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

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

“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.

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?

15 Days Advance15 Days Advance

14 Days Advance14 Days Advance

Elevate is the first revenue-managed program of its kind that provides choice, value, and a dynamic approach to enhance ROI.

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.

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?

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.

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.

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

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

…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

Thank you!

Howard SchneiderMetzner l Schneider Associates