Mike Atkin

Chairman - Customer Strategy Network LLC.

Loyalty Marketing

Loyalty Marketing is the effort to

“identify, maintain, and increase the yield

from Best Customers

through long-term, interactive, value-added relationships.®”

Loyalty – Simple Definition

Driving Profitable Behaviour Change

What is Loyalty in Business ?

‘the ongoing process of engaging in co-operative and collaborative activities and programmes with immediate and end-user customers to create,

enhance mutual economic value at a reduced cost’

Sheth and Parvatiyar (1995)

The Customer Is In Control

Traditional marketing drives brand awareness but consumers are forming purchase decisions via digital channels

Today’s consumer depends on current customers to hear that your brand delivers

Customer Relationship Management

CRM is a system for managing a company’s interactions with current and

future customers. It involves using technology to organise, automate and

synchronise Sales, marketing, customer service, and technical support

Dictionary Definition

Successful Loyalty Marketing

The Right Message or Offer to

The Right Customer at

The Right Time in

The Right Media!

ADVANTAGES

• Collaborative – interactive

• Perpetual - learning

• Temporal – flexibility

• Why Programmes are failing – Global Research.

• Solutions for Improving Programme performance.

LEARN FROM GLOBAL MISTAKES!

Why Programmes Fail ! – Global Research

The Reasons for Failure !

• No clear strategy or set objectives

• Flat funding rate or no targeted bonuses

• Members restricted to payment options

• No Dialogue with Members

• Weak or No Soft Benefits

• Poor or Little Use of Data

• Cash or Discounts (transparent)

• Poor Communications

• Boring and Predictable

• Programme Costs

• Loyalty is not part of the Business Culture

Business Objectives.

The Recommendations !

• Discuss and Determine the Business Objectives.

• Discuss and Determine the Loyalty Objectives.

• Decide on the KPI’s

• Document and Communicate to the stakeholders

• Review and Revise regularly !

PLANNING TO CREATE AN EFFECTIVE PROGRAMME

Define The Business Objectives

Financial.

Customer.

Operational.

Marketing.

Plan - Short, Medium and Long –Term.

‘Is Loyalty in the Business Culture?’

PLANNING TO CREATE AN EFFECTIVE PROGRAMME

Best Practice - Enrollment Strategy

• Segmentation of Customers/Members

• Set Performance Criteria

• Monitor – Respond – Monitor

• Create Promotional Calendar

• Focus Marketing Spend

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Current Value

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Engage

Ignore

Up Sell

RetainActivate

Best Practice - Manage Customers

• Low value, modest potential but may grow

• Temporal bonusing and recalibrate

• Moderate value, great potential and prime for growth

• Invest aggressively

• Heavy use of communications & bonusing

• High value, modest to little potential except cross sell opportunity

• Must retain

• Soft benefits critical

• Invest wisely

• High value and potential, up sell to feature rich or service rich package

• Soft benefits strategy

• Invest, but do not over fund

• Mixed value, very low potential, strain on infrastructure with little

opportunity for incremental growth

• Starve out

• Save marketing expenses

Activate

Engage

Retain

Up Sell/Cross Sell

Ignore

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Ignore

Up Sell

RetainActivate

The reward strategy has to blend benefits to engage

REWARD STRATEGY

Spenders: With a loyalty scheme, I look for instant rewards or discounts

Savers: With a loyalty scheme I look to save up for something special with a higher value

South Africa

53% / 47%

Singapore

60% / 40%

Ireland

50% / 50%

Hong Kong

53% / 47%

“Spenders” and “Savers” are roughly equally split....

UK

Source: Avios

REWARD STRATEGY

The science of data....

Best Practice - Create and Enable Dialogue

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ValueRecognition, Reward,

Service, Access etc.

Information.Changes in Lifestyles, Preferences

Needs, Attitudes etc.

DATA DIALOGUE

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Customers

19

The microwave is

essential for me!

I love baking for

the whole family

I love exotic and

adventurous food

I have to stick to

a budget

I care about health

and the

environment

We like fish

on Fridays …

20

Lifestyles are built from “DNA profiles”

Miss Jones’s DNA Profile: a “time-poor, food-rich” customer – 25,000 products are used to

create a customer’s DNA

– we have a DNA profile for every

single customer

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Dimensions

Turn transaction data into insightTransaction Data Customer DNA

Profile

Date Description Amount

09/02/2006 PAYPAL *QUEENOFQUEEN £10.19

09/02/2006 AMAZON £15.98

10/02/2006 Tesco £50.11

10/02/2006 BP £40.00

10/02/2006 Pizza Hut £25.00

11/02/2006 O'NEILS £15.68

13/02/2006 Sainsburys £12.41

13/02/2006 Clintons Cards £4.99

14/02/2006 Interflora £55.00

14/02/2006 Brula £65.55

15/02/2006 PAYPAL *SOCKSRUS £2.50

17/02/2006 GNER £70.00

Traditional

Loyalists

Mainstream

Time poor case rich

Flamboyant spenders

Value aware

Wallet on the web

Quality

classics

0.50

1.00

1.50

2.00

Brand Loyal

Traditional

Family

Orientated

Impulse

Prestige

Price

Sensitive

Convenienc

e

Technology

Comfort

=

Common language

A shared

understanding of

customers across the

network

retail banking

Visa EMEA Programmes Case Study

• Background.

– 250 million cardholders – 76 programmes.

– Reward programmes operated by acquirers, issuers and banks.

– Cash back, Merchandise and Travel reward options

– Merchant funded discounts – poorly promoted.

– Average participation only 32%

PROGRAMMES ARE NOT WORKING AND ARE A COST OF DOING BUSINESS!

• Visa EMEA Support

– Data

• Visa provide acquirers with cardholder transaction data for targeted offers.

• Cardholder lifestyle data is not collected

– Promotional Activity.

• Some in-store POS but limited to enrollment

• Few Programme websites and direct email activity.

• Visa Plan to add CSR Reward Options in 2014.

TOUCHPOINTS

• Background.

– Launched in 2007

– 520,000 Members

– Flat Funding Rate

– Merchant funded discounts – poorly promoted.

– Only 27% of Members are engaged/active

– HNW Customers are main redeemers

PROGRAMME IS NOT CREATING GROWTH OR DEFENDING ATTRITION!

• Solution

– Introduce Tiering by giving Tier points based on products used.

– Improve Rewards options for lower value customers to encourage redemptions

– Collect Lifestyle Data and Segment Members.

– Define Tactics and KPI’s for all segments

– Introduce Mobile Technology for Communications and Redemptions

– Introduce Social Network links

– Train Staff – Enhance Technology – Improve Customer Service !

Data Case Study

• Background.

– Boots UK Largest Pharmacy Chain

– 7.2m Advantage Card Members

– Collect Transaction and Lifestyle data

– Segment Members

– Targeted Communications

– Many Supplier Funded Offers

• L’Oreal Promotion

– Introducing new fragrance for females

– Target Market 18-15 year old females

– Boots identified 1.7m prospects

– Exclusive Boots/L’Oreal offer made

– Communicated via email and Member webpage

– RESULTS!

– 43% Member response!

– 34% Purchased the Offer!

THE TESCO STORY.

‘There will come a time when a

company's’ knowledge of its’

customers is more valuable that its’

products and services

Brian Woolf 1995

Tesco Case Study

• World’s 3rd largest grocer

– #1 market share in UK with 2,100 supermarkets

• Tesco Clubcard has over 11 Million active members who earn 1 pt./ £ spent and redeem through cash vouchers issued on a quarterly basis

• Clubcard has set the standard for data driven marketing in grocery and issues highly customized offers to its customers based on purchase history

• Clubcard has created “clubs within the club” to leverage customer interests (Food, Wine, Healthy Living, Baby) and deepen relationships by product category

• Members who join specific clubs can earn even more points and receive special benefits

Business Challenges• Tesco recognized that customers were easily translating point value as a 2% discount and

using vouchers to purchase items they would buy anyway

• Three challenges were presented for change:

– Financial leverage in rewards currency was diminished

– Members were not exhibiting incremental purchase behavior as desired

– Tesco reward partners were seeing limited benefit from the relationship

• Objectives included:

– Encourage Clubcard members to redeem for non -Tesco products

– Reduce in-store redemptions

– Add value to Reward Partner relationships

Process & Insights

Process Engaged

• Perform segmentation analysis of redemption data to compare in-store vs. catalogue channels by reward types to understand trends and compare to member research

• Review offers for merchandise and partner rewards & consider additional reward options with consideration for costs and partner marketing support

• Identify unique or underutilized opportunities with reward partners

Analytical Insights

• 83% of Members redeemed vouchers in-store with 68% for food purchase

• Catalogue redemptions were for lower value items (e.g. magazine subscriptions) than in-store redemptions

• Members surveyed liked voucher system and expressed interest matched with redemption partner willingness to expand relationship with Tesco

Recommendation & Results

Recommendations

• Retain vouchers strategy but add create a new set of non-food rewards offering higher value for the points (x4)

• Negotiate with specific partners to gain funding & promotional support

• Introduce offers for specific segments (e.g. Young Families), communicated by quarterly mailings and website

Results

• Significant increase in redemptions in-store for non-food items (e.g. White Goods, Electronics and Housewares & unexpected increase in sales of the above

• Overall a reduction in the value of in-store redemptions on food purchases

• Several reward partners (e.g. Marriott Hotels) have seen a 20%+ increase in redemptions

• Additional reward partner agreements are under negotiation

Clubcard Loyalty Analysis

Clubcard Charter•We would like to reassure you that your details are safe with us and will never be released to

companies outside the Tesco Group for their marketing purposes. We use your personal details

to send you your Clubcard Statement and any Vouchers you've earned, every three months.

We also use your details to send you offers and information on things which might interest you.

So, for instance, if you tell us that you're a vegetarian, we'll make sure you're not sent coupons

for meat products.

•Of course, if you've told us you don't want Tesco to send you any other offers and information,

we will only send you your Statement mailing. However, this means you could be missing out on

some of the major benefits of Clubcard, such as money-off coupons and exclusive offers.

•In addition, if you've requested not to be contacted for research, we promise we won't bother

you.

•If at any time you would like us to stop sending you mailings, please let us know and we will do

so immediately.

•We comply strictly with the terms of the Data Protection Act 1998.

British Airways – Executive Club.• Objectives

– Deliver a Personal, in journey experience to increase customer satisfaction

and loyalty to the Avios Brand

• The Tactic

– Analytics – identify the member activity, the journey, touchpoints and define

‘ideal moments’ !

– Deliver the right message, to the right customer, at the right time and in the

preferred format.

Example – Upgrades, Meet & Greet, Welcomes Aboard and Manage Customer

Relations for service failures (where applicable)

• Results

– 87% increase in messages delivered by SMS, Website and in person.

– Member satisfaction scoring increased by 14%

Best Practices – Loyalty Programme Technology

User-Friendly Web Interfaces for all Stakeholders

Administration CentreProgram Administration

Reporting CentreProgram- / Member

Performance Reporting

Business Intelligence

CentreBusiness Analysis

Member Web PortalSelf-Service Portal for

Members

Mobile App* / Tablet

AppMobile Features for Members

POS PortalWeb Portal for POS / Sales

Staff

• Accessed via Control Center by Program Managers

–Real-time results–Graphical representations–Drilldown & export results

• Key Performance Indicators–Program Registrations–Points Issued / Balances–Redemption by category–Top Earners / Redeemers

• Reporting for planning–Dashboards–ROI–Participation Rates–Promotions

• Closed-loop Reporting –Fulfillment Tracking–Shipment Status–Exceptions–Issue Management

On Demand Reporting.

Promotions instantly appear on the program website

Quickly implement promotions and campaigns to influence behavior based on changing market conditions

Self-Serve Bonus Offers.

Efficient & Effective Loyalty Programmes are Complex

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So what makes the perfect programme?

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Simple Proposition

Simple compelling collection and redemption proposition

Data Usage

As much relevant data captured and used from day 1

Simple Mechanic

Collect via a card, key fob or digitally

Supplier funding

Opportunities built in to boost earn and insight

Constant visibility

The scheme remains front of mind not just on day 1 but beyond

Redemption offers

Simple redemption mechanics across all channels

Savers Offer

Drives visits, send and limits liability

Staff engagement

Sustained buy in across all levels in the business

Small Hurdles

To filter out indiscriminate joiners

Source: Loyalty Report 6, Avios,and desk research

Savers Offers

In-store and digital earn offers over a relevant range

Multi Partner

Partners enable incremental earn, redemption & data

Simple Mechanic

Single collection card for collection and redemption

CSN Strategic Planning Methodology

Business Objectives

Customer Voice

Data Analysis

Lifecycle Value Chain

Program Model

Choices

Customer Value

Proposition

Comm Plan

Financial Model

Execution Plan

Operations

Pilot / Testing

Measure / Evaluate

Continuous Improvement:

Customer Engagement,

Usage & Retention

Situation / Implication Analysis

Product Use Case UnderstandingPrimary Research, Attitudinal Surveys

Information RequestSegmentation, Scoring, Modeling

Map Customer behavior &segments to each stage

Message, Channel, FrequencyCreative treatments

Determine optimal modelSolus, Merchant, Coalition, Social

Hard & Soft benefitsOffers, Promotions, Premiums

Budget forecastReturn on InvestmentLiability projection

Tactical blueprint for launchEnrollment, Rewards, MerchantsProgram Rules, T & C’s

Operational alignmentTechnology SelectionProcessing, WebCustomer Care

Identify test marketsLaunch support & logistics

Tools to evaluate program results& make needed adjustments

Loyality Check: 10 Point Plan for Programme Enhancement

1. Have your objectives shifted? How should strategy evolve?

2. What external factors impact strategy? Competition, governmental?

3. Is your programme profitable & can you measure it?

4. How can you reduce operating costs?

5. Can you better manage unredeemed point value on the balance sheet?

6. How do you convert data into a valuable asset to deliver more value to your program members?

7. What should you do about social networks, location based marketing, and other digital channels?

8. Do you need to upgrade your technology platform? How should you go about the process & navigate the vendor world?

9. Are your members tired of the same old rewards offers? How do you add excitement to merchandise, gift card and travel?

10. Have you looked at your programme through the lens of the customer?

Thoughts for the Future

Loyalty programs remain an excellent tool to create and maintain customer preference and to collect data invisible from your competitors, but a new wave of innovation is

demanded by the market

No business executive ever woke up in the middle of the night and said “I must have a loyalty program”. It was their business problem that interrupted a good night’s rest.

Identifying objectives leads to the best strategic solution

View your Loyalty program as part of a broader Customer Strategy and your “hammer” will change into a Swiss Army Knife

If Technology Enables then Imagination Wins,

There are no “paper champions”

Don’t just launch, measure consistently & manage to success

Thank you

Wrap-Up & Questions

www.customerstrategynetwork.com