Idm Loyalty Presentation 25.04.06 By Wanda Goldwag

Loyalty Presentation for the Institute of Direct

Marketing

By Wanda Goldwagof Goldwag Empson and Otitoju

12/04/23 Goldwag Empson Otitoju 2

Agenda for 1st half

My background Global trends Customer ownership and what

they expect The Strategic situation Loyalty schemes in general and

what makes a good one


My background

Yves Rocher Fidelity Unit Trust Direct Marketing Agency WWAV Thorn EMI Thomas Cook DM Agency Smith Bundy AIR MILES Smedvig Venture Capital, GEO

and 6 others


Apparently, I’m now a Marketing Guru

“a revered instructor, mentor or pundit” The Chambers Dictionary

Someone who having made most of the mistakes possible, can give advice to others on how not to repeat them


Loyalty

CustomerLoyalty Programmes

Affinity

Relationship

s

Affinitymarketin

g

Databasemarketing

Relationship

marketing

Reward

Programmes

CustomerLoyalty

Partnership

Marketing

My World


The challenges I work on Creating effective marketing

programmes Finding partners to work with Difficulties in interpreting and analysing

data Segmenting customers Making redemption work Gaining real benefit from your loyalty

scheme


Global Trends

StrategyCustomer

Expectations

Customer Ownership

The Internet

Loyalty Schemes

Staff Quality


Global trends Move from Mass Marketing to

something much closer to one to one marketing

24/7 society New channels of distribution – an

alternative supplier is a click away One company makes a change and it

sets a new standard for all I want it now


Customer Ownership

Battle between the product/service owner and the retailer/ intermediary

The battle is being fought on the field of data


Customers expect

To be recognised For us to remember what

happened before and what stage they are at in a process

To be rewarded To be kept in touch


Strategy should be to integrate

Retail Call Centre Internet Interactive TV WAP phones Who knows what

next ?


Communications strategy

At every point Through every channel Same data Same offers Perfect knowledge


Why, what is changing?

Far greater understanding on behalf of consumers of loyalty schemes

A great deal more one to one communication

Loyalty Schemes


What is happening in the market place?

Databases used to be flavour of the month

Now it is customer retention strategies and loyalty programmes


The beginning


Setting the scene Millions of consumers already belong to and

are committed to “their” loyalty scheme Ensuring a place in the wallet or purse is

becoming more difficult Almost every major retailer and service

company is already or has been approached to become a member of a loyalty scheme

There are real challenges in using the data collected

Business to Business loyalty schemes very fragmented


How did it start ?

American Airlines launched AAdvantage, the world’s first mileage-based frequent flyer programme in the 70’s

100 million people belong to at least one such scheme

50% of miles are earned on the ground, credit card spending and telephone calls are important


The rest is histor

y


UK market for loyalty cards

27 million loyalty cards issued Average home has at least 2 7% of homes have more than 20


“Share Of Wallet” is An Issue


What cards are in your wallet now? Lets have a show of hands!

Nectar Tesco Boots AIR MILES


Who uses loyalty schemes?

Carlson Loyalty Monitor

0102030405060708090

100

16-24 25-34 35-44 45-54 55 plus

Aware

Active


What makes loyalty schemes ideal?

Customers identify themselves

Because people want rewards they are willing to give data

Offers and service can be tailored to the individual


What should a good scheme allow?

Highly targeted campaigns Special Offers to distinct segments Keep valuable customers Develop better relationships with

infrequent buyers Not over service poor customers People spending their points Valuable rewards


My approach to segmentation

Segments developed to drive strategic marketing initiatives and communication- no point doing it for fun

Based on every scrap of data you can obtain, registration, behavioural, every transaction and communication, socio-demographic and 3rd party


Need to create this circle of information

SegmentationAnalysis

Instant MI

Enhanced Communication/

Customer Service

Personalised Communication/Acti

vity Tracking


Principals of Successful Segmentation

•Relevant and sound data

•Groups of homogeneous

customers

•Sufficiently distinct from

each other statistically

sound - Cluster Analysis


Example Segmentation Matrix

SOLUSCOLLECTORS

MULTI FAST TRACKERSNO

REDEMPTION

FAST TRACKERS+ REDEMPTION MULTI

REDEEMERS

LAPSERS

SINGLES

YOUNGCOUPLES

AFFLUENTFAMILIES

LESS AFFLUENTFAMILIES

EMPTYNESTERS

BEHAVIOUR CATEGORIES

EXPLANATORYCATEGORIES

VALUE


Customer Lifetime Value

LIFETIME

ACTIVITY

Motivate

Reactivate

Predictive Modelling

AIR MILES and the Flying Boat logo are trademarks of AIR MILES International Holdings N.V.AIR MILES awards are held and issued for use subject to AIR MILES Customer Terms and Conditions.

Nurture Terminate

X

X

X

X


A word of warning about defining a valuable customer


What makes a customer valuable?

Volume Spend Frequency Share of wallet Satisfaction – willing to be an

advocate Combination of some or all of these


What works – some truisms

Customers are people The majority of people don’t

change their behaviour – a minority do and its normally dramatic

Those that benefit most join and remain active as they have the most to gain (normally ABC1’s)


So where do we start in rescuing an existing programme?

Understand what were the original objectives

Review the competitive landscape and if it has changed

Evaluate existing customers Are they all important / profitable? Research what matters to those

you wish to retain


Why doesn’t everyone create their own loyalty programmes?

High original set up costs Benefits of increased / shared

communication channels Need to share marketing and

promotional costs Requirement for fast redemption Need for a wide range of rewards


Coalition Programmes

Solo ProgrammeYear 1 Costs

100

80

60

40

20

0

AvailableBudget

Cost of Awards

Partnership Programme

Ongoing Costs

Start Up Costs

%


Two challenges for you to discuss in the break The consumer increasingly knows

the value of their own personal data. To spend time giving that data they will expect something in return – what will you give?

How can you make a loyalty scheme more relevant than your competitors?


Agenda for 2nd half

A review of the Major UK schemes What lessons can be learnt form

Business to Business programmes Predictions for the future


Major programmes – what is working and what is not?

Nectar Tesco Boots Advantage AIR MILES


Nectar – Launch Poster


Nectar facts and figures Largest programme

in the UK Keith Mills did it

again 7000 retail outlets

where the card can be used to earn points

At least 17 sponsors

7 out of 10 collectors have redeemed their points for a reward

Nectar has given back over £650 million worth of rewards

Up to 99 people can collect on one account


Nectar Sponsors

Sainsbury’s 2 points for a £1 BP 1 point per litre of fuel American Express 2 points for a

£1 plus 2 extra points if used with Nectar retailer

On line shop as well


Overview of the original Programme

Sponsors

Contact Centre

• 400 Employees• 38,000 Contacts / Day

Collectors

Over 50%of UK Households

Database

Mr. Joe Bloggs

123 Anywhere Place

City, County, Postal Code

Date Sponsor

Points

03/01/03 Sainsbury’s

0

0000

03/01/03 Sainsbury’s

0

0000

04/01/03 Barclaycard

0

0000


0

0000


0

0000

03/01/03 Debenhams

0

0000

04/01/03 Debenhams

0

0000

05/01/03 Debenhams

0

0000

Statement

Suppliers

• 40+ Types of Rewards• Rewards starting from

just 500 pts


The bad and the ugly Lost major

sponsors Barclaycard and Vodafone

Account handling of sponsors not always a priority

Nectar for Business not as strong as hoped for

A decision has been taken not to sell the company yet

Tesco


Tesco clubcard facts and figures Launched in 1995 One of the UK’s

most popular loyalty card schemes

12 million active cardholders

One point for every £1 spent

Over 6 million unique coupon variations in each mailing


Partners

Powergen Avis Nationwide Autocentre Johnson’s

The Good“Probably the main factor in Tesco’s success has been the commitment to use the data gained to drive the business. The real benefit of a loyalty scheme is the very rich data obtained on customer behaviour. This use of data has been the major difference between the Tesco scheme and other initiatives that were less successful.” Clive Humby

Comparing results

We know how much money we give back to Clubcard customers, how much it costs to run the programme and what behaviour we get from those customers. We can estimate what behaviour we get from non-Clubcard customers through market research. Then we can look at the difference to work out whether customers with cards remain more loyal to Tesco


The bad and the ugly

You tell me? Partners love them Everyone raves about their use of

data?


Boots


Boots advantage card 15 million card

holders 4p for every £1

spent – the most generous of the big programmes

Over 50% of UK women hold a card

94% of active users are female

Cardholders on average spend double

Almost always asked for the card when shopping


The bad and ugly

Very biased towards women Not maximising how generous

their scheme is to others



AIR MILES around the world

AMTP UK

1988

THE LOYALTY GROUP

1992

LMN NETHERLANDS

1994

AME SPAIN

1996 2001

REWARDS MANAGEMENT MIDDLE EAST


Clients

Royal Bank of Scotland in particular Nat West

Tesco Shell Southern Electric


The bad and the ugly

Up for sale or closure, because BA still don’t know what to do with it

When I left in May 2000 we made £25 million profit now its said to be £1.3 million

Travel offering much expanded – but now confusing

A quick look at some Individual retail

programmes


WH Smith

Is the programmes still in existence? Never asked for it in store No obvious mention of it on the

corporate web-site No evidence that it is being used to

drive marketing


Homebase

4 million cardholders Said to have been debating if it

should be kept going Rarely asked for the card in store


What is going wrong generally 25% of all loyalty card holders do

not use the points they have earned People acquire cards but don’t carry

them in their wallets Difficult to maximise the benefits of

the data gained Difficult to differentiate – everyone

has similar rewards and programmes


Harder to distinguish yourself


What is going wrong cont.

Some programmes loosing their way – but company is scared to close them down

When partners fall out – customers can be very badly served

Fears about who owns the customer e.g. when Air Miles swapped Sainsbury’s for Tesco’s

Loyalty schemes are not cheap to run costing an estimated 1 to 2% of the cost of the product

Business to Business Loyalty


Very major challenges Is it ethical at all to give rewards

to individuals for business decisions

Who should get the reward – particularly in medium to large companies

Often complex sales channels with manufacturers, wholesalers, dealers etc.


Need to manage disparate groups

Wanda and co

My sales team A 3rd Party re-sellerA wholesaler whosells to Dealers


Very often a number of people are involved in the process

The Finance Dept.

The end userInternal purchasing dept


Arvin Meritor

Headquarters in Troy, Mich., U.S., ArvinMeritor is an $8 billion

supplier to the global motor vehicle industry.

approximately 31,000 employees in 25 Countries


Arvin Meritor Meritor is leading supplier of truck/tractor

systems, modules, and components to the transportation industry.

They believe they are partner of choice when it comes to truck/tractor requirements – for OEMs, fleets of all sizes, and end-users. From spec’ing the right components, to product training, service assistance, support materials, or aftermarket parts – before and after-the-sale, they are there to support their dealers


Their 2006 reward programme

Earn rewards every time you spec eligible products from Meritor. Each time you spec an eligible product, you earn Meritor Loyalty Points. The dollars you earn are loaded onto your Meritor Rewards card – a MasterCard™ stored-value card.


How acceptable are the rewards

You can redeem your points anywhere MasterCard is accepted – at over 28 million locations worldwide! Your purchases with the Meritor Rewards Card are processed like any credit card transaction. The cost of the purchase is deducted from your loyalty point balance.


How complex is the sale All Dealer Principals, Dealer Sales Managers and

Dealer Salespersons are encouraged to participate

Dealer Principals and Sales Managers may enroll more than one dealership; however, the individual Dealer Principal, Dealer Sales Manager and Dealer Salespersons responsible for selling Class 8 new trucks may enroll only once.

Sales Managers who also sell new trucks must decide whether to enroll as a Sales Manager or Salesperson.


Rewards for product knowledge Avnet Partner Solutions, a

distributor of servers and storage products for major manufacturers like Hewlett-Packard and IBM

Based in Tempe, Arizona, they have a points-based incentive program, SMART Rewards, for their channel partners


Avnet They anticipated a tougher market "Customers are making more informed

technology purchases, and so [our resellers] have to be well-equipped to address market needs."

Decided to reward resellers for taking advantage of educational opportunities instead of for straight sales.


How it works? Avnet channel partners earn points for

business-building activities like attending Web seminars in which industry experts discuss market trends. Or they earn points for achieving certification and training on specific enterprise products.

It also rewards partners in an industry with long sales cycles—which can discourage reward programs. "We distill information coming from the suppliers and point partners to activities that will result in long-term benefits."


Nectar for Business Aimed at small businesses. 3.5 million

sole traders and small businesses in the UK

Points for everyday business purchases, from stationery and catering supplies to van hire and decorators' materials.

Sponsors include Viking Direct, ICI Dulux Decorator Centres, Brakes, EDF Energy, Hertz UK, HSS and Magnet Trade outlets.


Points can be redeemed for

The business or its staff, including computers and office equipment, cases of wine, flights to Paris and tickets for rugby matches

Points can also be redeemed for any of the existing consumer rewards provided by the original Nectar programme.


Predictions


Predictions Some major programmes will close – saying that

customers are no longer interested in loyalty More companies will take the option that Virgin

has and stop sending paper statements New coalition programmes in the charity and

savings area as well as even more niche programmes

Even greater use of technology – they will know when you are in store -someone will find a sensible way of doing the whole thing on mobile phones

A loyalty scheme will become a tradeable currency in some emerging country

Idm Loyalty Presentation 25.04.06 By Wanda Goldwag

Business

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