Notes Version: Paradigm Shift The Changing Face of Loyalty


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Notes Version: Paradigm Shift The Changing Face of Loyalty

  1. 1. 9/30/2011How…  Disintermediation  Socialization  Gamification  Monetization are changing the face of loyalty marketing* * and how these forces together drive today’s key trends in customer engagement Howard Schneider Metzner l Schneider Associates Disintermediation 1
  2. 2. 9/30/2011One of the biggest words I know the elimination of an intermediary in a transaction between two parties Marketer Wholesaler Retailer Customer Marketer Retailer Customer Marketer CustomerDisintermediation and loyalty The history of loyalty programs is the story of disintermediation • In 1981, 95% of all airline tickets were sold by travel agents • Airlines did not know their customers by name • AAdvantage was launched as a promotional tool to get customers to identify themselves…NOT as a reward program • Travel, hospitality, car rental companies established direct relationships with their customers • Banks and some retailers, who had transactional data, soon followed • Retail, restaurant and others jumped in as technology and cost permitted Loyalty programs turn 30 this year!Indirect distribution models Today, some of the fastest growing categories for loyalty programs are those with indirect distribution models Media companies, studios, manufacturers, CPG companies are turning to loyalty and engagement programs to create one-to- one customer relationships for the first time. 2
  3. 3. 9/30/2011Engaging entertainment fans “350 million customers…and we don’t know any of them by name.” • Indirect distribution: exhibitors, iTunes, Amazon, cable, b’cast, satellite • Customers not interested in studio “brand” • Incredible diversity of product means no natural common denominator Warner Bros. solution: WB Insider Rewards • A common program platform with different skins for different interests • Rewards interactions and transactions • Allows fans to customize their experience • Tracks, incents, rewards behavior across multiple touchpointsEngaging entertainment fans WB Insider Rewards looks one way to action movie fanboys …and very different to classic movie aficianadosDisintermediation and loyalty Loyalty programs have both driven, and been driven by, disintermediation. It is a trend that continues to accelerate, and it means: • More industries are launching loyalty programs • Marketing efficiency continues to increase • Measurability and accountability continue to spread, into categories accustomed to less-precise metrics Look for more loyalty and customer engagement programs from marketers who are new to the world of direct customer relationships. 3
  4. 4. 9/30/2011 MonetizationMoney talks In a business plan, “monetization” means, “how do we make any money from this great idea?” In loyalty programs, it means, “how do we accurately and cost- effectively reward customers according to their value?” Early loyalty programs – and many still today – use proxies for value: • Miles • Segments / visits • Hotel nights / rental days The use of proxies led to: • Poor economics for marketers • Rewarding past, not future, behavior • Rewarding without clear value metric • Unhappy customers • Decreasing reward availability • Blackouts and restrictions • Higher cost to redeem“If only we could really reward customer value” The availability and cost of sophisticated technology forced the use of proxies. Today, programs are limited only by vision. The first major airline program to be based directly on customer spend is Virgin America’s Elevate – a program that has changed the way frequent flier programs work. Elevate is a revenue-managed program that delivers better economics to the When was the last time you tried airline, more control and a better to redeem miles on a legacy experience for the guest. air carrier? 4
  5. 5. 9/30/2011As easy as “supply and demand” 15 Days Advance Elevate is the first revenue-managed program of its kind that provides choice, value, and a dynamic approach to enhance ROI. Higher ROS Lower ROS 14 Days Advance Near Parity Near ParityMore than just a reward program. It’s an experience. Elevate is the gateway through which guests engage with Virgin America All guests are encouraged to join Elevate; in fact, they have to in order to access certain benefits Elevate recognizes past behavior and preferences, and rewards future, profitable behavior. Through Elevate, Virgin has the platform to maintain and extend the relationship into a guest’s lifestyle, beyond specific transactions, even when not traveling.Monetization and loyalty Southwest, the largest US domestic carrier, has adopted Virgin America’s program design. As has JetBlue. • Industries with available data, like supermarkets, have used actual customer spending for years • Other categories are actively exploring how to use the revenue-management model for their loyalty programs Look for more loyalty and customer engagement programs to deliver incentives, rewards and value based on precise knowledge of customer value. 5
  6. 6. 9/30/2011 Socialization“What are we doing in social media?” - every CEO in the world Every emerging media tool or channel has a lifecycle, something like this: • Novelty • Skepticism • Infatuation • Evangelism • Overuse / misuse • Disenchantment • Sooo last year Eventually, each finds its optimal role in an ever-evolving mix of media, strategies and tactics. Today’s social and mobile media are uniquely suited to play a major role in loyalty and customer engagement. Social media are an important tool for disintermediation and delivery of customized value and relevance.Why would I “like” a fabric softener? 6
  7. 7. 9/30/2011A sleeper strategy helps Downy and Macy’s clean up Event marketing, demonstration-chic, comedy, advertising, and the most basic of DM tactics: customer acquisition, all enabled by Facebook and Twitter. Voila: a CPG company now has a database, while Macy’s boosts January White Sale traffic.And the results? Now, a CPG brand can begin building direct relationships and fostering loyalty.Finding the “needles in a haystack” brand devotees Sears and Kmart launched the fastest- growing loyalty program in history – over 60 million customers joined shopyourway rewards in the first year! The program lets Sears track members’ spending and deliver targeted information and offers to drive and reward transactional behavior. But these great old American brands wanted to get members involved in a personal way. 7
  8. 8. 9/30/2011Driving social participation, not just transactions The program rewards social activity, like joining Sears and Kmart branded communities, sharing reviews, uploading photos.Social media turn a sweepstakes into a sharefest Email, in-store promotion, social media combine for the biggest video upload sweeps ever for a retailer: • 45k entries • 5.7mm views This promotion built awareness of and participation in the SYWR program, and reinforced the value of points.Socialization and loyalty Social strategies, while not always driving immediate sales, measurably help marketers achieve: • Increased awareness of and participation in programs • Invaluable WOM • Identification of brand fanatics Social media are a fait accompli, and play a role in virtually every successful loyalty program today. 8
  9. 9. 9/30/2011 GamificationReality IS broken Games aren’t a panacea for our broken world, or our marketing and customer loyalty challenges. But they sure can help engage customers. As loyalty programs have become ubiquitous, they have lost some of their power to motivate behavior and differentiate brands. There is an increasing need, driven by both marketplace psychographics and program economics, to reward non- transactional behavior. …and you may ask yourself: “You said programs should be based on revenue. Now you say programs should reward non-transactional behavior. WTF?”The economic challenge It IS challenging to cost-effectively reward non-transactional behavior. But that doesn’t mean it is impossible to value and reward non-purchase interactions. • Establish a point structure that allows for small earnings and small rewards for interactions, and more meaningful earnings and rewards for sales • Use a separate earnings and rewards scale to incent and recognize non- transactional, but still valuable behavior 9
  10. 10. 9/30/2011Enter, the psychology and mechanics of gaming Marketers increasingly want to reward interactions like: •Posting a review • Sharing something with a friend • Answering a survey • Posting a photo, video or comment • Visiting a website, watching a trailer or demo • Downloading a ringtone, trailer, link or instructional video Game constructs can reward these activities with virtual rewards: • Recognition for achievement and participation • Bragging rights • Reinforcement • Badges, stars, leader boards, graphics, enhancementsGames in the air… Virgin America’s onboard entertainment (which can be uniquely optimized by Elevate members) offers onboard games, chat and competition between passengers and, sometimes, even between planes in the air and guests in the terminal. The guests on the winning plane are greeted as heroes by the gate staff. Terminal Takeover is a geo- based check-in game, with a leaderboard in the terminal to track guests’ progress.…on the road… Subaru allows owners to “reward themselves” and get recognition for longtime loyal ownership, and for identifying their lifestyles and interests 10
  11. 11. 9/30/2011…and online Members earn points for purchases, credits for activities Rewards are listed in separate catalogues — points can be redeemed for merchandise; credits cashed in for virtual or digital rewards such as avatars —ringtones, wallpapers, exclusive video clips or musicGamification and loyalty Innovative applications are emerging, technology platforms that can add gaming elements to conventional program websites. • More fun, greater variety for customers • More ways to engage on the customer’s own terms • More economic leverage for marketers with more ways to reward behavior without giving away the store Even legacy brands and well-established categories will increasingly incorporate gaming tactics to make their programs fun and engaging.Disintermediation, Monetization,Socialization and Gamification DISINTERMEDIATION MONETIZATION Establish relationships Improved program Build loyalty performance Meet the challenges of Greater value for indirect distribution customers Optimal Loyalty Program SOCIALIZATION GAMIFICATION ID superfans Cost-effectively reward Create/leverage non-revenue interactions community Make programs fun Drive engagement beyond Deliver the psychological simple quid pro quo rewards of games 11
  12. 12. 9/30/2011 Thank you! Howard SchneiderMetzner l Schneider Associates 12