Loyalty programs are used to acquire new customers, increase spending of existing customers, improve retention rates, and shift spending to higher margin products. There are now over 1.8 billion loyalty program memberships in the US, though many members are inactive. Relevance, reducing complexity, and reinforcing choices are key principles of loyalty marketing. Understanding customer profitability beyond just loyal customers is important, as the bottom 30% of customers can reduce overall profits. Future loyalty programs will focus on segmentation, tiering, broadening relationships across purchases, instant rewards, and coalition programs with multiple companies.

2.  Loyalty programs are often part and
parcel of a comprehensive customer
relationship strategy.

3. Why build on a loyalty
program?
 The basic benefits of using a loyalty program to
obtain customer information are summarized below:
 Shift - Acquire new customers
 Lift - Increase the spending of existing customers
 Retention - Improve the natural churn rate of
customers
 Profit mix - Shift spending to higher margin products
These loyalty program benefits form the basis for all
loyalty program initiatives.

4. Fundamentals of Loyalty
Marketing
 Commoditization of loyalty programs.
 desire for possessions to a desire for
experiences - partly due to changing
demographics.
 Overall, consumers are looking for the
meaningful (which includes value and
relevance).

5. The Space Graphics
 It is estimated by Colloquy (2009) that there
are 1.807 billion loyalty program memberships
in the US (a 25% increase from their 2006
census) - with the average US household
participating in 14.1 programs. Approximately
56% of those memberships were inactive
(defined as no engagement within a 12 month
period), bringing the average household active
participation to 6.2 programs. That is a lot to
compete with

6. Trend in the Loyalty space
 Not surprising, loyalty varies across
industries. As reported in the New York
Times, Forrester Research found that
across 12 industries, retailers inspire the
most loyalty
 While others, like TV service providers
and internet service providers proved
more fickle.

7. Principles of Loyalty Marketing
 Relevance is the key to Loyalty
Marketing
 The magnitude of the reward is less
important that the perceived value of the
reward
○ Benefits - Intermittent scheduling of rewards
(“surprises”) can be more effective than
regular scheduling
○ Special treatment
○ Recognition

8.  Loyalty Marketing reduces the consumer’s
decision-making complexity
 Loyalty Marketing reinforces the rightness or
wrongness of the consumer’s choice
 Loyalists represent an incremental sales force
 Loyalty Marketing is information-dependent

9. What is Loyalty?
The consumer is loyal to you is s/he frequently buys your
product
Desired Behaviour Loyal
Behaviour
Low High

10. The consumer is not necessarily
desirable...
Desired Behaviour Loyal
Behaviour
Low High
 If you have had to subsidize their purchases
 If s/he buys your product because of inertia
or absence of an alternative

11. Commitment is an emotional
bonding The actively
loyal customer
is the only (long
High
Potentiall Actively term) profitable
y Loyal customer
Loyal Behaviour
Behaviou
r Passively
Loyal
Low
Behaviour
Low High
Desired Behaviour

12. Extend the relationship from
Product to Brand
High
Depth of Involvement
reflects moving from a
narrow relationship with
an individual product to Low High
broad usage of the Desired Behaviour
full range of
products
marketed
under the brand

13. High
AMEX
An index of behaviours
Commitment
that reflect a CM’s
attachment to AMEX
- Tenure of membership
-Total number of trans.
per month
- Months active
- Total number of services
Total $ revenue from all AMEX
currently active
products and services
- Share of plastic spending
- Total $ spending across all AMEX cards
- Survey responding and
- Total $ annual card fees
responses
- Total revolving balances on Optima
Low High
Desired Behaviour
An index of the number of points
of connection with AMEX
- Total number of types of cards held
- Total number of basic cards
- Total number of services currently enrolled in

14. Loyalty Programs
• Rebate Programs/Cash Back
• Discount Programs
• Points Program

15. Economic Value of a Customer
1. The top 20% of customers tend to produce 80%
(varying by industry) of the profits.
2. Not all customers are equally profitable - this we
know. But did you know that the bottom 30% can
eat up to half the profits generated by the others?
3. Understanding the economic value of your
customers, not just your loyal customers, can save
you tremendous amounts of revenue and effort

16. As such, the idea of
"firing" your most
unprofitable customers
is becoming more
attractive.
Even in the supermarket
sector, by some
estimates, 7 out of every
10 customers cost more
to serve than they
contribute in profits.

17. Understanding loyalty program economics is essential as running these
programs isn't cheap.
A study by McKinsey & Company estimated that a
program's first year can cost as much as $30
million, with annual maintenance and marketing
costs reaching $5 million to $10 million.

18. Take Home on Loyalty

19. Building a Winning Loyalty Program
Program Objectives
Program Positioning
Program Strategies
Financial Analysis/Modelling
Value Proposition
Currency strategy
Business Analysis
Data Analysis
Platform Selection
Segmentation & test Plan
Measurement plan
Exit strategies
Keep in mind even if the above list is followed your loyalty program will
not be successful until you are actively evolvong the program basis the
prevailing trends & circumstances.

20. FUTURE Loyalty Programs
As loyalty programs become ubiquitous, we believe some interesting dynamics
will evolve in the loyalty marketplace:
1) Companies will continue to look for ways to differentiate their loyalty
programs, while balancing program revenue and costs to achieve
favorable economics.
2) Newer loyalty programs will be more segmented e.g. targeting life
stages, lifestyles and interests
3) Existing loyalty programs will become more tiered i.e. concentrating
resources on high potential and high value customers.

21. Holistic View * Focused
4) Loyalty programs will begin to take a more holistic view of customers
- focusing on broadening customer relationships (i.e. "relationship
rewards") - offering awards and recognition for broadened existing
relationships - resulting in a strengthened hold on their customers. This
takes on increased importance for program administrators as the
customer's sense of entitlement rises.
5) Instant point redemption at merchant partners. Making it easier to
redeem your points, program sponsors will begin to develop merchant
relationships whereby loyalty program members will be able to convert
their loyalty points on-site at the merchant partner for discounts,
merchandise and/or services.

22. Value Proposition Through Coalition
6) Coalition Programs. We never thought we'd see the day in
the India. While Coalition programs have proved to be very
successful around the world (e.g. Air Miles in Canada), this
model has had considerable difficulty making head way here in
India, given the fragmented market and the resources required
to get such a program up and running. That is about to change.
As compelling value propositions become harder to come by,
the importance of coalition programs increase.

23. THANK YOU