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_ 11. December. 2012

CustomerLoyalty

Rewards

Matt RowettPoints: 797

Favourites:• Lincolnshire Sausages• Spicy Nuts

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Customer Loyalty

ANNICH McINTOSHEditor of Loyalty Magazine and chief executive of The Loyalty Awards, her specialisms include customer loyalty, social media, technology and payments.

LIAM McLOUGHLINBusiness-to-business journalist, he specialises in customer loyalty, retail, marketing, payments, social media, technology, mobile, fraud and security.

MARK PALMERFounder of strategic change consultancy Maverick Planet, he has worked with Google, The Economist, Vodafone, Dixons, Sky and eBay.

JANE SIMMSFormer editor of Financial Director and Marketing Business magazines, she writes for a range of business publications and blue-chip clients.

PETER WRAYConsultant on loyalty and data insight to leading global companies, he is a frequent contributor to specialist media on customer loyalty.

Distributed in

Publisher Nadine Amer

Editor Annich McIntosh

Managing Editor Peter Archer

Design The Surgery

Contributors

Uber fullpage ART 264 x 388.indd 1 10/12/2012 12:03

Ȗ Delivering instant gratification to a consumer is part of modern-day loyalty.

It can be in John Lewis with access to knowledgeable and helpful staff or clicking online and collecting in-store. Vodafone, for example, has flipped the negative experience of being on hold for customer service by guaranteeing to call you back soonest.

The irony that comparethemar-ket.com, a company which has disrupted the concept of loyalty in insurance, would be the one offer-ing the loyalty incentives, in the shape of collectable meerkat dolls, may be lost on some.

But technology and social inno-vations have changed what brands do to grab customer relationship, and have also changed consumers’

ideas of what loyalty means.Smartphone penetration is

around 50 per cent in the UK and predicted to be 100 per cent in five years. In the United States, a study by Interactive Bureau reveals that 53 per cent of consumers have stopped an in-store purchase as a result of price comparisons using their mobile phone. Thirty per cent have done so because they found a better price online.

Being "liked" on Facebook, because you’ve given someone free stuff, is like being popular in a bar for buying strangers drinks. Calm down if you are a retailer being followed on Twitter. According to recent research by LBi, a third of all Twitter users follow at least one retailer.

Think you are ahead of the curve offering mobile coupons, tickets, store cards or boarding passes? Watch out - the latest

iPhone software update has an app called Passbook, which puts all these different mobile-com-merce offerings in one place and connects to the app store.

Built a mobile app? Sorry, it is only a temporary respite without bigger consumer insights, benefits and an active joined-up social community of users to go with it. Getting an app downloaded doesn’t mean it will be used. Being used doesn’t mean it increases

loyalty. The ill-fated Comet elec-trical retail chain has an app with a geo-store-locator, barcode price reader and links to magazine product reviews. It didn’t make consumers more loyal to Comet.

Compare that to Amazon’s in-app search bar, which allows users to type in a keyword, scan a mobile bar code and snap a picture of an item for Amazon to match, not only on price but also on delivery. It is set up to make “showrooming” easy by checking a product in-store and buying it online. The app is synced to your online account. Your experience is personalised. Clicking to buy out-of-store is as convenient as can be.

Social and mobile can increase convenience, but also build new forms of loyalty and word of mouth. This is epitomised by Starbucks in the US. Its loyalty card migrated to mobile. It’s the

biggest pioneer of mobile pay-ments – more than a million a week. Under the “My Starbucks Idea”, consumers can suggest and vote on new product ideas. They can even suggest the furniture for a new store.

However, with social power also comes great social responsibility. When news broke recently that Starbucks paid no corporation tax in the UK last year, the initial four-day spike reached more than ten million users on Twitter. Research conducted by social media agency Yomego showed 1,400 unique mentions of “boycott” appeared from November 12 to 17.

Chief executives may want to control and departmentalise a company’s brand behaviour, its loyalty programmes, customer service, use of digital, social and mobile, but it just isn’t their deci-sion anymore.

OVERVIEW

Technology and social innovations have changed what brands do to grab customer relationship

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37%are happy receiving general offers rather than rewards tailored to shopping habits

Smell the coffee of the digital age

Social media is increasingly dictating the customer loyalty agenda as smartphones and mobile apps conquer the high street, writes Mark Palmer

using smartphones to compare prices

has stepped up competition

source: the Logic Group and ipsos Mori

46%trust companies who run loyalty schemes and keep personal information safe

prefer loyalty schemes with improved offers and services for being more loyal

70%

42%prefer to receive offers and rewards while shopping rather than later

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Customer Loyalty

Ȗ Big data is a term increasingly bandied about to describe the terabytes (TBs) of stored informa-tion now being held in databanks around the world.

It is potentially big business. This is true not only for the mega IT companies that want to col-lect, store and interpret the mass of data, but also because, for every single company, it offers the chance to learn more about every facet of their business, customers, and the goods and services provided.

Big data refers to data of all types, but scientists are responsible for a great deal of it.

To give one current example, the new Large Hadron Collider at CERN on the Swiss-French border is capable of generating 40 TB of data per second of operation. Astrophysics, genetics and mete-orology are all areas of scientific research producing data at large and ever-increasing rates.

In the context of customer loy-alty, big data enables companies to learn even more about the actions and behaviour of consumers, especially online users, potentially providing useful insights into our wants and needs.

Take Google for example. It manages to interpret our searches and even the words in emails to trigger advertisements on the subjects we may be interested in. Is this helpful or a gross invasion of privacy? Regardless of your moral stance, the analysis of big data is like a giant rolling snow-ball and its progress can only be wondered at.

Data has been interpreted for a long time. Tesco for example, reinvented itself using data ana-

bIg data

Getting to know your data is big businessBusinesses are successfully analysing vast amounts of data to understand consumer behaviour and forecast trends, as Annich McIntosh discovers

lytics and this is a well-accepted tenet of all loyalty programmes. Their principle was easy for con-sumers to understand. If they agreed to share their shopping behaviour with the retailer, they would receive loyalty points as a thank-you. Most of us agreed.

The issue gets rather more blurred as this collection moves into the online space.

Data generated by the users themselves has until recently been very difficult to analyse and inter-pret. Under this label of “unstruc-tured data” or textual information, would come all social media posts, including Twitter and Facebook, “recommends” and “likes”. To be able to usefully analyse these would be a massive advantage for any company.

This new category of textual information generated by people through emails, instant messag-ing, blogging and so on contains both structured and well-defined fields, together with more free-form information where context and inference are vital to a com-plete understanding of the infor-

mation. It is sometimes called “hybrid data”.

A further category, and by far the largest, is audio, image and video data. This data has the loosest structural characteristics, is the most voluminous, and is the most difficult from which to extract meaningful conclusions and useful information.

Unstructured and hybrid data categories are at the heart of the current excitement around big data. Businesses, including Ama-zon, Google, eBay, Twitter and Facebook, are using this infor-mation in enormous volumes to understand consumer behaviour, and predict specific needs and overall trends.

So what is so important about hybrid data?

Kris McKenzie, head of cus-tomer relationship management (CRM) at SAP UK & Ireland, describes it as: “Information which comes in all forms, shapes and sizes. In each customer inter-action, vast quantities of both structured and unstructured data is generated in a multitude of

guises. This can be anything from text to numerical information, of which all requires analysis in order to develop valuable insight into customer preferences.”

He says: “The biggest sin busi-nesses can make in this situation is wasting data. Companies are guilty of hoarding data, which they have no idea how to manipu-late. This effectively results in money and valuable resources going down the drain, not to men-tion the fact that this makes your

business vulnerable in the face of competitors who are optimising the information.”

So where does all this leave us, the consumers, to whom much of this data refers?

Some 2.7 zetabytes of data exists in the digital universe today. Pre-dictions estimate that 35 zetabytes

of data will be generated annually by 2020. IDC estimates that by 2020 business transactions on the internet, including both busi-ness-to-business and business-to-consumer, will reach 450 billion per day. Facebook alone stores, accesses and analyses 30+ peta-bytes of user-generated data. How do you make sense of it all? Is there a benefit to making sense of it?

Nick Whitehead, senior director of IT company Oracle, who is the author of a recent white paper on information management and big data explains: “What organisa-tions are beginning to work up to is the capture and analysis of model data that has never been captured before. It is a natural extension on what has been hap-pening previously. For example, shopping behaviour can be ana-lysed now in specific locations; the social media stuff can be added and this mix of the old and the new can be very useful.”

Geolocation, which enables com-panies to know where customers are using their mobile smart-phones, is another good example of where big data can be useful. “We can tell where customers are but, until recently, we couldn’t match that with what they had done previously or what it was they had been researching online that they wanted to buy,” says Mr Whitehead. “Using this informa-tion, companies can serve consum-ers better.”

Patrick Rohrbasser, chief execu-tive of customer insight consul-tancy emnos, likens the current frenzy around big data to the mid-1990s when retailers launched loy-alty cards without the IT capability to usefully analyse the millions of transactions a day that were generated.

“Then, as now, the challenge was analogous to attempting to drink from a fire hose without drowning,” he says. “Analysing big data requires special skills within an integrated team, under-standing the retail challenges and then being able to isolate those data sources that can most cost-effectively be brought to bear on the problem. It requires retail knowledge, data management best practice, technology, analysis capability and transformational consultancy to ensure the whole business benefits.”

Regardless of your moral stance, the analysis of big data is like a giant rolling snowball and its progress can only be wondered at

short-term reward programmes

Pages 10 & 11

there is more data generated than ever which can be analysed to understand customer behaviour

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Customer Loyalty Customer Loyalty

Ȗ Richard Owen, chief executive of Satmetrix, admits he received the worst score possible from confer-ence delegates for saying surveys are going to die out.

“It is a heresy in our industry. Satmetrix makes a huge amount of money out of data analysis, but we recognise that it is a dying technol-ogy,” he says.

Why does he think that? Because he believes that, in the future, it will no longer be necessary to ask customers what they think, because social media is providing all the data companies need about their customers.

To appreciate his view, it is necessary to understand the “net promoter score” (NPS).

A massive 86 per cent of the world’s top 1,000 companies use NPS. This is the name for the process based on the fundamental principle that every company’s customers can be divided into three categories: promoters, pas-sives and detractors.

By asking one simple question, “How likely is it that you would recommend your company or product to a friend or colleague?” the developers – Fred Reichheld, Bain & Co and Satmetrix – claim it is possible to track these groups and get a clear measure of a com-pany’s performance through cus-tomers’ eyes. Customers respond on a 0-to-10 point rating scale and are categorised as follows:• Promoters (score 9-10) are

loyal enthusiasts who will keep buying and refer others, fuel-ling growth

• Passives (score 7-8) are satis-fied but unenthusiastic cus-tomers who are vulnerable to competitive offerings

• Detractors (score 0-6) areunhappy customers who can damage your brand and impede growth through nega-tive word of mouth.

To calculate your company’s NPS, take the percentage of cus-tomers who are promoters and subtract the percentage who are detractors. You can do this with everything. Take a straw poll from your family and see how they feel about you today.

NPS can be as low as −100 (eve-rybody is a detractor) or as high as +100 (everybody is a promoter). An NPS that is positive (higher than zero) is felt to be good and an NPS of +50 is excellent. Companies are encouraged to follow this question with an open-ended request for elaboration, soliciting the reasons for a customer's rating of that com-pany or product. These reasons can then be provided to front-line employees and management teams for follow-up action.

But does satisfaction equate with loyalty? “Not completely,” says Mr Owen. “Satisfaction is too low a bar for loyalty. It doesn’t mean you would recommend or buy another. For example, if you are asked ‘Are you satisfied with the stay at your hotel?’ you may answer ‘Yes’, but is there sufficient of a ‘wow factor’ for you to recom-mend it?”

Is it possible to attach financial measurement to NPS? “There is a connection between customer experience excellence and some financial measure,” says Mr Owen. “It is simple and powerful. Cus-tomers who have a very strong proposition to recommend equate to promoters. It has such a strong economic value to the business. Take the example of Four Seasons Hotels. The bar for success is very high. Even so, they blow away people’s expectations.”

Despite its popularity among business executives, NPS has attracted criticism and contro-versy among academics and mar-ket researchers. Many argue there is no scientific evidence that

MEaSURINg CUStOMER PREFERENCES

Separating the detractors and passives from the promoters

To know the score in business, you need to measure company performance through customers’ eyes, as Annich McIntosh reports

the "likelihood to recommend" question is a better predictor of business growth compared to other customer loyalty questions, (for example, overall satisfaction, likelihood to purchase again).

So who would Mr Owen suggest as an example of an organiza-tion doing NPS well? “Aggreko is one. It is 73 on the FTSE index. It is the best B2B [business-to-business] company in the world. It rents out power generating equipment. It was in charge of the closing ceremony of the Olympics for this.”

He believes two seismic events have taken place recently that are impacting the way businesses should analyse their customer behaviour and preferences. These are the decline of surveys and rise of social media feedback.

Every consumer is inundated with requests to complete a survey and they are becoming choosy who to give their feed-back to. “From now on, people are going to post their thoughts in the time and place of their choosing,” says Mr Owen. “It is as if they are saying to us, ‘You guys

have to figure out what question it is I want to answer’.”

On social media, he says: “They are handing us the gift of a life-time; they are telling us what they think. They are important and you need to realise how impor-tant. Conversation is the primary source of comment. Companies are going to have to mine conver-sation and chat.”

An interesting question is how email, social media generally and, of course, Twitter are affect-ing the future of NPS? Mr Owen admits that they are. “The NPS currency still works, but yes, we have had to change our business model. Everyone will. Some are not quite ready for this, which is why I received the bad conference mark for saying surveys are dead.”

So is the future unstructured data? “Yes,” he says. “It means, ‘In your own words’. We no longer need to know who you are. We will probably know you just by your Twitter Handle. This doesn’t matter. It is what you are saying that counts.”

There is a certain irony in the fact that even comparison web-

sites are being benchmarked using NPS.

TripAdvisor emerges as the top choice for customer experience in this category with an NPS of 29, just ahead of Booking.com in second place with 25 points. The measurements take in customer comments, made via social media, concerning hotels and airlines.

In the highly competitive mobile telecoms market, Tesco Mobile claims the top position with an impressive NPS of 47, 27 more points than the average score for the sector and 13 points ahead of the second-placed com-pany O2.

In terms of the key satisfaction drivers in the mobile network sector, ease of doing business and product or service reliability receive the most positive feed-back, while online experience and customer service are earmarked as areas which have the biggest room for improvement.

The Apple iPhone again claims the top spot in the mobile phone category with an impressive NPS of 69, taking a comfortable lead on Samsung in second place with 49.

To calculate your company’s NPS, take the percentage of customers who are promoters and subtract the percentage who are detractors

Ȗ The proposed European Union Data Protection Regulation was introduced in January 2012 and put forward reforms that represent the most significant overhaul of Europe’s data protection and pri-vacy laws since 1995.

The current directives are imple-mented at national level in each nation’s own terms which led to differences in data protection within Europe. Regulations, how-ever, must be enforced precisely

as specified by the Council of the European Union. The purpose of the latest regulation is thus to harmonise data protection enforce-ment across Europe. EU plans are to make the regulation effective in January 2013.

The current reality across the EU is that the proposed regulation has widely different interpretations. The US Federal Trade Commission (FTC) has also added to the political debate with an Informal Note, pro-

data REgULatIONS

Interpreting regulations as EU seeks harmony

European Union proposals on data protection may impact customer loyalty programmes which should ensure consumers get “fair value” in exchange for information, writes Peter Wray

vided to the European Commission in December 2011, describing the proposals as a backward step that would have an adverse effect on the global interoperability of privacy regimes, due to it increasing differ-ences rather than promoting con-vergence. Application of data privacy regulation differs widely globally.

In early-October this year, EU data protection commissioners said they believed Google was in breach of privacy laws due to its pooling of data. The concerns were instigated by changes in the way in which Google tied together the previously separate data collected under services including its search engine, YouTube and Google+. While creating a unified privacy policy across all the services, it also in effect amassed the data into a sin-gle location. Google is already under scrutiny by the EU which claims some elements of its advertising are anti-competitive.

The concept of data privacy is complex. The UK Direct Marketing Association (DMA) commissioned a recent study on how consumer attitudes to their privacy are being impacted by search engines, mobile apps and a huge growth in services dependent upon a concept of a “fair exchange of data”. Two-thirds of consumers surveyed by the study agreed that their definition of

privacy was changing due to the internet and social media.

Google, Amazon, LinkedIn and so on have a business model built around the ability to collect and interpret customer data more accurately. Consumer loyalty pro-grammes are also rapidly develop-ing their expertise in this area. The reality is that data privacy has many differing perspectives and individ-ual consumers are inconsistent in their attitudes to privacy depending on the context of the issue in which it is raised.

Consumers are increasingly the gatekeepers of their own data and conditioned to expect more relevant, more individualised and better offers or service as “fair value” for exchanging their data. As the era of big data grows com-mercially, loyalty memberships will need to perceive greater value also flows back towards consum-ers for fair value in this voluntary exchange to remain in balance. The evidence from some sectors in the loyalty market suggests a relative decline in value.

The future success of this data sharing relationship will depend on the level of trust between the consumer and brand. Trust is a very fragile state. Break that trust and the result could be terminal for your brand.

Loyalty memberships will need to perceive greater value flows back towards consumers

Data banks may keep information secure, but are

personal details kept private?

Knowing the nPs score

Apple iPhone

69

samsung

49

booking.com

25

tesco

47

o2

34

tripAdvisor

29

source: satmetrix



08 09

Ȗ The concept of a reward for doing business is a well-accepted facet of today’s retail world. Since the Co-op Divvy and Green Shield Stamps, we have come to expect something extra in recognition of our custom. But customer behav-iour is changing.

Is it time the business model changed? Are experiential con-siderations more important than the reward bribe and has social media moved the goal posts? If we have a variety of loyalty cards in our wallets and an increasing number on our phones, is the cur-rency now devalued?

Nectar celebrated its tenth anni-versary recently with an expanded partnership with eBay and the claim that its offer of points for

retail spending is proving more successful than ever with custom-ers. According to Nectar marketing director James Frost: “We have seen our membership grow by three million over the last three years to18.5 million. The customer sat-isfaction levels that we track every month have never been higher.”

Mr Frost anticipates points col-lection and redemption will move on to the mobile phone rather than being handled via a plastic card, but the concept will remain the same. “Changes to the whole payment system will be some-thing that affects all of retail, but it won’t change things dramatically for us. The offering of earning points for loyalty when you shop will still be there.”

Sir Terry Leahy was appointed the first Tesco marketing direc-tor two years before the Clubcard launched 17 years ago. The country was struggling with a recession and Tesco was having a hard time. He instigated a great deal of research into different ways to improve the experience for customers, which resulted in the “one in front” policy at the till and value-priced products. But what he wanted was insight into customers and the Clubcard was launched as a route to get it.

“A loyalty programme gives a business a second chance if you get something wrong. Nobody gets it right all the time,” says Sir Terry, who is insistent there is still a place for loyalty reward points.

“Providing points and miles for rewards is worth it for us,” says Susana Miranda Hans-ford, of Melia Hotels group marketing. “If you handle the programme properly you get the results and the loyalty is there. We provide both points and rewards, and our hoteliers know the client and the things they want, such as a particular room. Our scheme has three tiers – basic, gold and the platinum – for people who stay for more than 50 nights a year. There are 2,500 platinum members and, if they get downgraded, we contact them to check if this was due to reasons such as illness.”

“Virgin Atlantic scores highly on emotional loyalty,” says Alan Lias, Virgin Atlantic Airways head of loyalty and ancillary revenue develop-ment. “We were the first airline to have in-flight TV. Our Upper Class Experience lounges have a spa and Jacuzzi, and there is a DJ from 6pm. “The programme gives our customers access to our product. You are saving points and miles for a lovely experience. The Flying Club scheme keeps us top-of-mind and gives us a relation-ship so we can remind our members about why they fly with us. It gives our customers a vested interest in coming back to us.”

Swisshôtel has shunned points-based schemes in favour of experiential rewards, which it says are especially suited for the hotel industry. Stephan Dupré, director of loyalty marketing, explains: “We try to see loyalty not in terms of rewards. Hospitality is a very emo-tional business. We have contact with people at the reception desk, in the restaurant and you cannot quantify this in points or miles. It is trust, emotions and a need for status.” Swis-shôtel has created an Elite Member tier for its 350 strongest advocates, who receive special benefits and recognition, including commu-nications from the company president and testing new products.

“When people hear the word ‘loyalty’, they immediately think of rewards, but a rewards strategy has both the hard rewards side, which is points, miles and vouchers, and the soft side, which is experiential and providing elite status, so it is a combination of rewards and recogni-tion,” says Rick Ferguson, vice president, knowledge development, at Aimia. “Ray Kroc, the founder of McDonald’s, told us what the basics were over 50 years ago: quality, service, cleanliness and value. If you do these things better than your competitors, then you will build loyalty among your consumers.”

“The strongest loyal behaviours are seen with sports teams,” says Mark Bergdahl, director at Loyalty Consulting UK. “The dedicated Manchester United fan refers to the team as ‘we’ and the performance of the team affects mood, behaviour and attitude. This concept of loyalty is unlikely to be demonstrated for banks or supermarkets or airlines. However, Applemania is perhaps the strongest example of there being no need to overtly reward consumers; the reward is in the enjoyment of the brand and quality of products and services purchased. So there is proof – loyalty can be created without the need for points or rewards.”

“Is it possible to have strong customer loyalty without rewards?” asks Bartosz Demczuk, CRM and loyalty consulting director at Comarch. “Of course it is, but the product itself must be seen as a reward, like an iPhone or a Harley Davidson motorcycle or a Prada handbag or anything else from your ‘dream list’. If you’re not on that list, then boost cus-tomer loyalty by offering rewards. Sometimes points and promotions can damage margins, with retailers an easy target for cherry-pickers. Return-on-investment (ROI) analysis shows that many companies can earn much more, both on margins and customer loyalty, when loyalty programmes are better managed.”

“Instantly rewarding customers for changing their behaviour is an effective tool but, as with any ‘loyalty’ scheme, the key to a good instant win is a quality reward that will inspire a long-term perception change in the customer,” says Mark Featherstone, European sales director for TCC, which manages short-term loyalty programmes for retailers. “We have run programmes worldwide and our research has shown that the simple act of collecting is enjoyable, with children that’s especially true. Ultimately, we have found that a ‘surprise’ reward – something people didn’t realise they would receive – can be one of the most effective ways of inspiring loyalty.”

What people will do in 12 monthssatisfaction with loyalty schemes

Feelings of loyalty Most scheme members

‘Reward points are set to move to mobile’In a fast-changing retail world, Liam McLoughlin asks whether there is still a place for loyalty reward points

Differences of opinion

LOYaLtY REWaRdS

Use mobile phone to check product details/reviews in store

Receive loyalty scheme offers via mobile

Use their mobile to pay for things

Banks/building societies Supermarkets Supermarkets Petrol stations

Mobile phone

networks

Mobile phone

handsets

Restaurants/cafes

Restaurants/cafes

Department stores

Online voucher discount

organisations

Use mobile in place of loyalty card for identity check when making purchase

£33

£35

50% off

total: £67

Arunas Kacinskas

London, uK

Mark bergdahl Loyalty Consulting UK, managing director

stephan Dupré Swisshôtel, director of loyalty marketing

rick Ferguson Aimia, vice president knowledge development

Mark Featherstone TCC, European sales director

bartosz Demczuk Comarch, customer relationship management (CRM) and loyalty consulting director

richard Hytner Saatchi & Saatchi, deputy chairman

susana Miranda Hansford Melia Hotels, group marketing

Mike McMaster Rapide, head of client services

Alan Lias Virgin Atlantic Airways, head of loyalty and ancillary revenue development

“Real loyalty schemes are not really about loyalty,” says Richard Hytner, deputy chair-man of Saatchi & Saatchi. “I give you my data, you give me your points. When else in life would that be called loyalty? Loyalty as a concept is under serious threat and we need to rethink it. Consumers, according to our research, are very suspicious of loyalty and loyalty programmes, so we have to find a new way to engage with people around this whole very important concept, and to use it to create sustained and profitable growth for a business.”

“I have lots of loyalty cards in my wallet, so am I loyal to five coffee companies and two super-markets?” asks Mike McMaster, head of client services at Rapide. “These companies all offer discounts and rewards, but are not getting to the heart of loyalty, which is driven by people’s emotions. Some 85 per cent of decisions are emotional. You can have all the data you like, but emotion trumps data every time. Real customer loyalty drives business value. It is about customers who spend more money and who get other people to do that. And they do all that because they want to.”

suPErMArKEtsuPErMArKEt


“Rewards can be good value for money if they are simple, well thought-out and easy to understand,” says Tesco Clubcard direc-tor Janet Smith. Tesco is currently testing plans to expand the “experiential” side of rewards alongside its hard points offering, by recognising and rewarding its most loyal customers. Ms Smith says the UK super-market has identified its 500,000 most loyal customers and has worked out they are 20 times more valuable to the company than normal customers. She is at pains to point out, though, that developing more experien-tial loyalty would not impact its established points and rewards offering.

Janet smith Tesco, Clubcard director

Online voucher discount

organisationsPetrol stationsDepartment

storesBanks/building

societiesRestaurants/

cafesSupermarketsMobile phone networks

Mobile phone handsets



10 11

Ȗ Retail is a tough business. Today’s consumers generally are short of money and they are being increasingly careful where they spend it. This alone would be challenging, but when price com-parison via the internet and huge competition in the sector is added to the mix, then retailers need to be imaginative.

A recent trend that is beginning to gain acceptance in the loyalty business is that of short-term reward programmes. Shoppers are given tokens each time they shop, with the target of saving enough to earn them a special gift or product.

The concept is not new, by any means. Tesco was an early adopter of this type of promotion and is currently running one for cutlery. The Co-operative has been using similar schemes for years.

What is new is the understanding that short-term promotions can prove extremely powerful, espe-cially when run in tandem with traditional loyalty schemes, as in the Tesco model. What is more, recent research has found that games and competitions can be an equally powerful incentive to shop with a particular retailer.

TCC Global, a company that spe-cialises in this type of short-term loyalty programme, of which Angry Birds soft toys has been a particular favourite, recently commissioned a qualitative study with research company Firefly Millward Brown. It was tasked with exploring shop-pers’ motivations for participation in short-term promotions, and what affect this had on the retailer’s brand and image.

They studied two programmes. The first was a loyalty reward pro-gramme where shoppers collect stickers over a 20-week period in order to redeem them for branded rewards, such as cookware or elec-trical appliances. The second pro-gramme studied was the collection of stickers from The Price Is Right board games, with a chance to win major prizes, such as a cruise, car or gift cards.

Millward Brown reported that shoppers liked the “honesty and straightforwardness” of the schemes, and that they felt the store was giving back a reward for their hard-earned money. There was a general feeling among shop-pers that the promotions were part of the loyalty offering.

The research stressed that it was fundamentally important the company was trusted by the shop-pers and had similar values. “The programme has to be tied to a great company; they can have the best

rewards in the world, but if I don’t like them as a company or their customer service, or if their values are not the same as mine, their rewards don’t mean anything,” was one comment.

TCC Global suggests that shop-pers feel they are investing “time and effort” over several weeks into a short-term loyalty programme. With a promotion for goods, they are guaranteed a return for their effort if they put in the legwork and spend. With games as rewards, the thrill of potentially winning makes the shopping more fun. This can bring about a real shift in shopping behaviour. “If a company runs a succession of programmes, the emotional transaction builds the foundation of the shopper-retailer relationship, which will lead to long-term shopper investment in the retailer, and ultimately will result in loyalty and growth for the retailer,” the report concludes.

A challenge that has moved right to the front of the crucial list for retailers is to ensure a seamless journey across both online and offline channels.

Research by industry standards group the IGD (Institute of Cer-tified Grocers) underscores the growth of the online channel in the UK. It valued online grocery retailing at £5.9 billion or 3.8 per cent of total grocery spend in 2011 and forecasts it will increase to

Short-term gain canfoster long-term loyalty

With many shoppers short of cash, retailers are trying short-term reward programmes to tempt them to spend, as Annich McIntosh reports

£11.2 billion or 6 per cent of the market by 2016.

Despite the projected increase, retail analysis by the IGD confirms stores will still be key, but engaging shoppers across all channels will be critical, it says.

Research by BT supports that view. Its vision for British retailing in 2020 – the Retailtopia report - identified ten key themes likely to shape the future of retail in the next eight years. They include a vital role for stores, but also for retailers to offer a seamless, branded multi-channel experience. In addition, retail experiences will become more customised, personal and interactive, BT says.

Chris Gates, director of retail at Hitachi Consulting UK, emphasises the need for retailers to focus on both stores and online for a true multi-channel approach. He points to Tesco’s plan to spend £1 billion in improvements across its online

and bricks-and-mortar stores as a case in point.

“This combination is what multi-channel retailing is all about,” says Mr Gates. “Multi-channel is really about giving the customers what they want, where and when they want it.

“Modern retailers increasingly need to refocus their offer around the individual needs of a customer so that contact, offers, logistics and payment terms can all be personalised across multiple channels, and yet maintain one consistent brand message.”

David Ringer, TCC general man-ager, UK & Ireland, says: “What we haven’t managed to capture until now are the softer benefits of short-term loyalty programmes. Retailers need to give customers reasons to engage emotionally with brands, to drive brand equity and give them an emotional pur-pose to return to the shop.”

If a company runs a succession of programmes, the emotional transaction builds the foundation of the shopper-retailer relationship

CUStOMER MOtIVatION

Continental hypermarket group Car-refour used Big Headz soft toys as a short-term reward programme, with shoppers receiving a scratch card for every €25 spent in store. Each card also included one token which shop-pers could collect to receive a free Big Headz toy.

T h e p ro m ot i o n re s u l te d i n increased spend from both new and existing shoppers, with those sur-veyed saying they had planned their shopping in order to collect points. They also made choices based on bonus-point offers.

A similar promotion with Ahold’s Albert chain in the Czech Repub-lic, which featured the Smurfs and which was totally funded by suppli-ers, was equally successful.

The programme ran for eight weeks in 280 stores with a different range of participating retailers each week. The campaign and products were flagged up in-store and fea-tured on a special list. Ahold says the campaign had so many family touch points, it significantly drove sales, basket-spend and market share.

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Tightened household budgets has prompted a rethink among consumers, and altered the way they react to retailers and brands, as Jane Simms discovers

Ȗ There have been many com-plaints from retailers in recent times about the practice of “show-rooming” – consumers checking out goods on the high street and then buying them online at a lower price.

As shopping centres emptied, shopkeepers blamed this practice for cutting their turnover and making it impossible to maintain a bricks-and-mortar presence.

But a recent report from loy-alty company Aimia argues that showroomers are among the high street’s best customers and should be embraced rather than hated. What is at fault, they argue, is the practice of some retailers to separate their online and high street businesses in a way that makes it impossible for consumers to “shop and click” or alternatively “click and shop”. In instances where retailers have merged their two divisions, such as Apple and John Lewis, the benefits are enormous.

According to Aimia’s Millennial survey, retail showroomers aren’t just cherry-picking deal-hounds ruthlessly exploiting bricks-and-mortar retailers to line Amazon’s pockets. They are potentially your best customers; they indicate a greater willingness to respond to rewards and offer relevance with increased loyalty. In many ways, they’re your ideal customers: highly engaged, fluent with technology and focused on extracting the most value from their brand relationships. And most importantly, they’re buyers.

ESSENCE OF LOYaLtY

Love not war with‘showroomers’High street retailers battling against online shoppers should make full use of loyalty programmes, writes Annich McIntosh

It is understandable why bricks-and-mortar retailers got upset about showrooming. Amazon has built a massive business around the principle of best buy. But there are steps retailers can take to ben-efit from these difficult showroom-ers and loyalty, says Aimia, is one of the best tools available.

The study says: “The solution to combating showrooming may lie in the classic loyalty manage-ment activities of using shopper data to extract consumer insight and delivering recognition and reward to drive in-store purchases. Indeed, loyalty management may provide unparalleled insight that helps retailers reinvent retail.”

About 20 per cent of consumers are showroomers in the three mar-

kets that Aimia surveyed, which were the UK, United States and Can-ada. They are young, mostly aged 19 to 29, disproportionately male and they are digital aficionados. But the most interesting characteristic of all is they are more loyal.

“Punishing customers for show-rooming or trying to find technol-ogy that makes showrooming impossible is often a retailer’s first response to combating the activ-ity,” says the Aimia report.

“Best Buy, for example, has tried replacing standard bar codes with proprietary codes that can’t be scanned by mobile price-compar-ison apps – never mind that smart-phones are also web browsers and a Google search will find a com-parison price just as quickly. Other

retailers have explored using lasers to thwart scanners, disconnecting wi-fi signals and blocking cellular transmissions.”

Instead, it would be so much easier and more effective to follow the example of Apple that uses its physical stores to foster customer loyalty that most retailers would give their right arm for. They have done it by making the stores places that consumers actually want to visit, regardless of whether they can buy the product cheaper elsewhere.

And remember, showroomers are more likely to participate in reward programmes, they are particularly open to offers and coupons, they will trade personal details for rewards, and they prove to be more loyal.

Showroomers are among the high street’s best customers and should be embraced rather than hated

shoppers who price-check with

their smartphones are good targets for

reward programmes Ȗ The new advertising campaign for US whiskey brand Jack Daniel’s features a Christmas tree made of barrels and the strapline: “It’s not what’s under the Christmas tree that matters; it’s who’s around it.” On one level it’s just nice, feel-good Christmas advertising that prom-ises a welcome respite from the unremitting austerity that we’ve all become accustomed to. But con-sumer insight specialists believe that, at a deeper level, it also taps into a shift in consumers’ attitudes.

“There’s lots of evidence to suggest that the prolonged reces-sion caused the general public to switch its focus from wealth to emotional wellbeing,” says Tracey Follows, chief strategy officer and executive partner at advertising agency JWT London.

She cites a recent survey by JWT that asked people how they would spend a National Lottery jackpot. Around 46 per cent said they would buy property, but other than that very few plumped for material goods or the traditional trappings of wealth. Just 16 per cent said they would buy a new car, 6 per cent said they would buy the latest tech-nology or gadgets and 6 per cent said they would spend their win on luxury clothes or accessories.

By contrast, 63 per cent said they would help their relatives and friends financially, and 20 per cent would set up trust funds for the next generation. Around 23 per cent said they would donate to charity and 39 per cent said they would invest in personal experi-ences for self-development or self-fulfilment.

“People seem to rank personal wellbeing and intangible experi-ences higher than material pos-sessions and wealth,” says Ms Follows. “Health, time with family and control over their lives were all priorities for over 80 per cent of people surveyed, with financial security coming fourth.”

Other surveys reinforce these findings. Research from GB TGI earlier this year found that 57 per cent of people in the UK agree with the statement, “How I spend my time is more important than the money I make”, and 44 per cent of respondents to a recent GfK Roper survey agreed that “Experiences are more important than possessions”.

Ms Follows concludes: “You could argue, then, that brands that help consumers accumulate these enriching experiences, boosting social and cultural capi-tal, will prosper.”

John Lewis’s tear-jerking Christ-mas advertisement in 2011, The Long Wait, was a pioneer of the new wave of more “emotive” advertising. Featuring a little boy, whose excitement about Christ-mas centred on the present he was going to give his parents, it was a refreshing antidote to the naked commerciality that has come to characterise modern Christmases.

And earlier this year Google’s Dear Sophie ad, which oozed “fam-ily”, “love” and “security”, helped position what to many is a faceless corporation – despite its ubiquity – as a sort of friend that shares the same values as the viewer.

LOYaLtY IN a dOWNtURN

Austerity is changing our values and priorities

But others believe the picture is more complex than a straightfor-ward shift in focus from wealth to wellbeing. “The signals point in different directions,” says Paul Flatters, chief executive of Tra-jectory, a consumer insight and futures consultancy.

Trajectory’s research indicates that recession-hit consumers are more price-sensitive and less loyal than they used to be, but favour brands where “value” and “val-ues” go hand in hand. He cites the supermarket sector as an example.

“During the recession the super-markets that have done best are the discounters, such as Aldi and Lidl at one end of the price spectrum, and Waitrose at the other. But what’s interesting is that each has had to complement its respective focus. For example, Aldi brought in a celebrity chef, Phil Vickery, to reinforce its new focus on the provenance of its food, while Wait-rose launched an ‘Essentials’ range to cater for its more price-con-scious shoppers. So both are now covering both bases – value and values – but they have come from very different starting points.”

What’s more, continues Mr Flat-ters, while people do still care about “others”, the altruism of the boom years, when “saving the planet” was a primary concern, has been replaced by a sense that “charity begins at home” – fam-ily, friends and the local, rather

than global, community. It’s a shift that the ads from John Lewis, Google and Jack Daniel’s tap into very well, but where does it leave brands’ much-vaunted social responsibility strategies?

“It depends where they focus,” says Mr Flatters. “Marks & Spen-cer launched its high-profile sus-tainability campaign, Plan A, just before recession bit. Abandoning it would have caused huge loss of face, so they are trying to make it relevant in the current climate. They have launched the concept of ‘shwopping’ [donating an old piece of clothing every time you buy a new one] for example, which fits the new ‘thrift’ message.”

Professor Paddy Barwise at London Business School believes brands that tap into these new trends may be able to sustain sales among consumers whose loyalty is being tested by the recession.

“Family and friends and the need for affiliation may become more salient when times are tough, and that suggests more emotive adver-tising may have more resonance now than in the past,” he says.

But Nick Jefferson, managing director of creative agency Gyro London, warns against jumping on the emotional bandwagon. John Lewis’s The Long Wait ad worked because it was entirely consistent with the retailer’s brand values, he points out. John Lewis has a strong reputation based on the quality of

its products, its “never knowingly undersold” price promise, its partnership structure and so on, so it can get away with layering the emotion and feel-good factor on top. But this luxury is not available to every brand.

“Thirty years ago advertisers might have got away with pretend-ing to be something they’re not, but the digital revolution means there’s nowhere to hide any more, and brands that are not authentic will soon be found out,” says Mr Jefferson.

And, depending on the nature of the brand, product-based advertis-ing may be more appropriate and more effective, he says.

Under its late chief executive Steve Jobs, for example, Apple’s advertising focused almost exclu-sively on product features and how they helped people live their lives. “The current brand-focused advertising somehow feels less compelling than the ads that focused on Apple’s unique selling proposition,” says Mr Jefferson.

Time will tell how effective the new campaign is in winning and sustaining loyalty, but whatever the economic climate, people’s propensity to buy a brand depends almost entirely on trust, he says.

“Product, value, brand and emo-tion are all drivers of trust, and in a downturn brands have to work harder than ever at all of them,” Mr Jefferson concludes.

There’s lots of evidence to suggest that the prolonged recession caused the general public to switch its focus from wealth to emotional wellbeing

Tightened household budgets has prompted a rethink among consumers, and altered the way they react to retailers and brands, as Jane Simms discovers

in six months how do you expect your financialsituation to be?

stronger

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26%

source: ipsos Global Advisor

Christmas shoppers may have different priorities as they count the

cost of economic downturn

raconteuronthetimes.co.uk theraconteur.co.uk twitter.com/raconteurmedia14

Customer Loyalty

aIRLINE LOYaLtY

Flying in the face of turbulence Frequent flyer programmes can rake in sky-high rewards, but just who is profiting? Annich McIntosh reports

astounding position in the market because its Qantas Frequent Flyer programme has established itself as a virtual currency for earning and exchange across a wide array of transactions.

Qantas reported that Frequent Flyer's profit before tax jumped from A$226 million in 2008-09 to A$328 million for 2009-10. The latter was crucial in a year when Qantas overall reported a profit before tax of A$377 million.

In November, bucking the cur-rent trend, it returned another

record as the Qantas Frequent Flyer division reported earnings before interest and taxes (EBIT) of A$342 million for 2010-11. All this from a division which accounts for just 82 of the air-line's 32,490 employees, accord-ing to its annual report.

This is why the Macquarie Equities analyst Russell Shaw recently valued the Frequent Flyer programme at more than A$2 billion – over half the air-line's market value. Conversely, it is estimated that 14 trillion

unused air miles are currently sitting in various airline pro-grammes. So do loyalty rewards in the form of miles work as a retention driver in this sector?

James Berry, product director for ancillary revenue experts Collinson Latitude, believes that by offering a wider range of rewards and leveraging partner products and services rather than focusing solely on own inventories, airlines can dramati-cally increase the perceived value of their reward programmes,

leading to greater levels of redemption by customers.

Endorsing the Qantas model, he says: “In a recent survey we conducted, 79 per cent of people who travel more than seven times per year want non-travel-related rewards. Clearly if we have got over 14 trillion points unused out there, something is not working as well as it could and we think this type of approach could make all the difference.”

A report from ICLP concurs: “For many frequent flyer members the promise of ‘free’ flights has all but vanished with continual increases in taxes, fuel surcharges, security fees plus many ancillary services being charged as extras. This is not the case with hotel programmes where a ‘free night’ has largely remained a free night without additional charges.”

An added complication in the airline business is that most of the long-haul companies belong to one of the three airline alli-ances – oneworld, SkyTeam and Star Alliance.

How this changing skyscape will affect frequent travellers, who already have to spend considerable time and energy making sure they maximise their miles, is too early to tell, but it is certainly causing a great deal of discussion on the frequent flyer websites.

Loyalty programmes are very valuable to airlines; sometimes they are even more profitable than the airline itself

the sky's the limit for successful airline loyalty programmes

Ȗ The airline industry has seen its fair share of stormy weather over the past few years.

Challenges include record-high fuel costs, falling business cus-tomer numbers, plunging budgets, a constant stream of bankrupt-cies, and now, a disruptive loyalty scheme environment as airlines reposition themselves in response to a changing world order.

Loyalty programmes are very valuable to airlines; sometimes they are even more profitable than the airline itself.

Qantas is an example of this. The Australian airline has built an

Customer Loyalty - Netpublicationnp.netpublicator.com/np/n25110481/Raconteur-Customer-Loyalty... · collecting in-store. Vodafone, for ... Social media is increasingly dictating the

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