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LOYALTY

Volume 1 Number 4

September 2009 MANAGEMENT


Powered by Loyalty 360

The Balance
of Powers
in Payment
Cards and Influencing
Loyalty the Channel
Building Trust
Technology to Drive Loyal
Relationships
Can Do That,
But Can We?
What works with
today’s loyalty
technology
Optimizing
Human Capital
Assets in
Tough Times
2 Loyalty Management | Loyalty360.org
This Month in LOYALTY MANAGEMENT

SEPTEMBER 2009 VOLUME 1 NUMBER 4 W W W. L O YA LT Y 3 6 0 . O R G

DEPARTMENTS
0,11 Contributors
1
6 What’s on Loyalty360.org
8 Letter from the Editor
28 Should program structure
strategy include a co-branded
credit card or simply a tender
neutral only approach?
The Balance of Powers in Payment Cards
and Loyalty, pg28
LOYALTY FORUM
7 Your Voice
“Many clients are changing their internal focus from
Loyalty Program Management to flawless & effective
Program Execution. What is your team doing to ensure
ongoing flawless execution for your clients?”

12 Q&A: Ask the Experts


“I’ve been hearing a lot of buzz about incorporating
SMS into loyalty program marketing. What should I
expect from an implementation perspective?”

14 Behind the Brand/People


Interview with Sandra L. Gudat, President and CEO, FEATURES
Customer Communications Group
18 Leveraging Loyalty, One Actionable Idea
16 Books at a Time
Loyalty Reads Kory Schramm – ITAGroup

20 Optimizing Human Capital Assets

14
As President and CEO of
in Tough Times
Performance Improvement Council

24 Influencing the Channel—Building Trust


Customer Communications to Drive Loyal Relationships
Group (CCG), Sandra Gudat has Rick Blabolil – Marketing Innovators
helped define the field of CRM. 28 The Balance of Powers in Payment Cards
and Loyalty
Sarah Phelps – First Annapolis Consulting

20
Optimizing Human Capital
Assets in Tough Times—a
whitepaper developed
by the Performance
Improvement Council, a
strategic industry group
within the Incentive
Marketing Association

Loyalty Management | September 2009 3


4 Loyalty Management | Loyalty360.org
This Month in LOYALTY MANAGEMENT

SEPTEMBER 2009 VOLUME 1 NUMBER 4 W W W. L O YA LT Y 3 6 0 . O R G

TECHNOLOGY,
TRENDS & REWARDS
30 Technology Can Do That, But Can We?
What works with today’s loyalty
technology
Jake Sterling – Maritz

34 Automating Marketing— Self-Service


Technology Awaits Those Smart Enough
to Experiment
Scott Couvillon – Dukky

30 36 Product Level Rewards


Roger L. Brooks – ValueCentric Marketing Group

Technology Can Do That, 38 Turn Marketing $$$ Into Loyalty


Randy Fox & Jeffrey Norby – Jet Litho
But Can We?

Loyalty Management
40
The role of the contact
Editorial & Production Team: center customer service
Erin Raese – Editor in Chief representative is a key
Caitlin Schar – Editorial Director
Victor Wilcox, Graphics Plus Inc. – Layout & Design
element in the success of
Graphics Plus Inc. – Print Production any loyalty program.
The Quality of Loyalty, pg40
Loyalty 360 team:
Mark Johnson – President and CEO
Laura Rusche – Director, Marketing Operations
BEST BUSINESS PRACTICES
Amanda Chasteen – Associate Manager, Marketing Operations
Thomas Scott – Sales Associate 40 The Quality of Loyalty
Jennifer Wickline – Marketing & Events Coordinator Jim Boring – Global Response
Julie Hellebusch – Controller
Kathleen Ninneman – Graphic Designer 42 Improving Customer Loyalty Starts With
Setting Your Priorities
Contacts:
Ivan Frank – ePrize, LLC
Article Submissions: Erin Raese (630) 235-8251
Advertising: Caitlin Schar (630) 850-7867
44 Creating a Loyal Relationship with
Your Channel
To subscribe to Loyalty Management visit Loyalty360.org. Paul Hebert – i2i and Heather K. Margolis

46 Creating Profitable Customer Loyalty


Timothy Keiningham – Ipsos Loyalty &
We Want Your Feedback Lerzan Aksoy – Fordham University
As a “voice of the customer” focused publication we want to
hear from you—our customers. What would you like to see
48 Engaging Customers for Long-Term
included in these pages? Share your thoughts on articles and
Success— Emotion Throughout the
ideas for content. This is your platform.
Customer Life Cycle
We would like to hear from you.
Scott Bauer – Hallmark Business Expressions
Write us at: Mailbag@LoyaltyManagement.com 50 Loyalty Program Profile:
Chase Ultimate Rewards

Loyalty Management | September 2009 5


LOYALTY 360 ON THE WEB

What’s on Loyalty360.org
LOYALT Y 360.org C AREER CENTER

Check Out The New


Loyalty360.org
Loyalty 360
Career Center
Do you have an opening to fill in the
loyalty industry? Or maybe you are
n Enhanced User Experience looking for a fresh challenge. Loyalty 360
n New features, more news is connecting top talent in the loyalty,
n ‘Loyalty Today’—get the latest loyalty and incentive/reward, and engagement
engagement news daily marketplace like never before!
n Multimedia—Come view webinars, Loyalty
360, and conference presentations. Looking for a job? Submit your resume
n Member Search—Now, connect with members to our resume bank.Looking to hire?
like never before! Post job opportunities on our site.
n More interactivity—You can now comment on
all content on Loyalty360.org VISIT www.Loyalty360.org/career-center.shtml

S tate of the Industry


A snapshot from “State of the Industry”, July 2009: and invariably will, respond to the legislation, starting with
interest rates.
Thou Shalt Monetize? Good ol’ fashioned A.P.R. Interest Rates will increase across the
board: whether they are Introductory, or based on Purchase,
by Michael F. Hemsey – President, Kobie Marketing, Inc.
Delinquency, Cash Advance, Employee Promotional, or Balance
Transfer – nearly ALL of the APR changes banks are putting
“…The most recent and relevant example into affect will increase their rates prior to February 2010.
of bottom-line impact and the changing
landscape of monetization, and, of course, What’s more, banks will have other means, besides jacking the
the subsequent lessons which will be APR, to manage the new regulations so that their credit card
learned, comes from one of the most loyalty programs can remain untouched. Those banks that
established sponsors of loyalty in our were healthier prior to the economic tsunami will not have to
industry: the banks and the credit card. add or raise loyalty program fees, and they will not have to
change their rewards grids. They can continue, as a predictable
The Credit Card Bill of Rights was signed result, to increase acquisitions, transactions and volume…
into law in May 2009, ending unfair and
arbitrary interest rate increases; stopping excessive “Over the …In aggregate, with APR changes and fees going up on a
Limit” fees; ending unfair penalties for cardholders who pay number of daily and typical banking occurrences, banks
on time; requiring fair allocation of consumer payments to (especially the healthier ones) are in a position to make more
balances; and protecting card holders from due date gimmicks. revenue on the new legislative mandates in comparison to
In addition to this Bill of Rights, there are amendments what they’re giving up with compliance to the more consumer
referred to as “UDAP” and “Reg Z” which are pending approval friendly Bill of Rights.
with different timelines.
Ironic? Beautiful? Maybe not as onerous as it seems? Now
And the buzz on the street? “Banks are losing 50% of their fee what?”
income! Loyalty programs are in trouble!”
…. Read the complete article and join the discussion on
Not so. Let’s take a look at how the banks and issuers can, Loyalty360.org!

6 Loyalty Management | Loyalty360.org


LOYALTY FORUM: Your Voice

Discussion from the Loyalty 360


Social Network (Find us on: 360.org,
Linked In, Twitter & Facebook)...

“Many clients are changing their internal focus from


Loyalty Program Management to flawless & effective
Program Execution. What is your team doing to ensure
ongoing flawless execution for your clients?”

I n my opinion, general error of many loyalty programs


is development of loyalty program for Loyalty Program
itself. Rising of loyalty is a complex process which should
T he sequence of successful implementation of loyalty
program would start with first making the employees
and customer touch point experience extremely smooth
involve all aspects of customer service. It’s possible to and customer friendly - the cost of creating a “vow” may
make a customer more loyal, providing him flawless service be too steep - most customers do not even expect it. Only
and perfect goods by reasonable price without any CRM if the customer experience is consistent and flawless will the
system. But it’s impossible to make a customer loyal just by implementation of a loyalty program can yield incremental
CRM system separately of general business. So, shifting the and exponential results.
accents from the Loyalty Program management to common
Ashok Manachanallur COO at Direxions Marketing
customer service is often just a reasonable optimization.
Actually, my opinion is: loyalty program is a powerful tool but
Solutions
just a tool. Without concrete goals it’s just a decoration. In our

H
company we are working closely with our operation team
ave clear objectives for each segment of clients and
to support qualified customer service in every of 130 stores
be able to evaluate the success in terms of increase
where Loyalty program is working now.
of value of the client, increase of frequency or amount
Elena Naumchik Head of Loyalty Department at purchase, or retention rate. We have to work with our
X5 Retail Group N.V. clients to do this in a consistent way.

Paul Garnier CEO at CIS

W hile I would argue that any company that wasn’t

I
focusing on flawless execution was destined find that most so-called Loyalty Programs are not
for disaster, the conversation here has moved to that at all, but instead concentrate on providing some
loyalty programs vs. the service-oriented customer reward or incentive to continue purchasing. In my mind,
experience. 

This isn’t either/or. Effective customer retention such programs do not create loyalty. Loyalty is the result of
and loyalty comes from executing well on all aspects of the the customers’ acceptance of the inherent value of the brand
customer experience - loyalty programs, customer support, in their life-value structure. This is almost always the result
online/offline touchpoints, community, communications, of purposeful management of the customer experience
etc. But once you are pretty good all of them, you can at strategic “moments of truth” - the Flawless execution of
pick and choose where to excel. Part of the reason loyalty which [Loyalty Management] is potentially speaking. The
programs can be so powerful is they can touch every aspect most important distinction, I have found, however, is that
of the customer experience through differentiated service, Loyalty is an emotional human response and thereby cannot
recognition, and rewards. Get to “acceptable” across the be reached by merely satisfying customer needs. Satisfied
board, then get to “great” where it fits with your organization. customers are not necessarily loyal. 



Michael Greenberg COO at Loyalty Lab Rudy Vidal Principal at Vidal Consulting Group

Loyalty Management | September 2009 7


FROM THE EDITOR

The New Customer


Everyone has a different opinion on the best way to market
to these people to build strong engagement, create loyalty
and earn commitment. What’s interesting, many of these
strategies aren’t really all that different—to be successful
you have to build trust.

On page 24, Rick Babolil from Marketing Innovators shares


how building trusting relationships with channel partners creates
foundation for success.

Tying into that, last month I was introduced to Linda Kaplan


Thaler’s book, The Power of Nice. What makes this interesting, all of
us would say—“Of course I’m nice”. However, in reading this book,
Loyalty 360 we realize how often we lose sight of “nice” and how important it
has announced
the first annual is to make “nice” a priority in building that trusting relationship.
Engagement Expo The book is highlighted in Loyalty Reads. Hallmark reinforces the
to be held in Chicago importance of this message on page 48.
at the Sheraton
Chicago Hotel & Towers
November 18 & 19 In trends and technology we explore new automation and a new
loyalty technology that is working today to enhance a customers’
2010 Loyalty Expo to purchase experience.
be held on June 6 – 8 in
Orlando, FL at the Omni
Champions Gate The topics in this issue are a precursor to what you’ll learn at this
falls’ Engagement Expo—November 18-19, Sheraton Hotel and
Loyalty 360 on Twitter Towers, Chicago, IL. We encourage your feedback; it will help us
–#LE360 further enhance your conference experience.

LOYALTY
Enjoy the read!
Volume 1 Number
September 2009
4
MANAGEMENT
Powered by Loyalty
360

The Balance
of Powers
Sincerely,
in Payment influenCingl
Cards and tHe CHanne
Loyalty Building Trustl
to Drive Loya
Relationships
Technology
Can Do That,
But Can We?
What works with
today’s loyalty
technology
Erin Raese
Optimizing
Human Capital
Editor-in-Chief
assets in
tOugH times Loyalty Management
erinraese@loyaltymanagement.com
Loyalty Management
is now a bi-monthly
publication.
Expect the next issue
in late October!

8 Loyalty Management | Loyalty360.org


Loyalty Management | September 2009 9
LOYALTY
Contributors

MANAGEMENT

Scott Bauer Ivan Frank


President—Hallmark Business As Chief Marketing Officer of ePrize,
Expressions a Subsidiary of Hallmark Ivan leads ePrize’s loyalty business,
Cards,Inc. As President of Hallmark with 15+ years of advertising,
Business Expressions, Scott leads marketing and consulting experience,
a marketing, creative, sales and including experience prior to ePrize
operational organization that enables at Silicon Graphics, MetLife and Leo
an emotionally driven product within Burnett.
Scott Bauer Ivan Frank
Hallmark’s business-to-business
branded enterprise.
Paul Hebert
Paul Hebert is the Managing Director
Richard A. Blabolil, CPIM of I2I- an influence consultancy that
Rick Blabolil is president of Marketing helps companies align the behavior
Innovators International, Inc. (MI). of their employees, channel partners
Providing thought leadership to the and consumers with the goals and
industry, Rick is past president of the objectives of the company.
Incentive Marketing Association and
Richard A. Blabolil, Forum for PPMM, and Vice President Paul Hebert
CPIM
of the Incentive Research Foundation. Timothy Keiningham &
Lerzan Aksoy
Jim Boring Timothy Keiningham is Global Chief
Strategy Officer at Ipsos Loyalty.
Jim Boring is a Marketing Lerzan Aksoy is Associate Professor of
Communications Consultant with marketing at Fordham University. Tim
extensive experience with customer and Lerzan are authors of the book
contact organizations. His client “Why Loyalty Matters.”
engagements include Motorola, PSA,
CDW, Baxter, Global Response and Timothy Keiningham
& Lerzan Aksoy
Jim Boring Blue Cross/Blue Shield. Heather K. Margolis
Heather K. Margolis is an
Roger L. Brooks independent consultant, providing
channel strategy and social media
Roger brings more than 16 years consulting to vendors and channel
of customer loyalty experience to partners. Heather has led channel
ValueCentric Marketing Group as Vice programs, lead generation, and social
President, Loyalty Marketing. In his media strategy for companies like
role he implements new processes for EMC, EqualLogic, Dell, Kadient and
clients needing to build or enhance Corporate Event Promotions, which
Roger L. Brooks customer loyalty programs. Heather K. Margolis she founded in 2003.

Scott Couvillon Jeff Norby


Scott is Chief Marketing Officer of President of JET—an award-winning,
Dukky. His background includes custom communications provider—
national branding and the use of Jeff fosters loyalty and marketing
connection planning to create strategies utilizing innovative graphic
relationships between brands and solutions that enhance client’s brands
individuals in communities both and grow revenue.
Scott Couvillon online and offline. Jeff Norby

Performance Improvement
Randy Fox Council (PIC)
JET’s Director of Business
The Performance Improvement
Development, Randy helps clients
Council, a professional organization
build profitable programs that
of performance marketing executives
engage and retain consumers. His
collectively focused on helping
expertise in sales, marketing, and
companies optimize their investment
operational management turns
in human capital through proven
Randy Fox client’s brand vision into reality. Performance and innovative reward and
Improvement Council
(PIC)
recognition solutions.

10 Loyalty Management | Loyalty360.org


LOYALTY
Contributors

MANAGEMENT

Sarah Phelps Jake Sterling


Principal at First Annapolis Jake is division vice president of
Consulting. Sarah specializes in payment technologies for Maritz
the card issuing practice area and Real-Time Rewards™, a POS–delivered
leads the loyalty support strategic solution that enables retailers and
initiative for the firm. Her areas of credit card companies to improve
expertise include strategic planning, the effectiveness of their loyalty and
outsourcing, credit card operations promotional programs instantly at
Sarah Phelps Jake Sterling
management, negotiations and card the point of sale.
issuing partnerships.

Kory Schramm If you would like to contribute to a future


Kory is Corporate Communications
Manager at ITAGroup, a company issue of Loyalty Management
that designs and operates business- please contact Erin Raese at
to-business loyalty initiatives,
sales incentives, product launches, (630) 235-8251 or
Kory Schramm
employee recognition and reward ErinRaese@LoyaltyManagement.com.
programs, and business meetings and
events.
Deadline for the January 2010 issue is
October 12th!

I’m beIng pulled In a mIllIon


dIfferent dIrectIons. except yours.

email mobile website display ads direct mail call center point of sale

connect wIth more people In more ways.


In a world where consumers are bombarded by marketing impressions, Acxiom
enables marketers to reach the right people with the right message across all key
marketing channels: email, mobile, website, display ads, as well as offline.

GLOBAL INTERACTIVE MARKETING SERVICES
Loyalty Management | September 2009
www.acxiom.com • 888-3ACXIOM
11
Q&A
LOYALTY FORUM: Q&A

Ask the Experts

Q: “I’ve been hearing a lot of buzz


about incorporating SMS into
loyalty program marketing.
What should I expect from an
implementation perspective?
What hurdles are there, what’s
the typical timing? There are a lot
of different companies in the marketplace offering services,
some tips on what to look for would be very helpful?”

A: What should I expect from an


implementation perspective?
What hurdles are there, what’s the typical timing?

• Setting up a vanity code takes 6-10 weeks


• The carriers will require that you have e-mail addresses, a web page
and a toll-free number in place to answer potential consumer
• You will need to lease a short code from the CSCA http://www.
inquiries before your short code will be approved
usshortcodes.com/and have your mobile partner certify and
• I f you need to launch a campaign quickly, borrow a short code
provision the short code across the carriers that you want to
from your mobile marketing provider until your vanity code is
make your program available
approved
• I ts always best to implement your campaigns over as many
wireless carriers as possible in order to reach the maximum
What should I look for in a partner?
number of mobile subscribers
• If your campaign is not available on all carriers, be sure to list the • There are many companies providing different mobile
participating carriers in the promotional material technologies, look for a partner that has financial stability
• SMS Text messages are 160 characters. Messages longer than • With mobile, experience is key, especially in your type of business
160 characters will either be interrupted at 160 characters or • Look for partners that have
split into two messages capabilities with multiple
• Do not purchase third party mobile phone number lists. You platforms, (SMS, MMS, Mobile Web,
must obtain subscriber numbers through an opt-in. If you send Handset Apps)
messages to subscribers who have not opted in to your • Look for a partner that understands
campaign, your messages will be considered SPAM the larger marketing picture and can
• Consult the Mobile Marketing Association’s Guide to Consumer integrate your mobile strategy with
Best Practices when implementing your program. Your mobile other marketing programs
marketing partner should be well versed in the policies and • Partners should have a set of APIs
recommendations of the guide but you should be familiar with that enable you to easily connect
them as well your existing loyalty program
• Provide instructions for getting information, opting-out, infrastructure
potential text messaging fees and anticipated number of • Test and learn before leaping with —Mike Keene,
messages in the initial text to opt-in participant partners that offer “bleeding edge” Acxiom mobile
technology product leader

12 Loyalty Management | Loyalty360.org


A: With over 75 billion text messages sent
every month in the U.S. alone, mobile marketing
In that time, you should be able to
build the plan and the campaign and
has certainly garnered more attention over the past be ready to go by the time it’s fully
several years and has evolved from being simply a provisioned.
novelty to a critical tool in the marketer’s tool box and
One of the big questions about
allows you to fill the gaps between traditional and short codes is whether or not to use
online communications. a vanity code, one whose numbers
resolve to a word. In this day and
Enabling an effective SMS campaign requires several basic age of QWERTY devices, people are
considerations in order to maximize the effectiveness of your efforts: more challenged to translate words
to numbers—so include the number —Jeff Anulewicz ,
Partners and platforms
itself in your promotional call-to- Carlson Marketing
As with e-mail, SMS is becoming more and more commoditized action. Better yet, secure a short
in the marketplace and it follows that there are many providers code that is memorable not just for
who can help enable your campaign. At the base level, you want the name, but an easy to remember
to select a provider who can manage the short code process and sequence of numbers.
has a proven, reliable and flexible platform. There are a number
of self-serve platforms in the marketplace which allow you to The keyword is used to identify the campaign and trigger a
set up and manage your own campaigns, eliminating layers of response back to the customer. If we take the simple call-to-
communication and latency to quickly get your communications action: “Text INFO to 123456”, the word “INFO” is your keyword
into market. Also, make sure your provider is up-to-date on the and 123456 is your short code. As you construct your keyword
current MMA Code of Conduct, Best Practices as well as the CAN- campaigns it is important to keep them simple (typically one,
SPAM laws and FCC regulations. short, easy-to-remember word).

Short codes and Keywords Data acquisition plan


The next item of importance is procuring a short code, which is The most critical piece is data—collecting opt-ins and their
a 5-6 (in the U.S.) numeric address. Think of this as analogous to mobile numbers. Mobile communications are fully permission-
a Web domain—it’s the identifying address of your brand and based, so it’s essential that you to get permission from your
is used to facilitate both inbound and outbound messaging. customers in order to interact with them through their mobile
Short codes typically take about 10-12 weeks to provision across device. Following the permission to communicate, it’s important
carriers, so this needs to be one of your first steps undertaken. to capture and track individual data in order to drive relevance.

A: SMS text messaging is becoming a very important factor in loyalty program


marketing. Because this a 100% permission based medium, those marketers who delay
engaging in text based conversations risk losing out to competitors who establish a text
relationship quickly – unlike email, customers are going to become very judicious over
time about allowing other brands to communicate with them via text. This is a clear case
of “first mover advantage.”

Tips to look for—avoid at all costs working with text messaging companies that are willing to take a list
of customers’ mobile numbers (or worse offering you such a list) to send text messages to. These folks
—Victor Varney, are spammers and you run the risk of having customers and the carriers coming after you for engaging
Chief Executive in “SPAM” texting. There are many very professional text messaging service providers who can help with
Officer & President – campaigns or short lived programs. Their expertise as marketing agencies with mobile technology can be
very effective running a short run program. But if your interests in a long term loyalty program, “persistent”
Vayulogic™ service that allows you to engage in text conversations with your customers over a longer period, look
for a text message service provider that can build both a data base that tracks all of your customer text
interactions and can plug into your back end loyalty program applications. Even more important is that
the text message service provider can provide you with assurances that your customer data and only you can send text messages to your
customers. There are some text messaging service providers that will claim your “opt in” customers as mobile numbers that they will sell
or share to other brands. Not something you or your “loyal” customers would be happy about.

Q: Do you have a question for our panel of experts?


Write us at: Mailbag@LoyaltyManagement.com

Loyalty Management | September 2009 13


LOYALTY FORUM: Behind the Brand/People

Sandra L. Gudat
President and CEO
Customer Communications Group

As President and CEO of Customer


Communications Group (CCG), Sandra has
helped define the field of CRM, recognizing
the importance of growing relationships with
existing customers to increase customer loyalty
and retention. Sandra is the Chairman of the
Direct Marketing Association’s Agency Council
and also serves as a final round judge for the
DMA’s International Echo Awards.

You’ve been traveling a lot, how do you keep Which book(s) are you
energized? currently recommending?
To the greatest extent possible, I try to maintain my 1491.* It’s an absolutely
sleep, eat and exercise routine on the road. At the same fascinating book about life in the
time, I love it when I have a little bit of down time that Americas prior to Columbus. It’s
allows me to try out something in the area—like riding very well researched and presents
the rollercoaster at the Mall of America in Minneapolis, the most current thinking of
going to see Falling Water near Pittsburgh or taking a anthropologists—lots of surprises.
run in Golden Gate Park in San Francisco. For instance, some scientists

“My mindset has completely changed: I know now that I can


accomplish things that appear to be impossible, and this has helped
me greatly in every aspect of my life — business and personal.”
believe vast portions of the Amazon rain forest show
Any traveling tips? evidence that they were, in fact, cultivated gardens.
I put each clothing item in its own dry cleaning bag— Peoples living there believed it would be much easier
that simple trick dramatically reduces wrinkles. Also, if to plant a fruit tree that can produce fruit to eat for
I am going to be staying more than a day in the same the next 40 years rather than going to the trouble of
place, I go to a grocery store and stock up on healthful planting fields of corn each year—smart, huh? Several
snacks for my hotel room like cherry tomatoes or string times on an airplane I had to resist the urge to disturb
cheese. the passenger next to me to tell them about some
intriguing thing I had just read!

*1491: New Revelations of the Americas Before Columbus, by Charles C. Mann.


Vintage (October 10, 2006)

14 Loyalty Management | Loyalty360.org


What do you consider your greatest
achievement?
Personal transformation. Over 12 years ago, I lost 70
pounds and have kept it off. Since then, I’ve completed
three marathons, a marathon and a half, and numerous
half-marathons. I went from thinking of myself as an overweight couch potato to a
quasi-athlete. My mindset has completely changed: I know now that I can accomplish
things that appear to be impossible, and this has helped me greatly in every aspect of
my life—business and personal.

“Have the humility to think about everything from your


customer’s perspective, and the rest will fall into place.”

If you could invite any 4 people What are the qualities you What have been your biggest
(past or present) to dinner, most admire in a person? challenges in 2009?
who would they be and why? Integrity, empathy, perseverance Helping our clients stay focused
My great-grandparents—I never and a wicked, dry sense of humor. on building a loyal and profitable
knew them, yet they are responsible customer base when every particle
for my being on this planet. The of their being suggests they should
What can we expect from CCG
trouble would be narrowing it put everything on hold when sales
in 2010?
down from eight to four. are down.
We will continue to break new
ground in developing strategies
Which talent would you most and tactics that help our clients Word of advice for a novice
improve their relationships with
like to have? loyalty marketer:
their customers—my team and
I wish I could run fast! I so admire I are truly passionate about it Put yourself in your customer’s
those folks that seem to glide, (we’re real geeks about it, actually). place. She doesn’t think she
effortlessly along—I’m not one of Many times CCG is asked by is participating in a “loyalty
them. clients to assist them in “filling program”—that’s just not in her
out” their existing efforts—finding vernacular, so don’t call it that out in
overlooked opportunities or the field. From her perspective, she
What’s your latest hobby? tweaking existing ones with our
may be a member of your discount
unique view of best practices in
Texas Hold’em Poker. I love program or she’s carrying a “card-
the retail and financial services
playing and studying the game. industries. We pride ourselves thingy” so she can get rewards and
I’ve read Harrington on Hold ‘em in being ahead of the curve special perks. Have the humility to
Volumes I – III and Mike Caro’s Book in suggesting new ideas and think about everything from your
of Tells, and I play in a Fireman’s technologies to clients, and this will customer’s perspective, and the rest
Tournament every year. definitely continue in 2010. will fall into place. L

Loyalty Management | September 2009 15


LOYALTY FORUM: Books

Loyalty Reads
Human Sigma:
Managing the Employee-Customer Encounter
by John H. Fleming and Jim Asplund
October 2007 | Gallup Press

This book offers an innovative, research-based approach to one of the toughest


challenges facing business today: how to drive success by effectively managing
the moments where employees interact with customers. Based on research
spanning 10 million employees and 10 million customers around the globe, the
Human Sigma approach combines a proven method for assessing the health of the
employee-customer encounter with a disciplined process for improving it. Human Sigma is based on five new
rules to bring excellence to the way employees engage and interact with customers:

RULE #1: E Pluribus Unum. Employee and customer experiences must be managed together—not as
separate entities.
RULE #2: Feelings Are Facts. Emotions drive and shape the employee-customer encounter.
RULE #3: Think Globally, Measure and Act Locally. The employee-customer encounter must be measured
and managed at the local level.
RULE #4: There Is One Number You Need to Know. Employee and customer engagement interact to drive
enhanced financial performance. And this interaction can be quantified and summarized with a
single performance metric.
RULE #5: If You Pray for Potatoes, You Better Grab a Hoe. This means that good intentions alone do not
constitute a plan of action. Sustainable improvement in the employee-customer encounter
requires disciplined local action coupled with a companywide commitment to changing how
employees are recruited, positioned in roles, rewarded and recognized, and importantly, how
they are managed.

Essential reading for today’s global business leaders, Human Sigma shows how sales and service
companies can flourish in the new global economy. It reveals a profoundly different method for managing
human systems for growth. Blending strategic analysis with hands-on, practical steps and advice, Human
Sigma will change how you view your work, your employees, and your customers forever.

Building Customer-Brand Relationships


by Don E. Schultz, Beth E. Barnes, Hiedi F. Schultz, Marian Azzaro
January 2009 | M.E. Sharpe

Almost every advertising, promotion, or marketing communications textbook is based on an


inside-out approach, focusing on what the marketer wants to communicate to customers and
prospects. This text takes a different view--that the marketer and the customer build the ongoing
brand value together. Rather than the marketer trying to “sell,” the role of the marketer is to help
customer buy. To do that, a customer view is vital and customer insight is essential. Customer
insights allow the marketer to understand which audiences are important for a product, what
delivery forms are appropriate, and what type of content is beneficial.

Building Customer-Brand Relationships is themed around the four key elements marketing
communicators use in developing programs--audiences, brands, delivery, and content--but
provides an innovative approach to marketing communications in the “push-pull” marketplace that combines
traditional outbound communications (advertising, sales promotion, direct marketing, and PR) with the
inbound or “pull” media of Internet, mobile communications, social networks, and more. Its “customer-
centric” media planning approach covers media decision before dealing with creative development, and
emphasizes measurement and accountability. The text’s concepts have been used successfully around the
world, and can be adapted and adjusted to any type of product or service.

16 Loyalty Management | Loyalty360.org


The Power of Nice:
How to Conquer the Business World With Kindness
by Linda Kaplan Thaler & Robin Koval
September 2006 | Broadway Business

Linda Kaplan Thaler and Robin Koval have moved to the top of the advertising
industry by following a simple but powerful philosophy: it pays to be nice. Where so
many companies encourage a dog eat dog mentality, the Kaplan Thaler Group has
succeeded through chocolate and flowers. In The Power of Nice, through their own
experiences and the stories of other people and businesses, they demonstrate why,
contrary to conventional wisdom, nice people finish first.

Turning the well-known adage of “Nice Guys Finish Last” on its ear, The Power of
Nice shows that “nice” companies have lower employee turnover, lower recruitment
costs, and higher productivity. Nice people live longer, are healthier, and make more
money. In today’s interconnected world, companies and people with a reputation for
cooperation and fair play forge the kind of relationships that lead to bigger and better
opportunities, both in business and in life.

Kaplan Thaler and Koval illustrate the surprising power of nice with an array of real-life examples from the
business arena as well as from their personal lives. Most important, they present a plan of action covering
everything from creating a positive impression to sweetening the pot to turning enemies into allies.
Filled with inspiration and suggestions on how to supercharge your career and expand your reach in the
workplace, The Power of Nice will transform how you live and work.

Hug Your Customers:


The Proven Way to Personalize Sales
and Achieve Astounding Results
by Jack Mitchell
June 2003 | Hyperion

A master of customer service reveals his secrets for developing long-lasting


business relationships and customer loyalty.

“We shower our customers with attention. There’s no doubt in my mind that
our philosophy can be applied to selling just about anything—from aircraft
engines to beanbags.” —Jack Mitchell

The only way to stay in business is with customers, and Jack Mitchell knows
how to attract them, and how to keep them. He has a deceptively simple but winning
relationship approach to customer service—that a relationship is at the heart of every transaction. Jack’s
business philosophy is based on “hugs”—personal touches that impress and satisfy the customer, such as:

• Remembering the name of your customer’s dog The only way to stay in
• Calling a customer to make sure he’s satisfied after a purchase business is with customers,
• Having a “kids’ corner” with TV, books, and treats and Jack Mitchell knows
• Knowing your customers golf handicap
• Introducing customers to business contacts
how to attract them, and
• Letting your customer use your office to make a personal phone call how to keep them.

This is a proven theory—hugging works! Mitchells/Richards achieves among the highest margins in its
industry, as well as amazing customer loyalty. Complete with anecdotes that exemplify outstanding customer
service, Hug Your Customers shows how any business can adapt this hugging philosophy to attract great staff,
lower marketing costs, and maintain higher gross margins and long-term revenues. At a time when customer
service has become the difference between success and failure, Hug Your Customers shows how Jack’s one-of-
a-kind philosophy brings the results you’re looking for.
L

Loyalty Management | September 2009 17


FEATURES

Leveraging Loyalty,
One Actionable Idea
at a Time
by Kory Schramm – ITAGroup

Today’s marketplace is saturated with products and services, enabling business customers to be armed
with the power of choice. The handshake promises of yesteryear have given way to meandering loyalties
built on price, convenience and personal service. Globalization, endless social media outlets and a
company’s own internal pressures have created an environment where clients are exposed to more,
expect more and are committed less. A monumental business challenge is before us: determining how
to retain and enhance existing customer business while acquiring new, long-term contacts.

R
eality is frightening. On one hand, customers who
have had no complaints with regard to their long-standing
product or service providers continue to explore alternative
options. On the other hand, statistics continue to demonstrate that
financial success remains heavily tied to a continued incremental
investment in products and services and the customer satisfaction
ratings that surround them.
While the situation seems challenging at best, it creates the op-
portunity to learn more about your customers, and define your
company’s value proposition. Establishing (and maintaining) cus-
tomer loyalty is not an easy task, nor an impossible one. Through
a well-designed performance improvement program, your key
business customers can serve as your most important brand ambas-
sadors. And, perhaps even more important, those critical customers
can be motivated to enhance their investment in your business.

Survival Requires Lateral Thinking


Success depends on new perspectives. It requires an answer to the
question—what do your customers place value on? For example,
while product differentiation remains an important element for
establishing customer loyalty, it no longer packs the punch it once
did. Products can be replicated in a matter of weeks, perhaps days,
and marketed in ways that quickly counter any company basing
their brand solely on the product they sell.
Price, ease of transaction and service are certainly in the con-
versation of what customers value, but the ability to sell an idea is
what will carry your business the farthest. It is common practice for

18 Loyalty Management | Loyalty360.org


“A one unit increase in customer satisfaction
leads to a 28 percent unit improvement in
financial performance.”
—Forum for People Performance Management & Measurement at Northwestern University

businesses to offer solutions to a customer’s wants. Selling to needs, still create movement. But keep in mind; you could say the same
however, is the essence of a partnership and the seed of satisfaction, thing about falling.
innovation and admiration.
In order to repeatedly purchase your product or use your service,

“Vision without action is a


the customer must place a value upon your idea for meeting both
their identified and underlying needs. The concept is the core
component of any relationship. The more you address current and
long-term needs, the more value your customers will place on your daydream. Action without
business. The loyalty they have with you will transition from being
based on things that make them “feel good” about the relationship vision is a nightmare.”
to a relationship they feel is “essential.” Your price, deliverables and —Japanese Proverb
service will keep them happy. Consistently bringing new ideas to
the table and turning them into measurable actions will keep them
by your side. Meaningful action typically spurs unexpected results. So how do
I’ve seen successful performance improvement initiatives you implement an idea initiative?
implemented for some of the world’s largest companies that were 1. Begin with a multi-faceted assessment, using data to build
based on ideas that were not on the client’s radar. There was the your initiative around the true needs of your customer.
restaurant who improved their bottom line, not by generating 2. Design your initiative so what you offer is aligned between
more patron traffic, but by reducing the number of kitchen ac- your customer’s current performance and the needs that will
cidents. I recall the retail distributor who leveraged their customer drive performance to their desired levels (their objectives).
expo to drive sales before the event took place. Then there was 3. Recognize the value communications, events and training
the service provider who took advantage of their employee base to have in building and reinforcing an idea.
create an entirely new, and very successful, sales channel focused on 4. Ensure your initiative remains centered on the idea’s greatest
generating sales referrals. asset—people (motivating and rewarding the types of behav-
iors that drive the long-term value of the idea).
Demand for your business and loyalty to your business are
Implementing an Idea intertwined. An effective business-to-business loyalty program not
Consistently generating and sharing an idea with a customer is only keeps your customers, but spurs them to invest more in you.
only half the battle. Successfully implementing the idea ultimately And the more you learn about them, the longer you keep them
validates your worth. There are an endless number of consultants interested in your ideas. Your strategies extend beyond the defini-
ready to toss ideas your customer’s way, but recent economic tion of an incentive program. They become integrated, long-term
downturns have forced companies to place high value on the ideas driven by listening, communicating, recognition and results.
resulting action of those ideas. Sure, the marketplace is alive, filled with curiosity, competition
Action requires fore-thought and logical step-by-step execution. and uncertainty. We should be comforted, however, in the fact that
Sure, if you only learn “a little” about your customer’s business or today’s business environment is also filled with endless business-to-
discuss with them only what you are comfortable selling, you may business opportunity—both for you and your customers. L

Loyalty Management | September 2009 19


FEATURES

Optimizing Human Capital


Assets in Tough Times
Whitepaper by the Performance Improvement Council

Inside This Whitepaper


n How to Sustain Corporate
Culture through People

n Driving Innovation through People

n How to Acknowledge the Right Behaviors

n Keeping the Best Performers

20 Loyalty Management | Loyalty360.org


I
t’s a different economy all together, isn’t it? Even For those in that predicament (and who isn’t?), the question
with optimistic pronouncements that we have hit the bottom worth asking is this: is cash all there is to work with?
and a rebound is on the way, the last year-and-a-half has taught There is no debate that salary is the primary contract between
us that no one really knows what’s lurking around the corner. employer and employee. And while it may be the primary reason
Opportunity? Chaos? Maybe a little bit of both. we go to work each day, is it really what gets us up in the morning?
Today’s executives are wrestling with unparalleled uncertainty. Does it motivate us to do more? When we think of our salary, do
Chances are that revenues are down, expenses are up. And margins? we feel engaged, energized and passionate about our work? Does
Well, forget about those. it make us think of our job as more than just a place we go or
Expenses have become conspicuous, to say the least. Reduce something we do?
this, trim that, every move raises an eyebrow. Name one company The Harvard Business Review doesn’t think so. In “Employee

“Smart executives know that, rather than any


new technology or product offering, it is the
ability and attitudes of their people that’s
more likely to set a firm apart from its rivals.”
that isn’t re-examining every business input, debating every cost Motivation: A Power New Model,” (August 2008) the authors
or looking at every practice for new ways to trim costs while also argue that people are guided by four basic emotional needs and
hoping to exploit competitive advantage. In our hyper-challenging that traditional forms of compensation fall short of satisfying us.
marketplace, companies must do more with less. How so? Cash plans do a very good job of exploiting a person’s
No matter what the business model, value propositions have drive to acquire. Employees are motivated by their yearning for
become increasingly knowledge-based and service driven. Smart tangible things: homes, cars, etc. The material girl was right. We
executives know that, rather than any new technology or product want STUFF.
offering, it is the ability and attitudes of their people that’s more People are also motivated by our desire to defend what is ours.
likely to set a firm apart from its rivals. People spur innovation, Yes, we want to keep our homes and what’s in the driveway (by
cultivate customer loyalty, drive productivity and ignite economic making our mortgage payments and car loans). But we are also mo-
growth. tivated to defend, or improve, our economic standing in society.
We want to keep everything we have acquired over time: STUFF
AND STATUS.
How to Sustain Corporate

B
Culture through People ut the Harvard Business Review paper also contends we
Considered as a cost of business, people costs can be the biggest need to learn and bond with others to feel fulfilled. Human
drag on the bottom line. But, as a resource, they can also have beings are motivated by a need to comprehend the world
the biggest positive impact. Members of the C-suite that get this and to figure out where we belong in it. Don’t worry; we are not
(and most do) are demanding more for less from anyone who talking existential quests for the meaning of life here. But most of
impacts this precious resource. Progressive business leaders are us do have a hunger to understand how things work, to demystify
continuously searching for effective ways to optimize their human what surrounds us, to make a meaningful contribution along the
resource investments. way and find a way to fit in.
While recruitment, hiring, training and benefits expenditures It’s that last need, our desire to bond, that’s the most interesting.
are all part of the aggregate people investment, compensation is It’s a survival reflex really. Most animals travel in herds or packs
the biggest and most visible component. But as companies tighten because there is safety in belonging. People look for assurance
their belts, freezing, sometimes slashing expenditures, many man- socially and professionally. We seek connections with customers,
agers feel their options are limited. With a shrinking compensation managers and coworkers for the same reasons animals do it in the
pool to draw from, many are left wondering: wild. People want to contribute to the success of a group and feel
• How can the organization motivate employees to reach goals part of that success. It elevates our role in the group and makes us
that are critical to the organization’s success? How can we more secure.
retain our best people? The reward in forming relationships is primal. In short, we need
• How do we develop leaders for tomorrow? to feel needed. Most of us get frustrated, maybe a little uneasy,
• How do we share best practices and build on our cultural when we can’t. Good sales people and customer-facing employees
attributes? in particular have these traits at higher levels than say an accoun-
• How can we possibly do more for less? tant. But all employees…all people…take pleasure in knowing

Loyalty Management | September 2009 21


Optimizing Human Capital Assets (continued)
they are important parts of the groups they value. How to Acknowledge the Right Behaviors
For companies looking to do more with less, this is where the
From a strategic perspective, recognizing innovation and creativity
strategic use of recognition comes in.
is just one of many behaviors that a company should be encouraging
The way to expand the impact of your compensation effort,
to promote business success. The tendency when times are tough is
without increasing the costs, may lie in expanding the use of rec-
to have a laser-sharp focus on the bottom line. No one will argue
ognition. Dr. James Oakley from Purdue University examined the
with the desire to make a profit. However, business success doesn’t
impact of compensation and the role it plays in fostering and sus-
rest exclusively in generating positive numbers for Wall Street.
taining culture in his study “The Road to An Engaged Workforce”,
Companies must also do everything they can to reinforce the right
(www.performanceforum.org). In Oakley’s opinion, all forms of
behaviors which reflect the brand and the desired reputation in the
compensation must be leveraged to drive the culture that’s right for
marketplace. A company which encourages short-term business
your business. He feels non-cash as a compensation lever is actually
results at the expense of the long-term value of the brand will find
under-utilized in all business models.
itself losing customers even as the economy starts its upturn.
Effective use of recognition, using non-cash rewards that are
There are many behaviors that well-designed recognition pro-
distinct from ongoing compensation, is a powerful tool for sustain-
grams can promote. For example, according to a 2007 Forum for
ing culture, driving innovation and rewarding the right behaviors
People Performance Management and Measurement study of sales
across the corporation.
force effectiveness, the most common “wish” a customer seeks from
salespeople is a high degree of consumer focus.
Recognition can be a means to raise awareness
“It’s the employees who are dealing directly on the part of salespeople, in conjunction
with customers and wrestling with business with generating bottom-line sales. Initiatives
may also target recognizing individuals who
challenges who are best equipped to actively live the company’s stated values. And,
generate the next game-changing concept.” some of the most progressive companies are
finding ways to acknowledge how well em-
ployees contribute to their vision of corporate
social responsibility (CSR). In fact, there is a
Driving Innovation through People growing interest by consumers to spend their hard-earned dollars
While cutting costs—and people—is a necessary response to the with companies who exhibit concern for more than just their
current economic challenges, many companies are activating a stock price. In just one of many surveys on the topic, Cambridge
second critical strategy to stabilize and grow their organizations: University noted that 60% of consumers admire companies they
they’re tapping into the innovation of their people. This is an see as taking action to protect the environment and climate change
especially important approach given the magnitude of change (November, 2007). In a highly competitive economy, such admira-
sweeping across the economic landscape. The “old ways” of running tion can have a significant impact on profit and growth.
any business are rapidly eroding, requiring a need to respond to the
marketplace with true creativity. Keeping the Best Performers
Research and Development departments have traditionally been
As a complement to compensation strategies, non-cash reward
tapped to take the lead on new products, services and processes.
and recognition practices promote the company’s culture, drive
But according to a CEO survey conducted by IBM, over 40% of
innovation and foster the behaviors which help a firm deliver on
new ideas are coming from employees across the enterprise. By
its brand promise. At the end of the day, building a culture of
comparison, just 14% were attributed to R & D (April 2005). It’s
recognition is about keeping one’s best performers.
the employees who are dealing directly with customers and wres-
There are many statistics on the efficacy of systematic and
tling with business challenges who are best equipped to generate
formal recognition as a tool for driving loyalty to the company and
the next game-changing concept.
engagement in its mission, vision and values. In a national study
Recognition can be an important catalyst in sparking these in-
on the link between recognition and performance, 77.6% of em-
novations. Everyone wants to know his/her contribution makes a
ployees stated it was “very or extremely important [for employees]
difference, especially when the need is great. In a study done by a
to be recognized by managers when they do good work.” And the
marketing company that explored the motivators for submitting
bottom line benefits of an engaged workforce are being plotted
business improvement ideas, the number one reason given was
more frequently. A 2005 Gallup survey found that organizations
“the pride of seeing my idea implemented.” Employees are particu-
where employees have above average attitudes toward their work
larly motivated to demonstrate their talents when layoffs become a
had 38% higher customer satisfaction scores, 22% higher produc-
regular occurrence. Formal recognition becomes a way to tangibly
tivity and 27% higher profits.
recognize an individual’s unique value and his/her ability to solve
Along with the ample evidence to support the contributions
even the most difficult problems.
of engaged employees to the firm’s performance, there is also a
The payoff for promoting and recognizing employee creativity
growing understanding of the “soft” benefits of engaged employ-
can be enormous. In the 2008 Employee Involvement Association
ees. Dr. Bob Nelson, one of the leading gurus of recognition, has
Suggestion System Survey, the 33 participating companies reported
stated that a systematic process for recognizing employees builds
a total savings of over $564 million, with an average savings of
morale and enhances performance. (“The CEO’s Role in Employee
nearly $9,000 per implemented suggestion.
Motivation,” Dr. Bob Nelson, Leader to Leader)

22 Loyalty Management | Loyalty360.org


Optimizing Human Capital Assets (continued)
“People want to contribute to the success of a group and feel
part of that success. It elevates our role in the group and makes
us more secure... In short, we need to feel needed.”

P
erhaps no appeal has been as stirring as a recent ad in As Dr. Nelson says, “Creating energized employees and maximiz-
the Wall Street Journal placed by John Stumpf, President and ing a firm’s investment in its talent demands a new set of leadership
CEO of Wells Fargo. Entitled “The Value of Team Member priorities.” It requires leaders with the vision to build a culture of
Recognition,” Stumpf acknowledged the need to re-examine how recognition around the specific behaviors that a company requires
much companies spend on recognition events for employees, then if it is to thrive in bad and in good times.
praised the value of recognition for top team members: It may seem like second nature or common sense to have a
process in place to say “thank you” when someone is doing the
“This recognition energizes them. It inspires right thing. However, too few companies have formalized recogni-
them and their team members to want to tion practices in place to reinforce critical behaviors. Recognition
create an even better experience for our may often be seen as yet another people-related expense. However,
customers… We believe our profits actually in- elevating recognition so that it becomes a way of life is an in-
crease by rewarding and recognizing our best vestment in the right people and in the right behaviors…and a
performers…Competition to be recognized in- strategic imperative that will help a firm to weather lean economic
times and thrive in a good economy.
spires everyone to work harder and smarter…
our product is service delivered by caring,
energized, talented loyal team members.”

 Look for upcoming white papers addressing additional elements pertaining to Employee Lifetime Value (ELTV),
based on the results of full study, which is available on the Forum’s website: www.performanceforum.org.

Loyalty Management spoke with Mike Ryan, SVP of Marketing for


Madison Performance Group and President of the Performance
Improvement Council, for additional insight on this topic.

Which companies have stay or their desire to leave. tweaking programs based on
you seen incorporate these Now, these organizations are customer service reporting
theories? looking into an employee’s and surveying; using surveys
emotional and intellectual to identify points of weakness
Organizations where people
commitment. They see to further training and other
Mike Ryan are perceived as the primary
improvements in customer emphasis all absolutely
source of competitive
satisfaction and use that index apply across many initiative
advantage—knowledge and
When you’re speaking with as a hedge against lower platforms.
service based enterprises;
your clients, what do you prices. Some firm’s have some
worldwide companies with pretty sophisticated analytical What do you see as the
recommend as best practices
multiple business units have models that help them gauge next steps for these
for each of the principles?
an exasperated need to their elasticity in the face of organizations?
Recognition strategies should align behavior with a unified competitive offers.
revolve around the firm’s point Using web 2.0 tools and
brand. Examples include
of differentiation; that extra Accenture, Dell, McDonalds How are these companies techniques to expand the
level of value the organization applying the same principles impact of recognition.
and Southwest.
can provide. Companies to their consumer loyalty and Since recognition is all
How are organizations channel initiatives? about storytelling, many
that are brand focused see
measuring effectiveness/ organizations will be
the most success because Channel initiatives are more
results from these initiatives? integrating social networking-
the brand and expectation challenging, since the channel
is clearly defined and acted In a better economy many partner is not an employee. type tools into their own
upon by their employees in organizations would gauge However, the same concepts: platform. This promotes
every customer (internal as employee engagement on an giving recognition based knowledge share and best
well as external) interaction employee’s commitment to on customer feedback, practice adoption faster. L

Loyalty Management | September 2009 23


FEATURES

Influencing
the Channel
Building Trust to Drive Loyal Relationships
by Rick Blabolil – Marketing Innovators

Today’s economic pressures have increased the complexity of the marketplace. Sales chan-
nels are shrinking and competitive challenges are weakening mature distribution channels.
For a marketer trying to deliver greater brand value, navigating today’s business environ-
ment demands a deep understanding of the relationship between your company and your
distribution channel, customer and market needs.

24 Loyalty Management | Loyalty360.org


T
he focus has changed from the customer • Channel Value Engineering—To expand value through-
experience to the customer expectation around value. It is out the channel and capitalize on emerging opportunities,
no longer effective to build customer loyalty with yesterday’s marketers need more adaptable business models that leverage
tactics and a simple increase in promotional offerings. Customers partnerships and collaboration.
have grown immune to the lure of the ubiquitous discounts and • Operational Breakthroughs—To deliver value through-
freebies that have been become the norm in a faltering economy. out the supply chain, marketers need to measure, monitor
This is now the expectation. Value goes beyond price. Customers and manage results. Leveraging emerging technologies and
are seeking the all too elusive relationship with the companies they resulting actionable data is the foundation for value-driven
do business with – one that is built on trust. operations.
To create a trusted relationship, all channel members must work
together to foster an environment of collaboration and communica-
tion. The focus has shifted to building efficiencies and effectiveness Influencing the Channel
through joint strategy, process, technology and planning initiatives In a marketer-dealer working partnership there is mutual
versus an isolated consumer offer. Working cooperatively lends itself recognition and understanding that the success of each depends in
to the inherent understanding that all members view their relation- part on the other. Control has shifted from exclusive distributors
ships as true partnerships; ones whose successes and shortcomings
to independent dealers and an indirect sales coverage model
are interwoven. By establishing a commitment to these relation-
where marketers (manufacturers/suppliers) have influence versus
ships at all levels of the chain, channel members are committing to
control. The most common scenario is a multi-line dealer channel
driving their partners’ value as much as their own.
that represents competitive brands and is saturated with incentive
To best meet these demands and remain competitive, market-
and loyalty programs. So how do you optimize your influence,
ers relying on a channel need to push the envelope on traditional
business models and find ways to expand solutions to the extended build loyalty and increase your brand’s share of mind within your
enterprise: channel? The quick answer is: Collaborate to help your channel
• Channel Influence—To optimize their influence over partners succeed.
channel partners, marketers need to leverage business solutions Communication and trust are core elements of the paradigm.
best suited to serve the needs of their partners and customers as These elements are now needed to build the consumer and partner
well as their own companies. confidence that has been broken in recent years. Building this
•C  hannel Loyalty—To earn loyalty and trust from channel collaborative network naturally lends itself to more transparency
partners, companies must also prove their loyalty to those within the channel and a resulting increase in trust. This allows
partners. The efforts must be authentic. Channel loyalty is a for quick adaptation and response to directional changes in the
two-way street. marketplace.

Best Practices in Channel Loyalty Programs:


Enhance Your Value as a Trusted Partner
n Shift the focus from incentives to services n Leverage the unlimited power of the Web
Demonstrate your commitment to investing in your channel Channel loyalty programs are increasingly going online. The
partners by shifting your loyalty program’s focus to value-added interactivity provided by online programs allows for two-way
services that will help drive key metrics for the partner company. communication to enhance participant engagement. Technology
Offering training, advice or support in marketing, operations, enables program members to check their performance and sales
finance or human resources, will not only offers customers a much activity, reward/point status, explore reward options and redeem
broader range of services, but also provide them reassurance of online at any time. Mobile communication can add power to the
working with a trusted partner. Web and work very effectively in tandem.

n Integrate branding, training and promotions n Engage your stakeholders across the enterprise
A technology-driven program site can integrate incentives, brand- There is already an element of trust built into the relationship
ing, promotions, training modules, knowledge-testing and more, channel partners have with the channel organization’s sales force.
to become a comprehensive performance management vehicle. In It is therefore critical to get the sales force charged up about the
addition to driving key behaviors, the program can prioritize pro- program and ensure their buy-in. This will require that they are
motions, build product knowledge and help your brand increase given enough information and training so that they can speak
share-of-mind by offering incentives for completing online training knowledgeably about the program. Engaging your sales force will
or education. promote the sincerity of both dealer and distributor commitment.

n Communicate frequently with meaningful messages n Reward innovation and collaboration


Communication is the mainstay of a channel loyalty program and True collaboration is the cornerstone of successful relationships and
critical for its success. Today’s technology makes it possible to intel- financial outcomes. Programs that reward innovation and collabo-
ligently segment communication to speak one-to-one to diverse ration will drive success across the extended enterprise.
audiences. Marketers can talk to channel partners as well as the
individuals who work within the partner companies. Frequent,
meaningful communications will help build brand loyalty and trust.
Continued on next page

Loyalty Management | September 2009 25


Influencing the Channel (continued)

Driving Channel Loyalty Channel Value Engineering


In an effort to enhance sales and build brand At every stage, companies must work actively with their channel
awareness, companies are placing a “mission partners to create solutions and articulate customer value in
critical” importance on buyer loyalty. When terms of the latest industry and channel business models. Many
a company is dependent upon a dealer/ companies refer to this as “channel value engineering.”
distributor channel, one might presume We used to live in a product-driven world. In today’s customer-
its goal would be to build (or demand) driven world, customers want solutions to their problems. The
loyalty from its channel partners. But, old top-down approach, where generic solutions were pushed to
some companies are instead emphasizing the marketplace, has become obsolete. The new “value provider”
their mutual loyalty to channel partners mindset is a bottom-up approach, where the seller must demon-
through comprehensive communications and strate a real understanding of the customer’s needs and be ready to
training, joint sales efforts and incentives. provide a customized solution for a specific problem.
Traditionally, brand loyalty hinged on the Instead of “pushing” programs from the top down through the
marketer’s ability and willingness to provide sales, marketing and channel, marketers need to build programs cooperatively with their
technical support, as well a guarantee not to undercut partners by partners. Inherently, this places channel partners on the front-lines
trying to sell directly to their customers. In essence, trustworthy of creating significant value through innovation.
support from marketers produces loyalty dividends from partners.
In developing new, or refining existing channel incentive pro-
grams, companies must keep in mind that if they expect loyalty
Collaboration Drives Success
from partners they must also prove their loyalty to those partners. As companies increasingly rely on collaboration with distributors
Since indirect channel sales make up the lion’s share of sales revenue and dealers, their need to gain operational efficiencies downstream
in many companies, it’s only sensible that these companies make and uncover ways to improve their channel partners’ overall
genuine commitments to their channel partner’s business success, business is heightened.

“While collaboration may have been a component of


relationships within the channel, times dictate that
it becomes the focus.”
and collaborate with them to make that success happen. When Ultimately, companies in today’s marketplace have been forced
approached in this fashion, companies can establish themselves as to give up some of the control they once maintained over their
strategic business partners and trusted advisors genuinely interested channel partners. The outcome for some of the most adaptive
in mutual benefits. companies has been the initiation of meaningful and genuine
involvement in their channel partner’s business with the desired
intention of building trust and driving loyalty. While collaboration
Building Trust may have been a component of relationships within the channel,
To create a trusted relationship, one that engenders loyalty, all times dictate that it becomes the focus.
channel members must work together to foster an environment This can be a challenge for companies yet to make the transition.
of collaboration and communication. The first step is to move In addition to global economic woes, overall channel performance
from a top-down approach to one of partnership, a collaboration in general has been unstable. While some marketers have extolled
that might be expressed in a variety of business activities: joint the virtues of winning customers’ trust, and frequently advocate
strategies, processes and technologies, or even co-created partner “client-focus,” “partner-focus” or “customer-centric,” they often fail
business plans. Such plans would be cognizant of the partner’s to follow through in a truly meaningful way. When these
business objectives and goals and based on suitable partner sales companies understand that loyalty has more to do with
engagement models, as well as partner enablement and support the quality of trust derived from each collaborative
tools. The outcome of such co-created programs is an enriched experience than a program strictly designed
business relationship and enhanced customer loyalty. to drive partner behavior, and realign their
Collaboration based on mutual understanding and alignment business practices accordingly, they and
of goals should capabilities, organizational structure and resources. their partners will reap the benefits. L

26 Loyalty Management | Loyalty360.org


Loyalty Management | September 2009 27
FEATURES

The Balance of Powers in


Payment Cards and Loyalty
by Sarah Phelps – First Annapolis Consulting

Retailers use various combinations of branded credit cards such as co-brand and private label,
and loyalty programs to attract, invigorate, and extend customer relationships. In theory, the
decision to introduce a payment card vs. a tender neutral loyalty program should revolve around
the value proposition available to the three key stakeholders: the consumer, the retailer, and the
financial institution. However, other factors will influence this decision including the retailer’s
brand strategy, the in-store operating environment, and the presence of competitive programs.

F
irst Annapolis conducted a review of the approach in developing the right combination of payment and
top 100 merchants, by sales, to determine the commonalities loyalty programs is to think of what can be offered to each of the
among retailers that fell within the same categories in terms three key stakeholders: the retailer, the financial institution and,
of combination of reward programs and payment cards offered to most importantly, the consumer.
consumers. What was found is very little consistency among the
retailers in each group. For purposes of this review, we defined a
loyalty program as one in which the customer enrolls and accrues
The Retailer
value, in one form or another. The way in which a loyalty or payment card program will influence
Perhaps the greatest surprise is the comparison of how many of a customer’s purchase behavior over other potential drivers is at
the top 100 have no program versus how few use a combination of the foundation of the right design. Merchants selling large ticket
all three (e.g., co-brand, private label and tender neutral loyalty). items or with high average transaction values stand to benefit
The types of organizations that fall into these two groups are also from a payment card program that provides the customer with a
surprising. For example, the two preeminent names in home financing vehicle. If these same merchants are in vertical markets
improvement (Lowe’s and The Home Depot) have opted with staunch competitors and little other means to differentiate,
against a loyalty program while two of the front-runners a tender neutral loyalty program that facilitates a return of
of office supplies (Staples and Office Max) have loyalty special value to key customers may be a critical component
programs as well as both private label and co-brand credit of the overall business strategy. Moreover, the
cards. There is some consistency among certain vertical extent to which customer loyalty is “on-brand”
markets; the two leading wholesale or consistent with the broader retail and
clubs and booksellers have similar marketing strategy, is also key.
programs in that both use a
co-brand credit card and tender
neutral loyalty. However, there is
a fair amount of inconsistency in
some categories as well; grocery is
represented in the co-brand/tender
neutral, tender neutral only, and no
program categories.
The question then becomes what
factors into a retailer’s decision when it
determines which program structure
to embrace? Should the strategy
include a co-branded credit card
or simply a tender neutral only
approach? Is it strictly about the
business deal the retailer can strike
with the financial institution or
is there more to it? One potential

28 Loyalty Management | Loyalty360.org


“Perhaps the greatest surprise
is the comparison of how
many of the top 100 have no
program versus how few use a
combination of all three
(e.g., co-brand, private label
and tender neutral loyalty).”

The Financial Institution However, not all retailers are created equal in terms of their ability
The retail card sector tends to offer an attractive option for issuers to deliver value. Influencing factors include available margins
and offering loyalty programs in parallel with the payment card to fund rewards, frequency of visit (to drive relevancy), and the
has the potential to drive increased account acquisition and relative position of the retailer as compared to its competitors.
purchase volume relative The perspectives of these

“If these same merchants


to payment card programs three groups must also be
without accompanying loyalty considered in the context
programs. However,
issuer needs to use caution in
the
are in vertical markets of the current economic
environment and legislative
designing the payment card
strategy to avoid some of the with staunch competitors events. Weakening consumer
spending, rising loss rates, and
pitfalls inherent in retail card
programs. Most notably, using
and little other means recent regulatory and legislative
rulings present major challeng-
large acquisition incentives
to lure customers into the
to differentiate, a tender es in all credit card portfolios,
not just those associated with
program can drive incremental
new account volumes, but
neutral loyalty program retailers, impacting the value to
the card issuers. Rising unem-
they can also increase costs to
an unsustainable level if the
that facilitates a return ployment, home foreclosures
and consumer bankruptcies
customers do not continue
to use the card on a frequent
of special value to key stress the availability of credit
to average consumers. In short,
basis. Similarly, while co-brand customers may be a critical the world of credit is in a state
of transition and will continue
programs (as compared to
private label) can drive higher component of the overall to evolve as the new normal is
defined over time.
business strategy.”
revenue due to interchange fees,
the propensity of cardholders In the current environment,
to use the card outside the retailers may need to reconsider
merchant location is important their loyalty strategy to deter-
to profitability and program success. The consumer value mine the right mix of payment cards and customer incentives.
proposition and the cardholder’s affinity to the retail brand are Several decision points exist, including whether to introduce or
critical drivers of customer engagement and ultimate behavior. shift focus to tender neutral programs and if so, should that transi-
tion be made across all customer groups or only within well-defined
segments? Arriving at a manageable value proposition within and
The Consumer among segments is also critical. Shifting away from a payment card-
At the core of the business model is the consumer and their based loyalty programs, however, has critically important financial
potential as a customer and as a cardholder. Unfortunately for implications. The extent to which elements of the rewards program
retailers and financial institutions in card issuing partnerships, not are subsidized by the economics of the card program (e.g., card
all customers make good cardholders. While payment card and program revenue, avoidance of credit card interchange on retailer
retailer rewards programs can be attractive, they are also pervasive payment card transactions) must be carefully considered. As such,
across various industries, and potentially represent a new frontier the decision to transition away from credit-based programs is not
of consumer choice. As a result, getting the attention of consumers an easy one. At a minimum, testing and detailed financial analysis
requires presentment of compelling value to prompt a response. will be keys to any evaluation. L

Loyalty Management | September 2009 29


TECHNOLOGY, TRENDS & REWARDS

Technology Can Do That,


But Can We?
What works with today’s loyalty technology
by Jake Sterling – Maritz

30 Loyalty Management | Loyalty360.org


Like a scene from the movie “Minority Report,” Tom Cruise walks into the GAP, and the re-
tailer performs an iris scan to determine his identity. Holographic “associates” ask Cruise’s
character if he would like to buy the GAP’s latest t-shirt in a “large,” basing their sales pitch
on his previous purchases and bio statistics. Though Minority Report came out in 2002,
many of the technologies featured in the film aren’t so futuristic anymore. Technologists
are turning these scenarios into reality.

D
airy Queen recently announced an RFID sticker moment of purchase, increasing transaction frequency and sales,
that customers can attach to a phone or wallet to receive and credit card issuers can use the same technology to increase
targeted promotional offers in store. Burger King has their customer’s loyalty at a lower cost. For both retailers and
introduced an iPhone application that allows users to place credit card issuers, POS loyalty programs allow them to gather
orders automatically. Whole Foods is making more than 2,000 valuable information about their customers.
recipes available to its customers via an app for both iPhone and The best POS loyalty programs identify customers through
iPod users. Text messaging, social networking, and smart phones their credit, debit or loyalty card and track purchasing behavior
are opening up new avenues for reaching and creating loyal in order to deliver targeted promotions. These behaviors can
customers. include spend, number of visits, and time lapsed since the last
Technology is moving at light speed, but are we moving along visit. Retailer promotions can be set up to drive frequency,
with it? Consider the following: increase average ticket, reward their best customers, cross sell,
•L  ess than 10 percent of credit cards in the US have RFID market new products or deliver targeted messaging. This targeted
chips in them and retailers have been slow to adopt the approach ensures the right customer gets the right offer. For card
technology. issuers, promotions are linked to their specific card. Beyond the
• 7 7 percent of the entire mobile market do not own an iPhone targeted delivery, the beauty of POS loyalty is that the customer
• 4 0 percent of the US population do not use text messaging doesn’t need to remember to bring a coupon, direct mail piece
• 5 1 percent of Americans do NOT participate in social net- or a print out of an email to receive their offer—they just show
working sites such as Facebook or Twitter up and buy.

“The on-the-spot recognition and reward redemption that


comes with a POS loyalty program provides immediate
reinforcement and brings that particular card to the top of
the wallet position that consumers reach for first.”
These technologies can and will play a major role in the future Successful POS loyalty programs create highly personalized
of retail. But today, they have significant limitations. In our redemption experiences so that the customer is receiving exactly
current economy, when both retailers and credit card issuers have WHAT they want, WHEN they want it. For example:
an immediate need to boost sales and increase store traffic with Chad is a truck driver who stops at “Burger Land” every week.
compressed marketing budgets, these technologies offer limited When he uses his registered credit card, the printed receipt offers
opportunity. him a free breakfast sandwich if he comes back in within five
In today’s economic reality, both retailers and credit card days. He does not need to bring the printed receipt back, but
issuers must rely on connecting with their customers using exist- merely swipes his card to redeem his free sandwich next time.
ing and pervasive technologies that don’t require consumers to Beth stops at “Coffee King” on her way to work every morning
change their behavior. Case in point: for a large latte, but hasn’t thought to visit in the afternoon.
• 82 percent of adult Americans have a credit or debit card When she uses her registered card, her receipt tells her to come
• 78 percent of all retailers use a point-of-sale (POS) terminal back on any weekday between noon and three to receive $2 off
or system any purchase of $5 or more.
Liz is a frequent “Books & More” shopper and earns three
points for every dollar spent when she uses her “Bank of the
Point-of-Sale: Today’s Customer Connection Nation” credit card. Upon checkout at “Books & More,” she
The vast majority of purchases are still made on a POS terminal. will be prompted at the POS to use her “Bank of the Nation”
Here, innovative loyalty strategies can increase the value reward points to pay for all or part of her purchase and reduce
proposition for both the customer and the retailer. A POS loyalty her out-of-pocket costs.
program allows retailers to deliver personalized offers—at the Both card issuers and merchants face challenges in optimizing

Continued on next page

Loyalty Management | September 2009 31


Technology Can Do That, But Can We? (continued)

“Beyond the targeted delivery, the beauty of POS loyalty


is that the customer doesn’t need to remember to bring
a coupon, direct mail piece or a print out of an email to
receive their offer—they just show up and buy.”
the value of their loyalty efforts. As these examples demonstrate, • Increase Spend: Spend on the BonuS Card increased by
POS loyalty programs help strengthen relationships and address 19 percent
unmet needs for retailers, issuers and their mutual customers: • Decrease Attrition: Attrition on the BonuS Card decreased
• Customers: Redeem points to make purchases at the point by 27 percent
of sale and receive promotions based on how they shop. • Deliver significant benefits to participating merchants:
• Retailers: Deliver personalized offers at the point of sale, Wind, the second largest telecommunications company
increasing spend and customer frequency. in Greece, was able to reduce customer churn by 10.4
• Card Issuers: Enable loyalty point redemption at the point percent compared to non-loyalty members; and by 7
of sale, providing a unique opportunity to increase brand percent compared to their existing loyalty program
loyalty for their cards at a lower cost while also gathering members.
valuable information about their customers. Asian retailers deploying POS loyalty programs saw similar
A POS loyalty program also solves the “decoupling” challenge results. A supermarket in Thailand saw a 65 percent promotion
that has been a hurdle for traditional loyalty programs. It is a redemption rate and a 40 percent increase in spend, while an ice
proven psychology that the separation between the customer’s cream store in Malaysia received an eCoupon redemption rate
point earning and the redemption of points makes the program of 53 percent.
less effective and valuable. The on-the-spot recognition and
reward redemption that comes with a POS loyalty program pro-
vides immediate reinforcement and brings that particular card
Leverage Today’s Technology with
to the top of the wallet position that consumers reach for first.
an Eye Toward the Future
POS loyalty programs have been widely used in Europe and For retailers and credit card issuers worldwide, the technology
Asia for years with a lot of success, and are now coming to North of the future is becoming a reality. Over the next several years,
America. For example, Alpha Bank, the second largest commer- we’ll see wide adoption of smart phones, RFID technology and
cial bank in Greece, wanted to accomplish three things: social media, providing retailers and credit card issuers with
• Consolidate multiple loyalty programs theoretically limitless possibilities to connect with customers.
• Differentiate their offering But until then, we need to leverage the realities of today. POS
• Connect with merchants and customers loyalty programs are here now, and they enable retailers and
Through “BonuS”, a targeted POS loyalty program—de- credit card issuers to reach ALL of their customers, with the
livered through merchant partners and other participating offers they want, when they want them—capitalizing on today’s
merchants—Alpha Bank, in 2007, was able to: consumer behaviors. L

32 Loyalty Management | Loyalty360.org


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Loyalty Management | September 2009 33


TECHNOLOGY, TRENDS & REWARDS

Automating
Marketing
Self-Service Technology
Awaits Those Smart Enough
to Experiment

M
by Scott Couvillon – Dukky anagers of incentive programs aren’t
the only marketers hanging their heads, wringing their
hands and trying to find something positive in the
confidence indicators and revenue reports they await like a make
or break report card in the 6th grade. And who could blame them?
Marketers are facing a convergence of realities ranging from a
recession and surging unemployment to increased use of online,
social platforms streamlining word of mouth and a general aversion
to traditional marketing tactics.
As an account director in advertising agencies both traditional
and non, I always encouraged clients to earmark a portion of
the budget for “R&D”. Today, the need to try new technologies
is even more imperative as the results of traditional efforts are so
clearly lagging or un-measurable. To simply default to the best of
the traditional strategies makes your fate certain—and it won’t be
pretty. Real innovations with specific application to the loyalty and
incentive industry are coming available. The question is, are you
willing to experiment?

34 Loyalty Management | Loyalty360.org


F
ortunately for you, there are a number of new platforms
and technologies that allow you to experiment online
without being an interactive phenom. They let you try
offline tactics without the budget of a Walmart and conduct
research in an afternoon—all without the expense of involving
an external agency, consultant or buyer. Here are a few examples
of some of the basic technology you ought to introduce yourself
to if you haven’t already.
Let’s begin with Google Adwords [adwords.google.com],
which is neither new nor unknown to most of us. But, if you
have not used it, you are missing a low-risk gateway to a better
understanding of how online search works. Just playing with
the resources Google makes available, will allow you to better
comprehend what the world is talking about. Careful not to get
carried away, but for literally dollars a day, you can link a text ad
to your site, using terms specific to your business or program,
and monitor the results (or lack thereof ) in real-time. Most
importantly, when you embark down this path, begin to think
about the real issues relative to search. For example, work to
increase the quality of your leads, and not just lowering the cost
toward acquiring large quantities. program managers know how the program is performing in real-
Next, take a look at Federated Media [www.federatedmedia. time, while creating a database of interested people along with
net]; leaders in conversational marketing. This group helps you the data shared. Where it gets even more advantageous, is when
place contextual advertising on the right sites and in the right multiple companies participate in one mailer to same audience,
conversations. Further, they make sure that the ad placement as the costs are shared and can decrease up to 96% compared to
doesn’t undermine the a traditional direct mail
brand. “[FM] ensures effort.
your brand is not only “Real innovations with specific And finally, Social
Networks can’t be
relevant to the context,
but truly enhances application to the loyalty and ignored, as these are

incentive industry are coming


the conversation. consistent features in
We ensure that your the marketing conver-
campaign will never
appear next to content
available. The question is, are sation right now. Both
LinkedIn [www.linke-
that’s objectionable
or that conflicts with
you willing to experiment?” din.com/directads/]
and Facebook [www.
the mission of your facebook.com/advertis-
brand. At FM, you’re not just an advertiser, you’re a marketing ing] allow you to serve your ads to a targeted audience. The
partner.”1 Interactive display has distinct advantages over tradi- beauty is that that you can engage customers in a place where
tional display, but none are bigger than being able to buy the they’re committed to online interaction. So if that is your mar-
milk without the cow. That is, you can start small and increase keting strategy, or better yet, your product, this can be a very
your exposure if you are happy with what you see. Finally, natural fit. Both networks have groups and associations related
rates (like offline display) are a formula of impressions and to specific targetable markets. So you can limit your exposure
their niche value; FM makes it very easy for you to understand by limiting your audience. The key is to understand why your
your tolerances and manage your bill. For more information prospective recipient is spending time in that social space and
on conversational marketing, take a look at, “The Federal Media to engage them appropriately, rather than simply ambushing
Guide to Conversational Marketing,” which is currently available them with a sales pitch. As with all smart marketing, revenue is
for download on their website. a byproduct of a relationship, not a function of marketing and
social networks allow you to live this.

N
ow, onto… Dukky [www.Dukky.com], a direct Many marketers are hibernating as they did in 2001—shut-
response company, is introducing new marketing ting down body function to preserve life at the core. Very few
programs designed to leverage technology to initiate are heeding the advice of pundits to gain share as others retreat.
relationships between brands and individuals. About the time This is a mistake. In your cube, this afternoon, you can balance
of the Loyalty Expo in Florida, Dukky launched a pay-for- self-preservation with calculated risk to move a few slots up
placement direct mail platform that, in this example, allowed the hatchet list through experimentation, and a new breed of
marketers to put up to 40 personalized gift cards into the hands resources is making that easier. You do not need to be a database
of HR professionals, offering them the opportunity to truly manager, list expert, webmaster, social network maven or tweet-
experience the program portfolio rather than simply hear about freak to do these things, resources such as those mentioned
it. Online tools allow for activation, measuring purchase intent above, can enable you to broaden your arsenal while learning
or interest, and even specific feedback so analytics can learn what is right for your situation. This can all be accomplished
something from those who are not interested. A dashboard lets without exposing yourself to the financial risks that often ac-
company traditional channels. So go, get started today. L

1 Federated Media. June 30, 2009. <http://federatedmedia.net/whyadvertise/index>

Loyalty Management | September 2009 35


TECHNOLOGY, TRENDS & REWARDS

Product Level Rewards


by Roger L. Brooks – ValueCentric Marketing Group

The rewards revolution continues to progress, improve and evolve. Loyalty marketers
are embracing the most recent advancements in product-level rewards and are introducing
next-generation technological, analytical and marketing innovations to improve the delivery
of relevant rewards to consumers. What are considered relevant rewards? Simply put, relevant
rewards are offers that are pertinent and meaningful to customer purchasing decisions.

C
ompanies such as Catalina Marketing have more than 25 specific customer groups to steer them toward cross-promotion,
years of experience in delivering consumer-driven offers complimentary or new product purchases at department or SKU
and rewards in the retail space. Catalina’s clients include level.
brands such as Safeway, Walgreens, A&P and Kroger among
others. More than likely you have been exposed to a certain level of
relevant rewards as they are often delivered on the back of grocery, Motivate Customer Behavior
pharmacy or large merchandiser receipts. Typically, relevant While identifying customers and tracking their spending remains
rewards are delivered to consumers based on what is, or is not, in an ongoing and tedious task, attempting to motivate customer
their shopping basket. Relevant rewards can also be triggered based purchasing behavior is the payoff. The essence of operating a
upon historical purchase activity. loyalty program is to be able to motivate customer behavior. There’s
CVS ExtraCare® is a proprietary rewards program which pro- tremendous opportunity to change behavior by targeting customers
vides offers to cardholders based on the purchase of select products
in multiple ways. For example, you can target customer groups that
or historical buying activity. For example, discount coupons for
never purchase complimentary products, i.e. customer that purchase
specific products you purchased in the past may be printed on
baby food, but never purchase diapers. Or, the historical profile of
your receipt if that particular product is not contained within your
the customer may show that they did not purchase a product from
basket for the current transaction.
The Catalina and CVS examples are merely the tip of the a specific department in the past three months. Further, you can
iceberg. Once you understand who your customers are, what they apply a promotion to a customer group which has never purchased
do and do not purchase and the frequency of their visits, there are a particular item. This will allow you to include participation from
a number of ways to increase profitability. Before doing so, it is your vendors, suppliers or manufacturers to offset a portion of the
crucial to have the proper loyalty program technology in place to cost of the relevant reward while introducing new customers to
support your effort. In addition, there are two fundamental loyalty their brand.
program principles which should be considered prior to attempt-
ing to introduce relevant rewards as a means to change customer
Delivery of Relevant rewards
purchasing behavior.
Relevant rewards are routinely delivered once the customer is
identified and prior to the transaction being closed. The POS
1. Identify Customers
(point-of-sale) system identifies the customer and connects to
In order to reward customers on a product or SKU (stock keeping the loyalty host and applies all relevant loyalty promotions to
unit) level, there must be a means to uniquely identify each the transaction based on a variety of business rules established in
customer. Customers can be identified through a number of vehicles advance. The host marries the business rules up against the basket
including a payment instrument, loyalty card, driver’s license or
contents, and may consider; the time between product-specific
phone number. Customers will willingly participate and identify
purchases or appropriate vendor/manufacturer offers available.
themselves if they truly understand the value they’ll receive in return,
Then, single or multiple reward offers can be delivered back to
i.e. attractive redemption items or instant product-level rewards.
the customer in the form of bonus points, instant discounts or
coupons (depending on the program currency).
2. Track Spending Loyalty programs are most notably utilized as a tool to reward
Once customers are familiar with the program and embrace being profitable purchasing behavior. Being able to offer your customer’s
identified, all purchase activity can be tracked and analyzed. relevant rewards will only improve the depth, success and longevity
During this step, proper promotions can be initiated to target of your program.

36 Loyalty Management | Loyalty360.org


Roger L. Brooks had a chance to catch up with Joshua Petty,
Freedom Rewards Program Manager of TETCO to provide his view
on product-level rewards. TETCO is a gas and convenience store
operator which has a major presence in the Texas market.

Question #1

How relevant are product-level “Issuing bonus


bonus rewards with the TETCO points for particular
Freedom Rewards Program?
purchases allows
our customers an
[Joshua Petty] “Our product-level bonus rewards are very
relevant. They allow us to always rotate product and

instant gratification
keep our program fresh on a quarterly basis. We have
established a baseline reward structure where as anyone

experience that
participating in the program that visits our stores can earn
rewards in our program. With our product-level bonus

they cannot receive


rewards we are allowing our customers, ourselves, and
our vendors to push the envelope on the rewards pos-

at any other c-store.”


sibilities in our stores. Issuing bonus points for particular
purchases allows our customers an instant gratification
experience that they cannot receive at any other c-store.
The ability for us to reward our customers for purchasing
specific products is very effective for our vendor partners. experience for our customers. It is a win/win/win situation
Our product-level bonus rewards increase our customer’s for everyone involved. The cost to our vendor is minimal in
investment in the program at a rapid pace and help us to comparison to any other method used to achieve this type
increase frequency and spend.” of ROI for them. They pay for their items and get a ton of
value for their participation, as well as relevant reporting
Question #2 on their product for the quarter they participated in.”

Do your vendors/suppliers Question #3


participate in offsetting a portion
of the liability of the rewards? How important is the technology
to manage rewards on a
[Joshua Petty] “Our vendors have 3 levels of sponsor- product or SKU level?
ship to choose from. There is a buy-in amount up front
to participate and then the partner covers the cost of [Joshua Petty] “It is very important to be able to manage
the reward for each of their products sold through the rewards by product and or SKU level. This is the basis of
Freedom Rewards program. The first level costs X amount your loyalty program operation. This ability will allow you
of dollars and gives them Y in reporting and impression to tweak promotions, view customer buying habits, bill
value. The second and third sponsor levels cost more and vendors, and gauge the overall success of your program.
give more reporting and impression opportunities. What Having this ability also allows you to bundle items. For
we do with the upfront buy-in fee is we take the whole instance, we have the ability to offer a discount on item A
amount and purchase a vehicle, boat, truck, anything we when a customer purchases item B, and it is accomplished
can brand with our partners logos for the quarter, and we using the SKU’s on the items and or the line item descrip-
give it away to a customer at the end of each quarter. We tion. The technology is advancing everyday in this area
take the item around and display it at our locations and as well. We have the ability to send an opt-in customer
different events that we are involved in. So essentially the coupon to their cell phone based on what SKU they did or
partner is paying to advertise their brand and provide a did not purchase. It is a really powerful tool. If you do not
grand prize item to our customers every quarter. Our have the opportunity to reward at this level then you are
vendors see the immediate value in the impressions and shopping the wrong loyalty provider. Everything we have
exposure, our customers have the chance to win the prize, discussed prior rests on the ability to provide rewards to
and we take our program incentive to a whole new level of your customers by SKU or product.” L

Loyalty Management | September 2009 37


TECHNOLOGY, TRENDS & REWARDS

Turn Marketing $$$


Into Loyalty
by Randy Fox & Jeffrey Norby – Jet Litho

E
verybody is saying now is the time
to engage consumers. Reports dem-
onstrate that reducing marketing
spending in today’s economy results in
lost customers. You need your customers
to know you are viable in the marketplace,
and spur them into spending their precious
dollars with you. But, how do you reach
consumers with clear, compelling mes-
sages? How do you turn your marketing
dollars into consumer loyalty?

38 Loyalty Management | Loyalty360.org


Avoid the “Head In The Sand” importance of remaining physically (and 15% response rate on their promotional
response literally) in the hands of your consumer. campaigns using a 20 mil plastic card in
Your call to action should come from a direct mail piece! With these compel-
This economy presents you with a unique
many channels to ensure you reach the ling numbers, the ROI in putting a card
opportunity to market your brand and
largest base possible. Choosing marketing in your mail piece far surpasses mailings
rise above the herd. Although somewhat
channels wisely, carefully planning your without cards or other options like email.
counter-intuitive, spending money to stay
campaign sequence, and doing it for the
in front of your clients—reminding them
least amount of money for the greatest
of the value you bring, and reassuring them
return is vital, so let’s take a hard look at
Website
that you stand ready to serve them—is Mail and email should not stand alone.
popular marketing channels.
more important than ever. Remember, just To truly retain and grow your market, and
as you feel less certain about the future, so engage your consumers, your successful
do many of your consumers. This is the Email campaign must be based on ongoing,
perfect time to provide some clarity to “Email is cheap and we don’t have the integrated communication. Use direct mail
them, based on the value and stability your money for other types of marketing.” We combined with email to drive consumers to
organization can bring to them. Today’s hear this often. True, it is less expensive to your web page, or to a PURL to increase the
consumers are driven by value. That value send an email than to use other channels, “stickiness” of your program. Altering the
doesn’t necessarily mean inexpensive; they
just need to be engaged with your brand
enough to believe they are receiving REAL
value for their dollars spent. “If you are like most marketers, your
Stay In Front Of
commitment to understanding the
Your Consumer consumer is only outweighed by your
This may seem logical and straightforward,
however, we find that many organizations desire to find solutions that reach them.
are cutting back on marketing spend, and
that could be a fatal decision. Let’s take
Multi-channel marketing approaches
a look at real facts on why investing in
marketing now will pay off.
will give you the best results.”
Nearly half of US adults believe that a
lack of advertising by a company during
and it is one of the methods you should channels you use, and ensuring that each
a recession is a sign that the business is
use, however, this method is only truly complements the other, will motivate your
struggling.1 Over one-third of consumers
viable when interlaced with a dynamic, consumers to respond to your promotions
state that if a brand stopped advertising
multi-channel marketing campaign. and marketing messages. In today’s
they would buy from a competitor.2 A
37% of consumers patronize a new marketplace, you cannot touch a client
McKinsey study conducted during the
brand, and 68% are prompted to renew just once, or use the same method over and
1990-91 recession showed that companies
loyalty to a brand after receiving contact over and expect success. Interlacing email
who were market leaders through the
via direct mail.3 messaging, online promotions, and direct
downturn were those that increased mar-
So, let’s move in that direction. mail with cards will deliver proven results.
keting and advertising spending. The ones
who cut back still struggled years after the
recession ended. Direct Mail That Includes What Next?
Consumers respond to value and pro- a Plastic Card The process of engaging consumers and
motions like never before. According to One of the best strategies is to start achieving true loyalty in this new economy
Brandweek, 62% of consumers say they are your marketing push with a direct mail is a journey requiring focused flexibility.
clipping coupons, and 82% plan to do so campaign that includes a plastic card. What worked ten years ago may not work
in the coming year. Why? While not all consumers want to today, and what works with one consumer
interact in the same manner, the largest may not work with another. Your goal is to
Motivate Consumers category of consumers (76%) state they make sure that best practices, with proven
are most likely to respond when reached ROI results, are a priority in your overall,
If you are like most marketers, your
via direct mail.4 strategic marketing plan. Stay focused
commitment to understanding the
51% of consumers say they are more on being in front of your consumers
consumer is only outweighed by your
likely to open mail if they feel something frequently, and remain flexible with
desire to find solutions that reach them.
in the package.5 One of our retail clients marketing channels, making sure your
Multi-channel marketing approaches will
mails hundreds of thousands of these pack- customers see, touch AND feel your value
give you the best results. In the virtual and
ages per month, and they are seeing a solid in order keep their loyalty. L
tech times we live in, don’t lose sight of the

1 Ad-ology study, May 13, 2009 2 Beta Research study by Adweek 3 DM News study, May 2009 4 DM News and Pitney Bowes survey 5 Vertis Customer Focus Study, Retail 2008

Loyalty Management | September 2009 39


BEST BUSINESS PRACTICES

The Quality
of Loyalty
by Jim Boring – Global Response

Shakespeare could have been speaking of loyalty as well as mercy in The Merchant of
Venice. Any good merchant of the time would have understood how customer loyalty
cannot be forced or cajoled but must have as its source a genuine and free association with
a particular brand. What is it that enables a brand to develop customers that consistently
and faithfully prefer it even when they have readily available options? That question is at
the heart of every company whose brand competes for customers. And it is the question
that begins the discussion of the development of any loyalty program.

Loyalty programs do not instill who feel unappreciated. Which is why both the design and the
loyalty; they reward it. administration of loyalty programs must take care not to create
counter-productive hassles or obstacles that will annoy and alienate
If a customer continues to do business with a brand because of its
the intended customers. It is not only the reward that should be
loyalty program then the program has become the focal point of
satisfying but also the conditions surrounding the reward.
the customer’s loyalty, not the brand. Yet the rewarding of loyalty,
above and beyond the benefits of product purchases, becomes an Anticipating the reward is part of the reward itself. Building
inextricable part of the aura of the brand. points or other qualifying prerequisites engages the customer
The custom of rewarding customers with a little extra goes back emotionally and builds a pleasant tension that looks forward to
a long way. The thirteenth bread roll in “a baker’s dozen,” is an old its release in earning the reward. That anticipation should not be
custom. In New Orleans the something added is called “lagniappe.” diminished or quashed by indifferent customer service.
That French word is derived from the Spanish, which in turn comes The role of the contact center customer service representative is a
to us from the still older tradition and language of Quechuan key element in the success of any loyalty program. Inquiries regard-
merchants high in the Andes. The practice and the intent is ing qualification or other aspects of the loyalty program must be
worldwide—a little something extra to keep you coming back. handled in the spirit of the program. Which means that selection
The rewards of loyalty programs are tokens of appreciation. And and training of customer service representatives is a critical part of
customers who feel appreciated tend to be more loyal than those loyalty program planning and implementation.

“The role of the contact center customer


service representative is a key element
in the success of any loyalty program.”

40 Loyalty Management | Loyalty360.org


The quality of loyalty is not strained, It drops like the
gentle rain from heaven; It is twice blessed ~ it blesses
him that gives and him that receives.
~with apologies to William Shakespeare

W
endy Shooster-Leuchter is Co-CEO of assimilated the AE culture completely and express it naturally
Global Response, a contact center that handles loyalty when he or she talks to our customers. We do everything we can
programs for leading retailers. “Loyalty programs are an to bring that about—site visits, product displays in the contact
important aspect of many of the brands we represent. Customers center, careful recruiting and selection, and especially training that
respond to them; they become engaged with the process of earning includes culture and brand identification. All this is necessary to
rewards and tracking that progression. What is critical to the build loyalty and to implement our loyalty programs.”
interaction with customers calling about a brand loyalty program is Mark Twain said that “lagniappe” was a word worth travel-
the tone and energy in the customer service representative’s voice. ing to New Orleans to get. He might have said the same about
Any perception on the part of the caller that the customer service a well-conceived, well-managed loyalty program. A program that
rep is bored or annoyed or indifferent has a domino effect on the is implemented with style, grace and in a manner reflecting the
caller’s enthusiasm, interest and loyalty.” customers it serves will instill loyalty naturally and effectively. L
Craig Morrison is Customer
Contact Quality Supervisor for
American Eagle Direct. We asked “What is critical is the tone and energy in the
about the purpose and management
of American Eagle loyalty programs.
customer service representative’s voice.
“My area of responsibility is for Any perception on the part of the caller that
the online channel of our business,
but from a customer’s perspective
the customer service rep is bored or annoyed
American Eagle needs to provide the or indifferent has a domino effect on the caller’s
same kind of experience regardless
of why, how and where they interact
enthusiasm, interest and loyalty.”
with us,” Morrison said. “We are a
friendly, kind of laid-back company. Those are qualities that attract
our customers and that they expect in any interaction with us.
That is not to say they don’t expect the highest level of service and
competence—they do, but they want it delivered in a manner that
they associate with American Eagle.”
No matter how well designed a loyalty program may be, no
matter how generous and accommodating its requirements—all of
it will be wasted unless the customer service representative delivers
the “lagniappe” with a smile in her voice, her email or online chat
with the customer.
“We have a progression of accomplishment at Global Response,”
Wendy Shooster-Leuchter said, “Our best customer service repre-
sentatives earn the title, Brand Care Specialist. They understand
just how important their job is, and how their primary responsibil-
ity is to engage the customer in keeping with the culture, style and
manner of the brand they represent.”
The idea of brand care shifts the focus of service to a higher
level—it puts the interaction with the customer in the context of
the brand experience and heightens the responsibility from that
of handling an administrative task to that of representing a major
brand name.
“The contact center representative is American Eagle,” Craig
Morrison says, “On the direct side of our business where I have
responsibility, the contact center rep is probably the only live
person the customer will talk to. That means the rep must have

Loyalty Management | September 2009 41


BEST BUSINESS PRACTICES

Improving Customer
Loyalty Starts With
Setting Your Priorities
by Ivan Frank – ePrize, LLC

T
he loyalty solution marketplace has never • Competitive differentiation: resting on existing loyalty while
been more plentiful. But, although today’s loyalty tools are key competitors advance
stronger and sharper, it can be difficult to ensure that your • Investment losses: ending existing efforts prematurely
loyalty initiatives are solving the right problems. When setting out • Organizational willingness to make improvements: inability to
on a loyalty endeavor, establishing priorities is the most important achieve internal buy-in for improvement.
thing to get right. In fact, not doing so can lead to poor allocation The process for establishing your loyalty priorities starts with:
of your investments: 1) understanding your current approach to loyalty; 2) scoring and
• Not solving for the fundamental issue at hand: making a large evaluating five key components of loyalty; and 3) prioritizing your
investment new platforms instead of tweaking an internal opportunities for improvement based on the gap between your
process current state and desired business strategy.

42 Loyalty Management | Loyalty360.org


Guess what? You already have a loyalty Establish your place in the universe.
system that can be measured. We use the following tool to help brands map an individual loyalty
Yes, even without a dedicated loyalty program, your brand still has metric by comparing their relative strengths/weaknesses against the
relatively consistent trending attrition rates, discounting pressures, level of strategic importance to the business. Consider a premium
and a host of other loyalty signifiers that have become a part of coffee retailer and the price/margin metric. Prior to competitive
how your brand operates. Your loyalty system is made up of every and economic changes over the last 12 months, this brand would
element of your business that influences consumer behavior in any have scored itself in quadrant 4 in its ability to protect its margin
significant way: marketing, brand equity, sponsorships, product/ and avoid discounting. After these market shifts, protecting
service experience, incentive programs (if applicable), social media premium margins is still critical, perhaps more so, but the
presence, relationships with your channel, etc. Understanding and brand’s relative strength in
improving this system is the ultimate goal. How is your existing immunity to price/margin
system driving loyalty results? pressure has fallen, placing
it in quadrant 1.
How do you prioritize
Are your loyalty metrics Best-in-Show? results that fall into the
Effectively measuring loyalty means we need to challenge existing various quadrants? Note
metrics—or at least broaden their approach. Loyalty can be mea- that the order of these quad-
sured in terms of five overarching results: retention, cross-selling rants is also prioritized:
power, share of wallet, advocacy, and brand immunity to price Quadrant 1 most critical,
and margin pressure. In our client work, we recommend scoring followed by Quadrants 4,
each of these prior to new initiatives. These are different from 3, and then 2.
the traditional RFM metrics used in retail to evaluate individual Quadrant 1 – Mission
segments for personalization. Instead, these scores are designed as Critical Weak­nesses:
holistic measures relative to your competition, scaling from worst Once you see a business
in class to best in class. issue in the context of
loyalty, it becomes clear that failing to improve that weak-
ness will put the brand at an ongoing disadvantage to your
Knowledge begets power.
competitors, making this category a top priority.
Power begets strategy. Brands who are in stronger loyalty positions Quadrant 4 – Mission Critical Strengths: Quadrant 4
can be more strategic in their improvement efforts. A brand with loyalty results must be understood, defended, and extended.
a number of comparative strengths can gain in the market by Brands that fail to do so eventually join the ranks of case
extending strengths or potentially limiting a weakness. A brand study bookshelves. Relative strengths shift all the time, as in
weak on many facets of loyalty has fundamental business issues to the premium coffee retailer example.
solve before it can think about loyalty marketing. Quadrant 3 – Strengths (not critical): These areas can
become red herrings that divert resources that otherwise
What’s Mission Critical to your business? could be used to create real value. Think of airlines that used
to invest in drinks, food, and their hub monopolies; along
Once you have scored your current results, where do you go comes Southwest Airlines who invested in everything but.
from there? In addition to understanding areas of strength and Quadrant 2 – Weaknesses (not critical): On the other hand,
weakness, new loyalty investment decisions must take into account non-critical weaknesses are equally important to acknowledge
the “mission critical” areas of the business—those areas absolutely so you don’t invest in them. Saving resources or waste allows
non-negotiable to long-term success. For example, brands that you to put your efforts where they really count.
strategically place themselves in a premium position absolutely Building customer loyalty is globally the number one marketing
must be able to protect against discounting. Industries with high priority. And the tools to help you grow loyalty have never been
fixed costs must be able to drive cross-sell and share of wallet to more available. Yet, the challenge we find still comes back to the
cover the costs of doing business. Vulnerability is different for every fundamentals of identifying the right problems to solve and setting
brand based on its position within an industry. the subsequent goals of your initiatives.

What’s the impact of applying holistic loyalty metrics?


Consider the following example:
n A consumer electronics brand wanted to increase its n The nature of the program would create significant discounts
household penetration via a cross-selling effort. that incentivize high-volume consumers who had maxed out
their buying potential. Heavy users were not the original
n The metrics for improvement initially focused on share of focus but subsidizing became a major consideration.
wallet and cross-selling.
n This process led to a more holistic definition of the loyalty
n ePrize and the brand team evaluated a broader slice of metrics problem. The subsequent strategy and structure of the
impacting the business, which uncovered a potential price/ program were created and helped avoid unintended
margin challenge among heavy users. consequences. L

See the whitepaper “Improving Customer Loyalty Starts with Setting Your Priorities” published at www.eprize.com/white-papers
for a deep dive into prioritizing your loyalty strategy.

Loyalty Management | September 2009 43


BEST BUSINESS PRACTICES

Creating a Loyal Relationship


with Your Channel
by Paul Hebert – i2i and
Heather K. Margolis

I Driving True Partnership


n business you really only have three audiences... your
employees, your customers and those you rely on to distribute
In most businesses the measure of a relationship is financial – the
your product, service or brand. An awful lot of information is
dollars spent. Unfortunately, measuring only the financial side of
available for employee engagement and customer programs but it
any relationship will create a mercenary mindset—focusing both
seems there is a lack of good info on how to engage your channel.
you, and the channel, on the price of your product/service. The last
Not much is available to help you build long-term, strategically
thing you want is to have your entire business relationship based
important relationships. Having a loyal and engaged channel
on the price you or your competitor may charge.
allows you to: But there is another measure of your relationship that isn’t
• Increase sales purely financial. It is the amount of time and attention they spend
• Decrease cost of sales with you as a vendor (and vice versa.) Call it the “social” measure
• Increase selling efficiency with better data [See Graph A]. The “social” measure can be defined by how much
• Increase competitive differentiation interaction there is between you and your channel. How many
In other words, a channel loyalty initiative will drive better busi- support services do they use? How often do they communicate
ness for you and for your partners. with the sponsoring company? How often do they meet with your
sales representatives? Each of these elements is an “interaction” and
Loyalty is a Function of Interactions helps to expand and define a “social” relationship with the sponsor.
Only by balancing the “transactional” and the “social” axis, can
Loyalty is difficult to define as every industry, company, and end- we develop a long-term, strategic and mutually beneficial relation-
user has a personal definition of loyalty. However, we can start to ship between you and your distribution channel.
create a definition by looking at the type of business interactions
that occur between the supplier and the channel.
As the chart above illustrates, customers who “buy” from you Developing a Transactional/
are simply an “invoicing entity”. Those that use additional ser- Social View of Your Customer
vices such as online tools, marketing support, and credit options, When you look at your customers through this lens you can
become more than just an address to send an invoice. Obviously, start to segment your customers based on these axis. How many
the best place to be is “partner.” of your customers are question marks—they don’t buy a lot and

44 Loyalty Management | Loyalty360.org


GRAPH A Cross-sell: Vendors tend to use these incentives when trying to
drive a joint solution or gain exposure for a product-line that is
new or not doing as well. A vendor will offer a discount or rebate if
the partner sells Product A with Product B.
Competitive Displacement: Vendors provide this incentive
when a partner replaces a competitor’s product with their product.
Promotions: Generally given on a seasonal or quarterly basis,
promotions focus on a certain product or solution for which the
vendor is trying to get more exposure. Feedback from partners is
that these tend to be hard to follow and change too often. These
incentives tend not to drive behavior as the partner’s usually do not
know which promotions are currently in effect.
SPIFFs: While the sales people appreciate them, the partner
business owners see them as a distraction and would rather
manage their own sales peoples’ directives, not have them coming
from the vendor.

Social and Relationship Building


Tools—Driving Interaction
they don’t interact a lot. What about those big customers that buy To really build a strong relationship you must engage your
a ton but don’t really use other services or interact that much? The distribution channel around other issues besides sales. Some of the
ultimate goal is to have as many customers as possible in the top ways your distribution channel can help you (and you them) include:
right quadrant—buying a lot—and interacting a lot. MDF/Co-op: These funds are used for demand generation,
training, and other marketing activities. Measuring how well and
CHART 1
how often your channel accesses these funds is one way to judge
Tools To Drive Loyalty their level of interaction and connection to your company/brand/
Transac tio n a l P ro g r a m s S o c i a l P ro g r a m s product line.
Advisory Councils: Inviting and having your channel partners
Discounts/Rebates MDF Participation
participate in Advisory Councils is one way to target specific part-
Net-New Business Advisor y Councils
ners and solicit their feedback and input.
Volume Based Attendance on Travel Awards Attendance on Travel Awards: While earning the award may
Cross-Sell Co-Selling Opportunities be based on a specific transactional metric, the attendance and
Promotions Conversation/Meetings participation on the award is where true relationships can flour-
with Vendor Personnel ish. Allowing channel partners to “opt-out” of the travel award is
Spiffs in essence providing a financial incentive and devalues the travel
award making more of a disguised “discount”.
Co-selling Opportunities: Do your partners access your subject
Developing a loyalty initiative requires you to include programs,
matter experts to help close a sale? If so they are reaching out and
initiatives, plans, and structures; whatever it takes to move your
communicating that they value your relationship. Keep track of
customer to the “True Partner” square. In some instances you may
need to include social programs—things that drive interaction. In this and use it as another metric to measure their social connection
other cases you may need to include more transactional programs to you.
[See Chart 1]. Conversations/Meetings with Vendor Personnel: Are you
tracking the number of meetings/interactions your channel
partners have with your sales people or even your executive staff?
Increasing Interactions through Creating a strong long-term loyal relationship requires face-to-face
Traditional Means contact—especially in today’s hyper-connected e-driven world.
Some of the more traditional efforts included in loyalty programs
will include variations on the following: The Bottom Line
Discounts and Rebates: Since discounts are given upfront
they have more influence over sales. Partners see this as margin The bottom line for developing strong, loyal channel partners is to
enhancement and will choose the product with the greater margin/ engage them on both an economic front and a social front. Done
discount. Rebates have less effect on the sale as they are received at correctly you can expect:
a specific point in time after the sale (end of quarter, end of year). • More and earlier input on what your channel needs to
Net-New Business: Obtained on a deal where the customer is succeed, giving you time to adjust and provide new services
new to the vendor (not the partner). Whether given as a discount and processes
or rebate, this incentive doesn’t drive behavior as much as loyalty. • Greater resiliency to failure—true partners allow for some
From the partner’s perspective they expend just as much energy mistakes, as long as you’re addressing them and continuing the
trying to generate, pitch, and close a deal with a new customer as conversation with them.
they do an existing customer. • Greater overall margins as your products and your relationship
Volume Based: The more a partner buys the bigger the discount. increase the value you have with your channel partner.
Typically applied over a annual spend level they can also be based Stop looking at your financial spreadsheets when evaluating
on other periods of time (quarter, month, etc.) your channel—look at the big picture. L

Loyalty Management | September 2009 45


BEST BUSINESS PRACTICES

Creating Profitable
Customer Loyalty
by Timothy Keiningham – Ipsos Loyalty & Lerzan Aksoy – Fordham University

T
here is no doubt that customer loyalty is finds that this is often a very large percentage of loyal custom-
important. Loyal customers stay with us for years, ers—frequently more than 50%. As a result, when a company
devote a larger share of their wallet to the company, and misprices its product, many of its loyal customers buy in large
recommend the company to their friends. And customer loyalty quantities, making them not only unprofitable but also some of
can help to drive firm profitability. But it doesn’t always do so. the firm’s largest customers in the process. In a traditional sense
Unfortunately, most companies do not distinguish between the they would be defined as “loyal” customers but they certainly do
right kind of customer loyalty that’s really worth pursuing and not benefit the bottom line.
the wrong kind. So what is the solution? The target audience for any company
We conducted an in-depth investigation into companies’ com- should be customers who are not only loyal in both attitude
monly held beliefs about customer loyalty and arrived at some and action, but also profitable. Research consistently finds that
surprising conclusions. Most managers assume that loyalty equals profitable customers tend to make up only around 20% of a
profitability. As a result, firms blindly chase loyalty based upon company’s customers. Break-even customers represent around

“The target audience for any company should be


customers who are not only loyal in both attitude
and action, but also profitable.”
an ardent belief that firm performance will improve with each 60%, and unprofitable customers around 20%.
corresponding increase in their “loyalty” score. Unfortunately, The objective as a result should be to increase the number of
for many firms, many (if not most) of the customers they would Profitable Loyals, the term we use for customers who rate highly
define as loyal do not generate an adequate rate of return. on their attitude and behavior toward the company, and on their
The first step managers need to do to address this problem is value to the company. When customer value is included in the
to understand what customer loyalty really is. To be defined as measure of loyalty, the goals of improving loyalty and financial
loyal, it shouldn’t be enough for a customer to feel a bond to a performance are aligned. Not surprisingly, the percentage of
company, or to simply continue the relationship. It should also Profitable Loyals a firm has in its customer base tends to be
require the customer to engage in certain actions, or purchas- much more strongly correlated to the financial metrics firms use
ing behaviors. Most corporate measures of customer loyalty to manage their businesses than other commonly used loyalty
metrics.

B
focus only on the way the customer feels toward the brand or
company. But our research shows that simply gauging how cus- ut a focus on Profitable Loyals doesn’t just
tomers feel about a company is a poor indicator of how they will spontaneously happen. It requires the successful
behave toward the company in the future. If data about purchas- integration of all areas of management—accounting,
ing behaviors are added to the picture, it can help a company finance, marketing, operations, and human resources—in
identify not just who are the truly loyal customers, but also the profitably addressing the needs of customers.
ones which are profitable. Accounting needs to do a better job of analyzing the prof-
There will always be a group of customers whose loyalty is itability of customers. Managers need this information to
driven largely by expectations of great deals. Loyal customers effectively run their businesses. They need to know who their
clearly know when they are getting a good deal since they are profitable customers are, and what behaviors are associated with
active consumers of the product. The problem is that our research profitability. Paradoxically, one of the most commonly used

46 Loyalty Management | Loyalty360.org


“Creating and nurturing
real customer loyalty
requires satisfying
customer needs and
wants at a sustainable
profit. Too often,
customer-loyalty experts
have ignored the latter
in the belief that loyalty
and profitability are
synonymous.”

polygamous—they buy competing prod- consistently demonstrates that service


ucts from multiple companies with climate is positively linked with lower
seemingly no real loyalty. In other words, turnover, higher customer satisfaction,
customers divide their wallets among and improved financial performance.
competitors. Consequently, one of the Finally, we as managers have to
most important elements in improving fi- recognize and accept that not every cus-
nancial performance is getting customers tomer has the potential or desire to be a
to allocate a larger share of their wallets Profitable Loyal. But we should make it
to the firm. Research demonstrates that easier for those customers who have the
the strongest driver of share of wallet is potential and the willingness to do so.
customer loyalty, defined in its true sense. To begin, managers need to research and
Operations needs to do a better job discover what is keeping customers being
financial metrics—revenue—is a terrible of making certain that company-defined the desired profitable, loyal customers we
predictor of customer profitability. The quality, and customer-perceived quality all want. And managers have to recognize
highest revenue customers tend to be the are aligned. We must always remember the yin-yang aspect of meeting customer
most profitable or the least profitable. that the customer did not design the needs and meeting profit objectives.
Finance needs to do a better job of process, and they don’t care that the Creating and nurturing real customer
incorporating customer metrics in their system we have designed makes our loyalty requires satisfying customer
financial models when making invest- lives easier. It needs to make custom- needs and wants at a sustainable profit.
ment decisions. Our own research found ers’ lives easier. So when designing and Too often, customer-loyalty experts
that incorporating customer satisfaction implementing any process, we need to have ignored the latter in the belief that
into standard models used in investment experience the offering as customers do loyalty and profitability are synonymous.
finance significantly improved the ability (i.e., shop our own stores). Unfortunately, the marketplace has ir-
to pick winners versus losers. And the Human Resources needs to do a better refutably shown that this is not true. A
winners dramatically outperformed the job of establishing a climate for service in winning strategy focuses everyone in the
market by 2 to 1. the organization. By this we mean the pro- organization; accounting, marketing,
Marketing needs to do a better cedures, and behaviors that get rewarded finance, human resources and operations
job of focusing on current custom- and supported within the company with to come together for one cause: to profit-
ers. Today, customers are increasingly regard to customer service. Research ably create and keep a customer. L

Loyalty Management | September 2009 47


BEST BUSINESS PRACTICES

Engaging Customers for


Long-Term Success
Emotion Throughout the
Customer Life Cycle
by Scott Bauer – Hallmark Business Expressions

48 Loyalty Management | Loyalty360.org


Like any relationship, a consumer’s connection with a business has ups and
downs. These natural rises and dips often hinge on how the consumer interacts
with the brand along the way, from a face-to-face transaction and online point of
sale to other more intangible measures such as reviewing other customer ratings,
seeing advertisements or receiving e-mail or direct mail solicitations. Each of these
interactions provides an opportunity for the business to build and strengthen its
connection with that customer. From the moment consumers become aware of the
brand, these experiences become an important part of their brand perception and
affect their emotional connection to the business.

CUSTOMER EKG
The dotted line below illustrates emotional peaks and valleys that can occur in a
customer relationship. The solid line demonstrates how greetings can maximize
high points through affirmation & celebration and minimize low points through
accountability & incentives.

Enthusiastically
Recommends

Feels
Responds to Appreciated
Incentive Accepts
Apology
A recent independent national consumer
Impressed by
attitudinal study completed by Hallmark
Loyalty

Product/Service
Business Expressions underscores the
benefits of developing a customer
Acquisition Retention Win Back engagement strategy that uses emotional
drivers as part of the marketing mix.
The study revealed businesses using
Apathy

greeting cards—traditionally a consumer


Interest relationship-building effort—can engage
Wanes
Feels Taken customers. Among the findings, the study
For Granted
Enticed by showed that:
Competitor Experiences
Product/Service
Failure
n 85% of consumers say
that receiving a business

O
ver time, these experiences receptive mindset for any promotional or greeting card after a purchase
begin to look like an EKG, transactional message that is to follow. strengthens their relationship
plotting the highs and lows of A word of caution—while it can be with that business
the consumer’s relationship with the tempting to jump quickly to the transac-
business. Companies, through their sales, tional or promotional message, or even
marketing and customer service efforts, combine them with the emotional message, n 50% of consumers who receive
have the ability to maximize the highs and it is vital that the balance between emo- business greeting cards
minimize the lows by employing a strategy tional connection and selling be preserved. are more likely to do future
that creates an emotional connection which Companies cannot afford to risk even the business with the sender
helps foster engagement and build loyalty appearance of insincerity.
across all phases of the customer lifecycle.
Successful companies endure because n 45% of consumers receiving
Brands that are strategic about using
they understand engagement and advocacy
emotion during all phases of the customer business greeting cards will
requires more than just customer satisfac-
lifecycle create mutually beneficial relation- say something positive about
tion. They know establishing a relationship
ships with their customers and even out the
with customers which reinforces the con- that business to others
peaks and valleys inherent in any business
relationship. sumer’s emotional drivers—feelings of self
It is important to establish and con- esteem, contentment, recognition and The study also showed that greeting cards
tinually reinforce an authentic emotional appreciation by a business—can turn a can ratchet up the trust factor between
connection between you and your cus- one-time buyer into a long-term advocate, businesses and their customers. Employing
tomer with every touchpoint. The essence a true brand ambassador who not only marketing tactics that drive trust helps
of that connection is this: “We understand, supports the organization, but also recom-
to establish a relevant connection with
appreciate and recognize your value to our mends it to others. By positively engaging
customers. L
company and intend to make every effort consumers you can drive behavior and
to please you.” This approach encourages a create long-term ROI for your business.

Loyalty Management | September 2009 49


BEST BUSINESS PRACTICES

LOYALTY PROGRAM PROFILE:


Chase Ultimate Rewards
Amid many changes in the banking
and lending industry, including cut Benefits of Ultimate Rewards:
backs of benefits and reductions in Point Earning:
n E arn points on every purchase—1 point for virtually* every $1
credit lines, in June, J.P. Morgan Chase you spend
& Co. launched a new card-rewards n E arn extra points when shopping through the Ultimate
Rewards Mall online
program—Ultimate Rewards.
n E arn double points when you book flights on the Ultimate
We decided to take a closer look Rewards website
at this bold move. n There are many levels / card products with the Ultimate
Rewards program attached; some products have additional
benefits and further earn options
To learn more about this program, we visited Added benefits:
www.ultimaterewards.com. On the landing page we’re invited to n U nlike a number of programs in the marketplace, points do
take a tour of the program. At first glance it appears prospective not expire
cardholders have to choose a program style: merchandise rewards,
n You can purchase additional points; up to 5,000 additional
cash back or travel. This can be an unfortunate misinterpretation
points per month
and lead potentially interested players away. Once you choose
your path the introduction goes beyond what others are doing to Redeem points for:
explain program benefits and create excitement for the Ultimate
n M erchandise: Historically card reward programs provide
Rewards program. You find out here, that the program is in fact
a limited merchandise selection, sourced once a year,
limiting access to current products such as electronics. All
merchandise in the Ultimate Rewards program is sourced and
“All merchandise in the Ultimate Rewards fulfilled through Amazon.com offering members the latest
program is sourced and fulfilled through models and largest selection of products available.
n Travel: The online travel redemption allows cardholders to
Amazon.com—offering members the use points or a combination of points and your Chase credit
latest models and largest selection of card. So if you don’t have enough points for your flight, you
can pay for the rest via your Chase credit card.
products available.” n Cash: Cash redeems at 100 basis points; use 1,000 points and
receive $10. Note, redemption checks do expire! You have 120
days to cash the check.
all encompassing. If you take the time to listen to the short audio All this and there’s no annual fee on most cards!
accompanied dynamic slide show, program benefits are explained
in detail. This is what makes it nice. This short commercial feels like Some cards, the Chase Freedom cardholders who want to earn
someone is there sitting with you to chat about how the program a fixed 3% on gas, grocery and fast food have a $30 annual fee.
works and why it is great. It’s inviting, easy to use and understand And the Chase Sapphire Preferred card has a $95 annual fee—for
and very different than I’ve seen with other cards (or programs for this fee the cardholders get Ultimate Rewards plus the ability to
that matter). transfer points to other travel reward programs.

RECOMMENDATION
In reviewing other available credit card programs, we give Ultimate Rewards
The ability to easily earn additional points, the fact that points don’t expire, the cash value and most exciting,
the large and current merchandise selection, make this program stand out!

Each issue we’ll be sending our secret shopper out to experience a particular brand first hand. Our shopper will sign up for the
loyalty program, if one is available, and interact with the company at least 3 times, then share their experience with all of us.
Your suggestions for the next brand review are welcomed: email your suggestions to mailbag@loyaltymanagement.com.

* You will earn 1 point for each $1 of net purchases. You will earn an additional 1 point for each $1 of eligible airfare net purchases made online through the program booking tool. You
do not earn points on balance transfers, cash advances, cash-like charges such as travelers checks, foreign currency, and money orders, any checks that are used to access your account,
overdraft advances, interest, unauthorized or fraudulent charges, or fees of any kind, including fees for products that protect or insure the balances of your account.
L

50 Loyalty Management | Loyalty360.org


SAVE THE DATE FOR THE 2010

JUNE 6-8, 2010


OMNI CHAMPIONS GATE
ORLANDO, FLORIDA
www.loyaltyexpo.com

THE CONFERENCE BRINGING PEOPLE TOGETHER TO


FOCUS ON MAXIMIZING CUSTOMER, EMPLOYEE,

& CLIENT RELATIONSHIPS


INTERESTED IN SPEAKING OR BOOTH SPACE?
Contact Erin Raese at erinraese@loyaltyexpo.com
Loyalty Management | September 2009 51
LOYALTY
PRSRT STD
Prsrt Std
U.S.
U.S.POSTAGE
Postage
MANAGEMENT PAID
8190-A Beechmont Avenue #332,
#332 CAROL
CAROL STREAM, IL
IL
Cincinnati, OH 45255
PERMIT No.475
Permit No. 475

engagementEXP ™

new
d at
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or m
NOVEMBER 18 & 19, 2009 f
r m ation
Sheraton Chicago Hotel & Towers info gister,
re
Chicago, IL • engagementexpo.com or to k out:
chec p o.com
e ntex
The Engagement Expo will take a deeper look at the best
n g a gem
practices of engagement and experience management, e
focusing on brand, client and product perspectives.
We will bring a strong list of speakers, sponsors, and exhibitors
to address the various areas of engagement such
as word-of-mouth, experiential marketing, Brought to you by:
social media, interactive media and tech-
nologies, forums and communities, as well
as traditional media — and how to leverage these as part
of your marketing communication mix.

If you're interested in sponsoring at this conference, please contact Mark Johnson at markjohnson@loyalty360.org

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