Capturing Their Hearts & Devotion Rewarding Their Loyalty & Support
Loyalty 101 19 Long-Term vs. Short-Term “Customers who glide into your arms for a coupon or minimal discount are the same customers who dance away with someone else at the slightest enticement.” -The Loyalty Effect
Loyalty 101 20 Long-Term vs. Short-Term Loyalty Drives Long Term Behavior Discount-driven customers are not loyal customers—they will move to a competitor when attracted by lower temporary pricing Frequency program: “I get this for buying that.” Incentives/Promotional Programs Incentives/Miles Programs Frequent Flier Miles Programs Competitive Scale Incentive Programs short-term customer acquisition Loyalty Programs customer retention Better customers are less sensitive to price and are more concerned with the value proposition of the company Loyalty program: “I am given value for being a loyal customer.” Long term
Loyalty 101 21
Loyalty 101 22 History Of Loyalty A Simple Beginning
Loyalty 101 23
Loyalty 101 24 History Of Loyalty It Was How Small Business Did Business: New the best customers New the worst customers Was able to offer more services to the best Owner was involved in all aspects As Things Changed : Increased competition weakened the bonds Increased complexity blurred the relationships Increased organization size numbed the brain
Loyalty 101 25 History Of Loyalty By The 1950’s: Manufacturing Was King = Product Volume 230 Brands Of Refrigerators Birth Of Mass Marketing A Customer Is A Consumer Businesses Lost Sight Of The Customer By The Late 1970’s : America Consumers Tired Of Bad Business Rejection Of Poor Quality & Low Customer Service No Longer Loyal To A Brand
Loyalty 101 26 History Of Loyalty The Start Of Modern Loyalty Actions Most Were Unsophisticated Offerings: Merchandise & Coupon Based S&H Greenstamps Raleigh Cigarette Coupons Mainly Consumer Frequency Programs Market Conditions Created A Shift Towards Longer Term Relationships
Loyalty 101 27 Birth Of Frequent Flier Miles 1981 Regulatory And Market Changes Give Birth To FFP
Loyalty 101 28 History Of Frequent Flier Miles 1981 American Airlines Invents Frequent Flyer Miles Others Quickly Follow Loyalty Becomes Impossible Without A Planned Program
Loyalty 101 29 FFPs: Network Expansion Car Rentals Hertz joins and subsequently drops, citing the high costs. Later rejoins after dramatically losing market share without a FFP Today Hertz belongs to 20 FFPs Hotels After in-house Frequent-Stay Programs, hotels conclude that the greatest marketing benefits still come from the FFPs
Loyalty 101 30 Insight "We didn't want an FFP. But it came to my attention that FFPs were siphoning business travel away from us. We did it defensively, and I think if we had not done that we would have been terribly disadvantaged." Herb Kelleher, President, Southwest Airlines First 20 Years Of FFP 9.77 Trillion Miles Accumulated - Source: InsideFlyer Magazine 2001
Loyalty 101 31 FFPs: Expansion Continues Banks Team Up With Airlines Activation Spend Acquisition SPEND ACTIVATION ACQUISITION
Loyalty 101 32 FFPs: Expansion Continues Co-branded Cards Wildly Successful Average spend up to 10x higher Active account rate up to 80 percent or higher Attrition and acquisition costs decline
Loyalty 101 33 FFP Membership Takes Off Worldwide Frequent Flier Membership Growth continues From 150,000 members in 1981 to 200,000,000 members in 2001 Proven cardholder addiction to miles by the fact that more miles earned via a card than by actually flying
Loyalty 101 34 Why Miles Were So Successful? Rewarding the Behavior You Seek: Highly Appealing Aspirational Value - People love to envision themselves in their dream destinations that air travel can take them to. Trophy Value -Traveling is something to be proud of. Perceived Value- More valuable than t-shirts or CDs. It’s the Law - Gravity, Direction, Universal Principle
Loyalty 101 35 Problems Begin By 1991: All major airlines and banks established exclusive relationships Hundreds of credit card issuers locked out
Loyalty 101 36 Solution Found – Generic Points 1994: “Virtual Airline” is Born The Idea Run the world’s largest airline partnership and outsource the jets, pilots, flight attendants, airport operations Miles by a different name Single Branded Miles vs. Co-branded Miles Generic vs. Branded Points Non-Restrictive Points – Any Airline In The World Improved rate of attainability
Loyalty 101 37 Solution Found – Generic Points How Generic Points Work: Sold to Over 125 of the largest US Banks Consumer Acceptance: fees $25 to $75 Spend Ranges: $8,000 to $22,500 a year Officially Sponsored by MasterCard Amex plays “Follow the Leader” $200 Billion + Spent on Enrolled Cards No need to Co-brand with an airline partner
Loyalty 101 38 Solution Found – Generic Points Unrestricted Points Are Simple & Powerful: Compelling Offer: Free travel – high perceived value No complicated conversions Singular reward Customers join for free or fee, i.e., Fee for Classic and Gold cardholders Free for Platinum cardholders Fee for Small Business cardholders
Loyalty 101 39 Learning’s Gathered Data Begins To Chug In
Loyalty 101 40* Source: Carlson Marketing Group Loyalty Learning's Consumer Reaction to a Loyalty Program* . . . can attract new business . . . 80% 52% 70% 16% 40% 24% 8% 6% 4% 0% 20% 40% 60% 80% 100% Credit Card Retail Airlines More business than before Already giving company as much business as possible Would have given them more business even w/o program 73% 18% 24% 18% 43% 47% 8% 39% 27% 1% 0% 2% 0% 20% 40% 60% 80% 100% Credit Card Retail Airlines Use just that company Shop around/spread purchases less than before Shop around/spread purchases same as before Shop around/spread purchases more than before “Companies can boost profits by almost 100% by retaining just 5% more of their customers.” - Harvard Business Review 45% started doing business with a company because of their loyalty program . . . and ultimately drive profitability
Loyalty 101 41 Consumers were asked, “For what type of product do you prefer to redeem your loyalty balances?” Consumer Reaction to a Loyalty Program 26% 14% 12% 10% 4% 0% 0% 1% 18% 12% 18% 34% 0% 10% 20% 30% 40% Under $30K $30K - $49.9K $50K - $74.9K > $75K AverageAnnualIncome Source: Jupiter Communications/NFO (2/00); N=1,478 • Across all income levels, travel is a strong loyalty incentive • The power of travel becomes more pronounced as income levels increase CashGift CertificatesCharityTravel Loyalty Learning's
Loyalty 101 42 Consumers were asked, “What type of reward would you prefer?” Consumer Reaction to a Loyalty Program Airline Miles Gift Certificates Merchandise from a Catalog % Off Coupons None 52% 16% 12% 11% 9% Source: The Loyalty Effect, Frederick Reichheld. Loyalty Learning's
Loyalty 101 43 Loyalty Learning’s 71% of consumers if FFP said they wouldn’t trade their frequent flyer benefits for lower airfares. Source: Frequent Flier Magazine The proven addition of miles can drive repeat purchases and maximize customer lifetime value. Source: Hambrecht & Quist Consumers charge about $3,200 a year on a typical credit card – add miles and they spend more than $18,000 a year. Source: Bank Rate Monitor
Loyalty 101 44 FFP Learning’s How “Free Travel” Can Profitably & Quickly Increase Revenue Channels: Number of cardholders, activation rate, charge volume, frequency and average purchase of existing base Profitability and loyalty of key customer segments – moving existing customers up the spending ladder Drive conscious choice in cardholders’ minds to be loyal to your bank – particularly your “best” customers FREE TICKET
Loyalty 101 45 FFP Learning’s How “Free Travel” Can Profitably & Quickly Increase Revenue Channels: Develop distinct differentiation over your competitors Provide a low-cost, comparison program to “Rewards Program” pilot tests in selected product or segments Create stickiness to annual fees Charge enrollment fees FREE TICKET
Loyalty 101 46 The Market Never Stops Changing The Next Wave Takes Shape
Loyalty 101 47 The Evolution Continues 2000 Next Generation Of Mile Program Miles + Network + Card + Travel Shift From Frequency To Loyalty
Loyalty 101 48 The Vision Of WebMiles Change The FFP Landscape Offer One Of The Most Valued Rewards – Unrestricted Airline Points – To Drive Profitable Cardholder Behavior Any Airline. Any Flight. Any Time. sm Unlike Carrier Mile Programs – No Restrictions, No Blackout Dates, No Limited Seating Gain Member Value Through “Dollars Off” Build A True Loyalty Network Earnings Velocity Through Attainability – More Than Web, Every Day Shopping The Power Of The Universal Mile
Loyalty 101 49 Availability: 11 out of 134 seats or 8% Availability: 123 out of 134 seats or 92% Availability drastically enhanced. Rather than being limited to an estimated 8% of seats, WebMiles has 92% of seats available. Flexibility drastically enhanced. Rather than one airline, WebMiles can book on any major carrier. Travel-based loyalty solution with one airline The Power Of The Universal Mile . . . Or any other airline
Loyalty 101 50 300 Miles 800 Miles250 Miles100 Miles 375 Miles300 Miles $ 300 $ 300$250$ 100 $ 75$ 300 Gas & OilGrocery Electronics Trip TeleCom Retail (online & offline) + + ++ + The Network as a Catalyst for Increased Spend and Activation Miles Earned Through Partners: 2,125 Miles from Card: 1,325 + Total Earning that Month: 3,450 + PLUS all other card purchases outside the partner network $ Purchases on card at partner retail locations Universal Mile + Network + Card XYZ BANK $1,325
Loyalty 101 51 $0 $100 $200 $300 $400 $500 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400 IncreaseinMonthlyChargeVolume(in$Millions) * Revenue figure based on 2.9% of gross charge volume in interchange and miscellaneous fees, plus 60% revolving balances at 13.9% annual interest. Average Monthly Spend Incremental monthly revenue charge volume increases over 400% & revenues increase $100Million + a year. Sample Card Issuer with 200,000 cards Increased Spend Increased Activation Increased Acquisition TOTAL $ 4.0 M $ 2.7 M $ 1.9 M $ 8.6M $ 48.0 M $ 32.8 M $22.3 M $ 103.1M Monthly Revenue Increase Annual Revenue Increase EXAMPLE* Incremental monthly charge volume goes from $72M to $314.2M —an increase of 430% Universal Mile + Network + Card
Loyalty 101 52 Applied History + Learning’s How To Ride The Wave
Loyalty 101 53 Reichheld Loyalty Effect Model Six factors that allow companies to form a clear view of a customer's life-time value: The Yard Stick To Judge By Cost of customer acquisition Base profit Increased profit from additional sales Reduced operating costs of a loyal customer base Profits from loyal customer referrals Price premiums charged to loyal customers who are less price sensitive
Loyalty 101 54 When Forging New Alliances Leveraging What Each Partner Does Best Customer Ownership Clear demarcation between who owns “touch points” Privacy plays a big part in customer ownership No one partner brings the customer to the table Exit Strategy From The Start Intellectual Property – Don’t Play It Too Close To The Vest Co-Branding – No One Partner Likes To Think Of Their Brand Being Subservient To The Other Considerations
Loyalty 101 55 When Forging New Alliances Profitability Metrics Partner economics Tough without “open books” Be careful of “who stands to gain more” thinking Address immediately “the feeling the other partner is gaining more” – otherwise a short-term relationship Brand Reputations Partner Customer Base Partner Business Philosophy Partner Product & Services Considerations
Loyalty 101 56 When Forging New Alliances Metrics Which Overlap Partners Include: Acquisition Attrition Average Spend Active Account Rate Apply Learning’s From The Past Into Future Contract Developments Pricing adjustments built in based on movement of economic variables Allows the impartial third party – the market – to impact pricing, reducing partner volatility Considerations
Loyalty 101 57 When Forging New Alliances Partner Financial Contributions: New Account Acquisition Share Vale Proposition Funding On-going Activation/Retention Marketing Efforts Human Resource Commitments Contract Development: Requires Dedicated Team Time Factor Multiple Contract Templates Regular Scheduled Meetings Considerations
Loyalty 101 58 When Forging New Alliances Key Profit Drivers: Annual Fees % Of Active Accounts Average Number Of Transactions Average Transaction Size Average Total Spend/Account Average % Of Revolvers Average Revolving Balance Average % Interest Rate Attrition Rate Considerations
Loyalty 101 59 When Forging New Alliances Keep Two Simple Thoughts In Mind: Considerations 1. The Real Art Of The Relationship Will Be Managing Circumstances Beyond The Contract - A Contract Doesn’t Make A Relationship 2. The Whole Is Greater Then The Parts – Each Party Brings Value, Ideas And Strength
Loyalty 101 60 As An Industry We Need To Keep In Mind: Industry Wide Focus Attainability Of The Program Member Limited Earnings Capability = Short-Term Loyalty & Interest Single Partner, Stand Alone Programs Even Top Customers Can’t Make For A Successful Program – It Requires A Network Mind Set – “But I Don’t Travel” Getting More Than The Top 8% Of A Base To Realize They Can Travel
Loyalty 101 61 The Close! “All things are created twice: first mentally; then physically. The key to creativity is to begin with the end in mind, with a vision and a blueprint of desired results.” Stephen Covey “If you can keep your head while those all about you are losing theirs, you probably haven’t check your voice mail.” Jack Hennies
Loyalty 101 62 Conclusion Card Partners + Networks + Miles + Travel Makes For A World Of Difference
Loyalty 101 63 Conclusion The best way to keep your customers coming back is to send them away. Oddly enough, the ticket to cardholder loyalty really is a ticket.
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