The title of this get together has been paradigm shift. We’ve had great discussions and insights. I don’t know about you but I have pages of notes.
The only thing I would fault us for is making it sound like too much fun. Paradigm shifts are a bitch. The put people out of business. They make the way you think obsolete. A paradigm shift is a trauma on the body of the economic system.
There’s an interesting concept that has gotten a lot of press lately. It’s the distinction between Robust and Resilient. Robust things are sturdy and perform according to specification … until they crumble and fail. Robust business strategies are strong but brittle.
In contrast, Resilient adapts to change, and gains its strength through flexibility and responsiveness. The paradigm shift ahead is all about change, and so our holy grail should be a Resilient Loyalty strategy. A vision of customer engagement that can survive the tumultuous change ahead.
You’re not going to like it though. So I’d like to start by bashing a couple of the long term stalwarts that underlie a great many of our loyalty strategies. Lets take a look at the idea of Trusted Brand and Reward Programs and understand why it will be absolutely essential to kill these darlings.
Trusted brands are an invention of the 20th Century mass market. It makes an implicit promise to the family sitting around the television. Buy this brand and you know that you will get predictable quality and results. well you get the point. Note that I’m not talking about personal identity brands here … the designer logo or your iphone … this is about the safety of choice. With a trusted brand you can build habits based on safe choices.
What’s wrong with that? Let’s dig into what really going on here. As a tool lets leverage Maslow’s famous pyramid of needs. At the bottom are the most basic needs. Food and water. Then comes security and shelter. As we go up higher we get to more personal values of relationship, social status, and self actualization.
In a world of limited information the trusted brand addresses a basic human need for security. Trusted brands play on fear. Am I being to harsh if I say we love a trusted brand because it is the best way to avoid a bad surprise in a world where most important information is hidden or unavailable.
This is actually a pretty good gig. We get to keep our customer close because they are afraid to leave. We can be mediocre, or even unfair … just so long as we keep the feeling of security intact. What our brand feels like becomes as important as what our product is.
The enemy of this strategy is information. People don’t need to be afraid of their marketplace anymore.
A great fuss is made of the Millennial’s lack of brand loyalty. There is a strong temptation to see this as something about unique about the individuals, as if human nature was reinvented somewhere in the 1980’s. A much more reasonable explanation might be that they have tools that expose the marketplace in real time. Market transparency is an assumption for them and if it isn’t already for the rest of us, it will soon be. Our friends share on Facebook. Yelp crowd sources food reviews. Fandango mixes the crowd and authorities. And these ratings aren’t just for “things”, services are equally open to rating.
You don’t need a trusted brand to protect you. As a strategy it is dead, and while we may use brand for other purposes (for example status), the trusted brand of 1950 is gone. In a very real sense Fandango makes us fearless.
OK … so the whole Trusted Brand things feels a bit dated anyway. What about the very current infatuation with Rewards Programs? Now here is a growth industry. Airlines, grocery stores, coffee shops, even my dog’s kennel has a reward program. There is a deep underlying model for rewards an other programs
We are addicted to bribery. Most reward programs exist in a world outside the actual products and services being offered. We fly the airline, stay at the hotel, shop at the grocery often in spite of the inconvenience or flaws in service because we’re racking up our points and privileges. Bribes work, and so we use them in all sorts of forms. Those coupons that we are getting really good at targeting. Those basically bribes. Special offers to sign up, or renew, or take a test drive. Bribes.
We’ve managed to move down the pyramid with this one. Now we’re dealing in the space of greed and avarice. Boy this is sounding more and more like true love. (Here’s a quick test to determine if your “incentive” is love or a bribe. Imagine you’re standing next to your soul mate and you want to pop the question. Would that conversation go better if you offered a $200 money back coupon is they said yes? Or would they slap you in the face. In a real relationship, a bribe gets you slapped in the face.
So most you have probably heard this line a thousand times. There is no fury like woman scorned. I always thought this was a bit from Shakespeare. Nope. According to trusty wikipedia its from William Congreve. Who knew? In ways it doesn’t matter. He was wrong.
How is it that we can afford this kind of payment? Reward programs, coupons, and any bribe really costs money. Why would we choose to invest our revenues there?
Who can tell which room is a Hilton and which is a Marriott.
Reward programs work well in saturated markets that have largely become commodified. Airlines, Hotels, and Retailers have all seen their product offerings converge, and therefore look for non-product areas to compete.
But when the world changes, these extraneous costs become vulnerable. We’ve seen it before. Back in the 1960’s grocery stores and other retailers passed out S&H green stamps to families who dutifully pasted them into books and traded them in for something unrelated to the original purchase. Sound familiar? They were fabulously successful, until retail models shifted with new store formats and a sudden downward pressure on prices. S&H still exists, but as a ghost of its former reward program glory.
That kind of change is on our doorstep, so Reward Programs … and the other well practiced forms of bribery are soon to be under attack.
Since the beginning of the mass market, this has been the curve that represents our investment model. We invest early on in an invention, generating a dip in revenue, but make it up over a long and happylife where we fine tune product for ever larger markets.
Big global trends are changing this curve. Technology innovations create the ability to imagine and deliver new ideas to market. Integrated global markets mean that ideas can originate anywere and make it to market in our backyard. And what that means is that the lifespan of a new idea is getting shorter everyday. Obsolescence is reducing the time we have to harvest the value of our investments. Paying bribes to someone to stay your customer only works if you have something that people still want to buy.
And it pushes us into a new model of business. Innovation used to be a once in a while kind of thing. A big event in the life of an organization that spent most of its time operating and harvesting. Accelerating obsolescence pushes us to a new model where Innovation become Business As Usual. Products don’t have a chance to become commodified and stable. They are made obsolete or simply unprofitable.
Suddenly change is the status quo, and creative ability to invent new sources of value becomes table stakes for staying in the marketplace.
It isn’t just the pace of innovation that is accelerating. The nature of a competitors offerings is changing radically too. For years we’ve been told by Harvard trained business strategist that success lay in finding our core competency. Price, Performance, or Service. We were to become hedghogs who focused on one end of the market or the other. If you are a premium brand be the very best at being the best. If we have chosen to compete in the commodified mass market. Then master the art of efficiency and operational discipline. Focus was the word and innovations were designed to move us up one notch on our chosen dimension of competition. This new marketplace will make roadkill of the hedgehogs. New innovations don’t just incrementally raise the bar in one direction. The new innovators are capable of driving improvement in every key performance metric. The new guy can be better, cheaper and more customized.
TWO PART BUILD - (1) INITIAL IMAGE AND UBER NAME, (2) NICER, ETC. AS A GROUP
Consider Uber. Taxi cabs are a venerable institution with standardized pricing and service models. When Uber enters the fray, they don’t do it in the same way that Black Limo Services did. The Limo’s were a classic premium service play. Pay more, get a fancier car and better service, but loose on other dimensions of convenience and price. They competed by segmenting the market. Uber steals the market. They offer greater convenience, better cars, predictability and reliability, and with a flexible market based pricing model, they respond directly to price signals from the market. In short, they are better at everything.
Think what this means for reward programs. When a competitor enters the field and beats you on every dimension, that overhead to bribe for loyalty just adds to your cost. The fear based trusted brand becomes a joke. When you are made obsolete the fear and avarice no longer motivate your customer. You’re market is blown up. This will happen with ever greater frequency, overturning established business models and relaitonships. That’s why Richard Florida, the Carnegie Mellon researcher that identified the phenomena of the Creative Class, calls this the greatest economic disruption of all times.
There is a path forward from here that engages customers in ways that provide a foundation for genuine loyalty, provides an ability to repeatedly innovate value, … and conveniently it takes advantage of huge world changing evolution in technology. Let’s take a look at that.
http://www.peachridgeglass.com/2013/01/grocery-stores-from-yesteryear/ image. He’s pouring fresh milk into her glass pitcher. Plus. I want that dog.
There is a powerful new ecosystem of innovation that is custom made for making customer experiences. It is one those ground breaking confluences of capability that change the way the world works. We saw a similar flood of innovation with the 2007 introduction of the Smart Phone and the beginning of the Mobile era. This ecosystem has the potential to dwarf that for impact. Here are the parts. We start with Big Data. Big Data is the path to Insight. We can understand who are customer is, what they are doing and where they are. To date we’ve used this knowledge of the gods for delivering a coupon … bettering our ability to bribe our customers. But that won’t limit the future innovators in this space. They will have access to a near infinite toolkit living in the Cloud and interoperable with one another that can deliver rich high value services. It won’t just be about facilitating the purchase, it will be about creating value directly. And all these highly personal engagement can happen anywhere. The emergence of the Internet of things, smart hardware that clings to our body, lives in our car, and connects our kitchen will mean that the moment of need can become the moment of satisfaction,
Where would Maslow place these generators of loyalty? They are hardly bribes or even appeals to fear. They help create better lives. They are genuine reasons for loyalty in a changing world. Yes I understand that there is an disturbing message here. We can’t sit on our haunches and harvest our market share. We have to constantly innovate and extend to remain relevant. On the other hand the tools we have at our disposal are truly revolutionary. Let’s look at one last example and get a bit fanciful about where we might go.
STANDARD SLIDE – NO SPECIAL BUILD
This is the difference between a Rewards program which engages through quid pro quo. Give me a treat, and I‘ll do a customer trick!
And loyalty which is based on a different type of relaitonship. One of creating new and deeper value. That‘s what we‘re aiming for here. Replace Rewards with Loyalty. The good news is that we‘ve only just begun to scratch the surface of the possibilities in this new technical ecosystem.
While this new ecosystem is still in its early stages of development, threre are organizations experimenting with ways to create a different kind of loyalty … based on intimate value and tailored to moment in our lives. Two traditional retailers have shifted their perspective of a customer relationship with these new technologies as the lever of action. Let’s compare them.
Lululemon is a premier athetic wear retailer. They make great stuff, and it would be perfectly reasonable to expect the quality of clothing to stand on its own. But one of the principle s of this new type of loyalty is that we don’t have to just sell stuff. We can claim a bigger role in people’s lives than merchant.
LuLu Lemon has done this by seeing their mission as helping us create a healthy life. This is more than marketing speak. They sponsor yoga classes in their stores and help create communities of practitioners in their neighborhoods. They touch life in an individual and personal way.
The shift in mindset and purpose is the root of this strategy, but there’s a role for technology here too. LuLuLemon provides a mobile app. Instead of focusing on coupons, it provides a way for you to locate and engage with yogi and other health focused professionals.
Nike took this a step further with the idea of a quantifiable self. They redefined their role in our lives from footwear to wear while running to a lifestyle made better by running. Here big data is met with wearable technology and ends up in tools that can understand the information in useful and uniquely persona ways. Now its fair to point out that Nike is stepping back from the actual manufacturer of the Fuel Band … but is this relavant? Their play is not just to sell another something to you, their goal is to have a role in your life that makes them meaningful on an ongoing basis. If Apple ends up making the watch, that’s fine. It’s the integration of data, creation of insight, and making that all actionable that matters. The shift of value and the driver of loyalty becomes one of depth and meaning.
wearable technology is slated to be a $30 billion industry by 2018.
interGreen Research Inc. calculates that ear-based wearables alone will account for $1.84 billion by 2016. S
This is Nate Silver. He made a name for himself by having terribly accurate projections of results for national elections. His book The Signal and the Noise is a particularly readable study for the lay person on the pitfalls of using a wealth of data to predict things that matter. One of his counterintuitive claims is that the explosion of big data may actually make our predictions even worse by injecting noise and false hints of causality into already messy questions … such as how likely is it that Sam will actually go out running past the Cinnabon bakery tonight and will he succumb to buying some as “gifts” for his family.
This is where we need context. We need to not only understand the data trail of your past life, but true tailoring of value requires insight into what you are doing now and where. Context changes the potential of the data we have. And this only becomes more powerful when we start connecting the world of ubiquitous touch together. I’m from Detroit and I can tell you that the automotive manufacturers are looking to hook up as much of the world as possible through your car. Your house is well on the way to the same connected state. Put some wearable technology on your dog and your care can tell you before you leave work weather you should drive to the gym to work off the donut you bought with your debit card that morning or if you should head home to take the pooch out for a run.
So this is about the time in the discussion that people start getting that look on their face and ask … “Isn’t this kind of creepy … you know Big Brother creepy”. Data security, privacy, and permissions to engage in our lives are all areas that will need to push forward with this disruptive set of changes. It needs attention … but before we throw the baby out with the bathwater, lets think about how engagement in our lives changes.
The challenge is that we must dream bigger dreams and do it more often. That’s something few organizations are prepared to do … fortunately there are some really cool things happening that open the doors to a new kind of business and a new and better approach to loyalty.
Its tempting to see these as closed ecosystems where we can “own the customer”. That has been a popular play at Apple with the mobile ecosystem, and it seems like this strategy begs for it. But that’s not necessary or even productive. The value here comes from the richness of the engagement. A bigger toolkit … creates more opportunities to leverage insight and touch to deliver value.
So this is the way that I see the future. Loyalty is going to stop being something that can be slapped on to the side of a product or business. Instead creating sustainable loyalty by repeatedly creating unique personal sources of value becomes the standard business that thrive in this space. It loyualty that is creatied by making individual lives better rather than deploying a mass market play to millions. It’s a model of business that embraces the harsh reality of change that lies ahead, and uses the new gifts of insight, unlimited tools, and ubiquitous touch that we’ve been given to rise to the challenge.
This is an amazingly powerful ecosystem of innovation, that is still very much in its early days. Let’s look at another case of new technology in practice … and then stretch it to create a web of value that gives real meaning to the new case for loyalty.
Sephora has partnered up with Pantone to create a new level of personalization in makeup. Combining their data and insights on color, Pantone and Sephora have created a map of human skin tones. This would be fascinating in its own right, but it gets interesting (as most big data initiatives do) when the data is combined with a means of delivering value to the customer.
In this case it’s a scanner that can read your skin tone and match your skin color to one of the big data driven pallets. With that it becomes possible for Sephora to personally and precisely recommend the makeup that is literally right for you.
The challenge here is that this is still only available in-store. It combines insight and a cool tool kit … but it doesn’t leverage the potential of ubiquitous touch.
So now lets stretch this idea. How could we really make this experience of beauty even more personal and relevant?
Fernanda gets a message on her phone with the propose plans for dinner tonight. Automatically the sea of data begins to form around her. The time. Its going to be later so its easy to find out that’s going to be after sunset. Weather information flows in for the location of the restaurant … Rain! And the building system in the restaurant chimes in with an announcement of its planned lighting levels at the time of the reservation. When she takes a dress out of the closet the closet knows which one, what kind of fabric it is and the color. That’s all good because Fernanda has arrived home in a rush.
Now a traditional loyalty program would take this moment of insight and need to send her a coupon for 20% off on waterproof makeup. A bribe that does nothing for her life that evening.
Our new ecosystem though, marries these insights with an application in the cloud the creates make up recommendations. Those are delivered through a point of ubiquitous touch, the mirror on her dressing room table. Its personal, relevant and timely.
Now she makes her way to the table and automatically her wearable technology determines that the table she is at is actually darker than promised. Plus she’s a bit nervous and is beginning to sweat. Her hand mirror advises on a makeup update the next time she leaves the table.
This kind of engagement isn’t going to change the world, but it is going to change the way Fernanda approaches makeup. It’s miles beyond a coupon or blind mass market loyalty. Plus its ready to stretch with new insights, tools, and points of engagement. It’s a platform for earning personal loyalty.
THREE PART BUILD (1) IMAGE AND CREDIT (2) ADULTS FOLLOW PATHS… (3) CHILDREN EXPLORE
Neil Gaiman’s latest book the Ocean at the End of the Lane has a provocative quote that for me, captures the soul of this new era of loyalty. It begins, with the observation that Adults Follow Paths. We’ve gotten quite good at that really. But it ends with this thought. Children Explore. We are in an age where we can continually explore new possibilities for value and loyalty. There is a chance to be children again with our imagination and our energy. I for one find that a rather attractive proposition.
Thanks! If you’re interested in these ideas of change and serial innovation here are three books. Big Bang Disruption talks about the depth of the change ahead and the reasons behind it. Resilience examines the shift in the types of solutions that are created, ones with more flexibility and tailoring to varying individual circumstance. Lean Enterprise is written by several thought leaders from Thought Works and talks about how an organization can survive and maybe even thrive as a Serial Innovator.
Resilient Loyalty by Dan McClure
Developing Relationships that can survive the 21st Century
“Heav’n has no Rage, like
Love to Hatred turn’d,
Nor Hell a Fury, like a
William Congreve | The Mourning Bride, Act III
Travelers frustrated with their primary hotel
programs are projected to move more than
this year to competing programs.
Is Hilton HHonors attempting
to be sneaky here?
NY Times reporting on a CG42 Loyalty Study