notes version: paradigm shift the changing face of loyalty
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9/30/2011
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How…
Disintermediation Socialization Gamification Monetization
are changing the face of loyalty marketing*
* and how these forces together drive today’skey trends in customer engagement
Howard SchneiderMetzner l Schneider Associates
Disintermediation
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One 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 Customer
Disintermediation 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
Media companies, studios, manufacturers, CPG companies are turning to loyalty and engagement programs to create one-to-
one customer relationships for the first time.
Today, some of the fastest growing categories for loyalty programs are those with indirect distribution models
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“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 touchpoints
Engaging entertainment fans
Engaging entertainment fans
WB Insider Rewards looks one way to action movie fanboys
…and very different to classic movie aficianados
Disintermediation 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.
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Monetization
Money 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 programthat delivers better economics to theairline, more control and a betterexperience for the guest.
When was the last time you tried to redeem miles on a legacy
air carrier?
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15 Days Advance
14 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
Near Parity Near Parity
As easy as “supply and demand”As easy as “supply and demand”
Elevate is the gateway through which guests engage with Virgin AmericaAll 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.
More than just a reward program. It’s an experience.
Monetization and loyalty
Southwest, the largest US domestic carrier,has adopted Virgin America’s programdesign. 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.
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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?
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A 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.
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Driving 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.
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Gamification
Reality 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
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Enter, 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, enhancements
Games 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
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…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 music
Gamification 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
Establish relationships
Build loyalty
Meet the challenges of indirect distribution
MONETIZATION
Improved program performance
Greater value for customers
SOCIALIZATION
ID superfans
Create/leverage community
Drive engagement beyond simple quid pro quo
GAMIFICATION
Cost-effectively reward non-revenue interactions
Make programs fun
Deliver the psychological rewards of games
OptimalLoyalty
Program
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Thank you!
Howard SchneiderMetzner l Schneider Associates