Loyalty 101

Loyalty 101

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The Set Up!

All Customers Are Not Created Equally

“It’s OK To Play Favorites”

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The Set Up!

“If you want to change attitudes, start with changing behavior.”

Walt Disney

“Attitude is the speaker of our present; It is the prophet of our future.”

Winston Churchill

Loyalty 101

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Developments and opportunities: Maritz true loyaltysm lifecycle

engagement

marketing

consumer

loyalty

sales channel

loyalty

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• over 127 million customers choose Walmart vs 68 million who choose to watch the evening news each week

• 70% of purchase decisions are made in-store and 68 percent of in-store purchase are “impulse buys”

• investment in Shopper Marketing is estimated to be growing 21% annually; Canadian growth rate is even higher

• 86% of Canadians actively participate in a loyalty program vs. 52% in the US

• 5 loyalty cards in a Canadian wallet vs over 15 cards in the US

• 5650 advertising & marketing companies in Canada

Market updates

Loyalty 101

“Consumers seem to be moving faster than the retail industry itself. [They] are less brand-connected, more in control, and in all things mobile “

Kiril Tatarinov, Microsoft Corporate Vice President of Business Solutions, Retails BIG Show NYC Jan 11,2011

“There’s clearly something that’s resonating about the fact that you can feed a family in America just by walking into McDonald’s or help an injured animal by the time you’ve ordered your latte at Starbucks.”

Cyriac Roeding, Causeworld founder

March 1, 2010

Follow The Ad Money

Opportunities Benefits Features SuccessImpact Research

Loyalty 101

CMG Study 2009

Loyalty Program Impact On Buying:

Customers who join loyalty program attached to a credit card will almost immediately spend more on that card by a multiple of 2 or 3 times what they were spending on the same card before they joined the associated loyalty program.

The second and far more significant behavior change occurs when the customer makes their first redemption for a reward. At this point their spend on the card increases again by a factor of 3 to 8 times their pre-loyalty program spend.

Do Loyalty Programs Work?Do Loyalty Programs Work?

Do Loyalty Programs Work?

Loyalty 101

Maritz Top of Wallet Study:

- 63 percent of current and prospective debit and credit card rewards program participants said they would choose a card that allowed them to earn more points by shopping with a specific merchant over other cards.

Maritz Top of Wallet Study:

- 63 percent of current and prospective debit and credit card rewards program participants said they would choose a card that allowed them to earn more points by shopping with a specific merchant over other cards.

Dog Lover

SuccessImpact Research

Loyalty 101

• Point based program participants outspend non-participants at an average ratio of 2.5 to 1

• Number of purchasing transaction increase by 53 percent

• Value of purchases will increase by 51 percent

Loyalty Point

Program Research

Loyalty Point

Program Research

Maritz Loyalty ResearchLoyalty Point Program Research

Loyalty 101

• Rewards that matter• Easy to redeem• Choice in rewards• Tracking & awareness• Small to big rewards

Maritz Loyalty Marketing Almanac Study: Small businesses in loyalty programs redeem points for larger valued rewards and rewards for things they need for their businesses. In addition, business owners redeemed 35% of points for travel.

Key To Program SuccessKey To Program Success

Key to Program Success

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Lessons From

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A Simple Question

Do You Know What Your Best Customer Looks Like?

?

?

??

??

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A Simple Question

And If You Do – NOW WHAT?

? ??

?

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Customer Is King

Not All Customers Are Good Customers

Challenged Myth

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"The research shows clearly that the existence of a loyalty card scheme is not associated

with a degree of loyalty in shopping habits."

-Source: Customer Loyalty Today

If I’m In Your Pocket You Must Be Loyal

Just Because They Carry Your Card Doesn’t Mean You’ve Captured Their

Heart

Challenged Myth

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Keeping Customers Is Cheaper Then Getting New Ones

Not If You Lose The Bad Ones And Find More Of The Good Ones

Challenged Myth

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Loyalty Is…

Challenged Myth

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Loyalty Is…

Challenged Myth

Knowing Who Your Customers Are

Understanding Who The Best Are & Why

Building A Bond Beyond The Price Tag

Finding More Of The Same & Growing What You Keep

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Loyalty Is…

Challenged Myth

Understanding How Your Best Customers Think

Capturing Their Hearts & Devotion

Rewarding Their Loyalty & Support

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Long-Term vs. Short-Term

“Customers who glide into your arms for a coupon or minimal discount are the same customers who dance away with someone else at the slightest enticement.”

-The Loyalty Effect

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Long-Term vs. Short-Term

Loyalty Drives Long Term Behavior

Discount-driven customers are not loyal customers—they will move to a competitor when attracted by lower temporary pricing

Frequency program:

“I get this for buying that.”

Incentives/Promotional Programs

Incentives/Miles Programs

Frequent Flier Miles Programs

Competitive Scale

Incentive Programs short-term

customer acquisition

Loyalty Programs

customer retention

Better customers are less sensitive to price and are more concerned with the value proposition of the company

Loyalty program:

“I am given value for being a loyal customer.”

Long term

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History Of Loyalty

A Simple Beginning

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History Of Loyalty

It Was How Small Business Did Business: New the best customers New the worst customers Was able to offer more services to the best Owner was involved in all aspects

As Things Changed : Increased competition weakened the bonds Increased complexity blurred the relationships Increased organization size numbed the brain

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History Of Loyalty

By The 1950’s: Manufacturing Was King = Product Volume 230 Brands Of Refrigerators Birth Of Mass Marketing A Customer Is A Consumer Businesses Lost Sight Of The Customer

By The Late 1970’s : America Consumers Tired Of Bad Business Rejection Of Poor Quality & Low Customer Service No Longer Loyal To A Brand

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History Of Loyalty

The Start Of Modern Loyalty Actions Most Were Unsophisticated Offerings: Merchandise & Coupon Based S&H Greenstamps Raleigh Cigarette Coupons Mainly Consumer Frequency Programs

Market Conditions Created A Shift Towards Longer Term Relationships

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Birth Of Frequent Flier Miles

1981 Regulatory And Market Changes Give Birth To FFP

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History Of Frequent Flier Miles

1981 American Airlines Invents Frequent Flyer Miles

Others Quickly Follow

Loyalty Becomes Impossible Without A Planned Program

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FFPs: Network Expansion

Car Rentals Hertz joins and subsequently drops, citing

the high costs. Later rejoins after dramatically losing market share without a FFP

Today Hertz belongs to 20 FFPs

Hotels After in-house Frequent-Stay Programs,

hotels conclude that the greatest marketing benefits still come from the FFPs

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Insight

"We didn't want an FFP. But it came to my attention that FFPs were siphoning business travel away from us. We did it defensively, and I think if we had not done that we would have been terribly disadvantaged."

Herb Kelleher, President, Southwest Airlines

First 20 Years Of FFP 9.77 Trillion Miles Accumulated

- Source: InsideFlyer Magazine 2001

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FFPs: Expansion Continues

Banks Team Up With Airlines

Activation

Spend Acquisition

SPEND

ACTIVATION

ACQUISITION

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FFPs: Expansion Continues

Co-branded Cards Wildly Successful

Average spend up to 10x higher

Active account rate up to 80 percent or higher

Attrition and acquisition costs decline

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FFP Membership Takes Off

Worldwide Frequent Flier Membership Growth continues

From 150,000 members in 1981 to 200,000,000 members in 2001

Proven cardholder addiction to miles by the fact that more miles earned via a card than by actually flying

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Why Miles Were So Successful?

Rewarding the Behavior You Seek:

Highly Appealing

Aspirational Value - People love to envision

themselves in their dream destinations that air travel can

take them to.

Trophy Value -Traveling is something to be proud of.

Perceived Value- More valuable than t-shirts or CDs.

It’s the Law - Gravity, Direction, Universal Principle

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Problems Begin

By 1991:

All major airlines and banks established exclusive relationships

Hundreds of credit card issuers locked out

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Solution Found – Generic Points

1994: “Virtual Airline” is Born The Idea

Run the world’s largest airline partnership and outsource the jets, pilots, flight attendants, airport operations

Miles by a different name Single Branded Miles vs. Co-branded Miles Generic vs. Branded Points Non-Restrictive Points – Any Airline In The

World Improved rate of attainability

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How Generic Points Work:

Sold to Over 125 of the largest US Banks

Consumer Acceptance: fees $25 to $75

Spend Ranges: $8,000 to $22,500 a year

Officially Sponsored by MasterCard

Amex plays “Follow the Leader”

$200 Billion + Spent on Enrolled Cards

No need to Co-brand with an airline partner

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Unrestricted Points Are Simple & Powerful:

Compelling Offer: Free travel – high perceived value No complicated conversions Singular reward

Customers join for free or fee, i.e., Fee for Classic and Gold cardholders Free for Platinum cardholders Fee for Small Business cardholders

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Learning’s Gathered

Data Begins To Chug In

Loyalty 101

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Loyalty Learning's

Consumer Reaction to a Loyalty Program*

. . . can attract new business . . .

80%

52%

70%

16%

40%

24%

8%

6%

4%

0% 20% 40% 60% 80% 100%

Credit Card

Retail

Airlines

More business than before

Already giving company as much business as possible

Would have given them more business even w/o program

73%

18%

24%

18%

43%

47%

8%

39%

27%

1%

0%

2%

0% 20% 40% 60% 80% 100%

Credit Card

Retail

Airlines

Use just that company

Shop around/spread purchases less than before

Shop around/spread purchases same as before

Shop around/spread purchases more than before

“Companies can boost profits by almost 100% by retaining just 5% more of their customers.” - Harvard Business Review

45% started doing business with a company because of their loyalty program

. . . and ultimately drive profitability

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Consumers were asked, “For what type of product do you prefer to redeem your loyalty balances?”

Consumer Reaction to a Loyalty Program

26%

14%

12%

10%

4%

0%

0%

1%

18%

12%

18%

34%

0% 10% 20% 30% 40%

Under $30K

$30K - $49.9K

$50K - $74.9K

> $75K

Avera

ge A

nn

ual In

com

e

Source: Jupiter Communications/NFO (2/00); N=1,478

• Across all income levels, travel is a strong loyalty incentive

• The power of travel becomes more pronounced as income levels increase

Cash\Gift CertificatesCharityTravel

Loyalty Learning's

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Consumers were asked, “What type of reward would you prefer?”

Consumer Reaction to a Loyalty Program

Airline Miles

Gift Certificates

Merchandise from a Catalog

% Off Coupons

None

52%

16%

12%

11%9%

Source: The Loyalty Effect, Frederick Reichheld.

Loyalty Learning's

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Loyalty Learning’s

71% of consumers if FFP said they wouldn’t trade their frequent flyer benefits for lower airfares.

Source: Frequent Flier Magazine

The proven addition of miles can drive repeat purchases and maximize customer lifetime value.

Source: Hambrecht & Quist

Consumers charge about $3,200 a year on a typical credit card – add miles and they spend more than $18,000 a year.

Source: Bank Rate Monitor

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FFP Learning’s

How “Free Travel” Can Profitably & Quickly Increase Revenue Channels:

Number of cardholders, activation rate, charge volume, frequency and average purchase of existing base

Profitability and loyalty of key customer segments – moving existing customers up the spending ladder

Drive conscious choice in cardholders’ minds to be loyal to your bank – particularly your “best” customers

FREE TICKET

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FFP Learning’s

How “Free Travel” Can Profitably & Quickly Increase Revenue Channels:

Develop distinct differentiation over your competitors Provide a low-cost, comparison program to “Rewards

Program” pilot tests in selected product or segments Create stickiness to annual fees Charge enrollment fees

FREE TICKET

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The Market Never Stops Changing

The Next Wave Takes Shape

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The Evolution Continues

2000 Next Generation Of Mile Program

Miles + Network + Card + Travel

Shift From Frequency To Loyalty

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The Vision Of WebMiles

Change The FFP Landscape Offer One Of The Most Valued Rewards –

Unrestricted Airline Points – To Drive Profitable Cardholder Behavior

Any Airline. Any Flight. Any Time. sm

Unlike Carrier Mile Programs – No Restrictions, No Blackout Dates, No Limited Seating

Gain Member Value Through “Dollars Off” Build A True Loyalty Network Earnings Velocity Through Attainability – More Than

Web, Every Day Shopping

The Power Of The Universal Mile

Loyalty 101

49Availability: 11 out of 134 seats or 8% Availability: 123 out of 134 seats or

92%

Availability drastically enhanced. Rather than

being limited to an estimated 8% of seats, WebMiles has 92% of

seats available.

Flexibility drastically enhanced. Rather than one airline, WebMiles

can book on any major carrier.

Travel-based loyalty solution with one airline

The Power Of The Universal Mile

. . . Or any other airline

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300 Miles 800 Miles250 Miles100 Miles 375 Miles300 Miles

$ 300 $ 300$250$ 100 $ 75$ 300

Gas & OilGrocery Electronics Trip TeleComRetail

(online & offline)

+ + ++ +

The Network as a Catalyst for Increased Spend and Activation

Miles Earned Through Partners: 2,125Miles from Card: 1,325 +

Total Earning that Month: 3,450 +

PLUS all other card purchases

outside the partner network

$Purchases on

card at partner retail locations

Universal Mile + Network + Card

XYZ BANK

$1,325

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$0

$100

$200

$300

$400

$500

Incre

ase in

Mon

thly

Ch

arg

e V

olu

me (

in

$M

illion

s)

* Revenue figure based on 2.9% of gross charge volume in interchange and miscellaneous fees, plus 60% revolving balances at 13.9% annual interest.

Average Monthly Spend

Incremental monthly revenue charge volume increases over 400% & revenues increase $100Million + a year.

Sample Card Issuer with 200,000 cards

Increased Spend

Increased Activation

Increased Acquisition

TOTAL

$ 4.0 M

$ 2.7 M

$ 1.9 M

$ 8.6M

$ 48.0 M

$ 32.8 M

$22.3 M

$ 103.1M

Monthly Revenue Increase

Annual Revenue Increase

EXAMPLE*

Incremental monthly charge

volume goes from $72M to $314.2M—an increase of

430%

Universal Mile + Network + Card

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Applied History + Learning’s

How To Ride The Wave

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Reichheld Loyalty Effect Model

Six factors that allow companies to form a clear view of a customer's life-time value:

The Yard Stick To Judge By

Cost of customer acquisition Base profit

Increased profit from additional sales Reduced operating costs of a loyal customer

base Profits from loyal customer referrals

Price premiums charged to loyal customers who are less price sensitive

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When Forging New Alliances

Leveraging What Each Partner Does Best Customer Ownership

Clear demarcation between who owns “touch points”Privacy plays a big part in customer ownershipNo one partner brings the customer to the table

Exit Strategy From The Start Intellectual Property – Don’t Play It Too Close To The

Vest Co-Branding – No One Partner Likes To Think Of Their

Brand Being Subservient To The Other

Considerations

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Profitability MetricsPartner economicsTough without “open books”Be careful of “who stands to gain more” thinkingAddress immediately “the feeling the other partner is gaining more” – otherwise a short-term relationship

Brand Reputations Partner Customer Base Partner Business Philosophy Partner Product & Services

Considerations

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Metrics Which Overlap Partners Include:AcquisitionAttritionAverage SpendActive Account Rate

Apply Learning’s From The Past Into Future Contract DevelopmentsPricing adjustments built in based on movement of economic variablesAllows the impartial third party – the market – to impact pricing, reducing partner volatility

Considerations

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Partner Financial Contributions:New Account AcquisitionShare Vale Proposition FundingOn-going Activation/Retention Marketing EffortsHuman Resource Commitments

Contract Development:Requires Dedicated TeamTime FactorMultiple Contract TemplatesRegular Scheduled Meetings

Considerations

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Key Profit Drivers:Annual Fees% Of Active AccountsAverage Number Of TransactionsAverage Transaction SizeAverage Total Spend/AccountAverage % Of RevolversAverage Revolving BalanceAverage % Interest RateAttrition Rate

Considerations

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Keep Two Simple Thoughts In Mind:

Considerations

1. The Real Art Of The Relationship Will Be Managing Circumstances Beyond The Contract - A Contract Doesn’t Make A

Relationship

2. The Whole Is Greater Then The Parts – Each Party Brings Value, Ideas And Strength

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As An Industry We Need To Keep In Mind:

Industry Wide Focus

Attainability Of The Program Member

Limited Earnings Capability = Short-Term Loyalty & Interest

Single Partner, Stand Alone Programs

Even Top Customers Can’t Make For A Successful Program – It Requires A Network

Mind Set – “But I Don’t Travel”

Getting More Than The Top 8% Of A Base To Realize They Can Travel

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The Close!

“All things are created twice: first mentally; then physically. The key to creativity is to begin with the end in mind, with a vision and a blueprint of desired results.”

Stephen Covey

“If you can keep your head while those all about you are losing theirs, you probably haven’t check your voice mail.”

Jack Hennies

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Conclusion

Card Partners + Networks + Miles + Travel

Makes For A World Of Difference

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Conclusion

The best way to keep your customers coming back is to send them away.

Oddly enough, the ticket to cardholder loyalty really is a ticket.