LoyaltyInsights from
A STRATEGY AND RESEARCH BRIEF
Loyalty Programs Grow Up As I read recent press coverage of the 25th anniversary of airline frequent flier programs, I was struck with the thought that for some time now, there has been a need for loyalty programs to grow up—and it looks like they just might be doing so. Loyalty programs are everywhere you look. They provide one of the richest customer data sets a firm has, offering an understanding of key ‘customer’ questions—who are they, what are they are worth, what are they doing? This insight helps a business to treat its customers like real people, rather than faceless consumers. Today, leading edge companies are beginning to apply customer insight gained from their loyalty program data to other areas of the business. They are using these insights to inform and engage in relevant dialogue across all sorts of channels with and between their most valuable and most growable customers, channels and employees, reinforcing their brand values at the same time. Loyalty programs are growing up. They’re more sophisticated, more accountable, and willing to change to meet market demands. Is your program ready to move to the next stage of maturity? LUC BONDAR Vice President, Loyalty Carlson Marketing luc.bondar@carlson.com
VOLUME 1 | ISSUE 2
FEATURE ARTICLE
Relationship Builder 2007: Differentiating Carlson Marketing as a Loyalty Leader
t
he newest chapter in our global proprietary
ships by uncovering the most compelling
participate in a loyalty program with any financial services provider
OPPORTUNITY: Financial services firms can make greater use of loyalty programs in relationship building. Source: Carlson Marketing Relationship Builder 2007—Financial Services
What is the role of loyalty promotions in building customer relationships?
into the current state of customer relation-
How do verticals differ with regards to their loyalty-building programs and initiatives?
What key messages do different companies
trends and best practices in loyalty marketing.
within different verticals convey to con-
The series will investigate how marketing initia-
sumers regarding loyalty?
tives and loyalty programs impact relationship strength, and how these efforts differentiate
Relationship Builder 2007 will cover six verticals over the course of several months— financial services, retail, automotive, travel, telco and high tech.
companies in the competitive loyalty marketing space. Six individual studies will be published over the next several months, each focusing on a specific vertical and basing its findings on survey responses collected from thousands of customers. Verticals in focus include financial services, retail, automotive, travel and hospi-
tality, telecommunications, and high-tech.
What are the drivers of loyalty for consumers? Where do loyalty programs fit in? Do different segments have different drivers?
The Relationship Builder research series seeks to answer several key questions:
Which companies are the best/worst at building relationships?
STAT: 77% of respondents currently do not
research series, Relationship Builder 2007,
is coming soon. Its purpose is to reveal insight
Limited Loyalty Program Participation in Financial Services Creates Opportunity:
carlson marketing
What differentiates loyalty programs within
How does 1to1 personalization impact loyalty?
one industry? Across industries? What are important elements to personalize?
How do organizations in each industry build customer relationships effectively?
read more >
> In this Issue: Feature Article: Relationship Builder 2007: Differentiating Carlson Marketing as a Loyalty Leader ............1 Early Results Show Banks Winning Hearts but Not Business........................2
Ask the Expert: Four Hot Trends Transforming Loyalty Programs Around the World ....................................3
For Thought: The New Math on Loyalty ....................4
Loyalty Insights continued Relationship
Builder 2007: Differentiating Carlson Marketing as a Loyalty Leader
has their best interests at heart, and can
The first of the six studies (financial services) has already closed with the balance of the project rolling out between now and April 2007. The Relationship Builder team will produce a series of research briefs, PowerPoint summaries, customized reports and press releases on each study, culminating with a Relationship Builder Insight Report. This final report will bring together the highlights of the six studies, comparing the ways in which different industries build customer relation-
What Role Does Loyalty Play in Financial Services
be depended upon for respect, openness, tolerance and honesty
Loyalty programs have an important role in relationships in financial services. They can:
Increase perception of switching costs Improve likelihood of buying more products/services Improve likelihood of opting into emails Improve the perception of service benefits
More importantly, loyalty programs reduce the impact of service on switching costs and of switching costs on commitment. Source: Relationship Builder, 2007, Financial Services
ships and loyalty.
Mutuality & Alignment–A two-way
affiliation resulting in a rewarding experience which meets the mutual expectations of the company and the customer
Commitment–An enduring emotional
attachment to the relationship These attitudes act as a moderator of a firm’s actions (relationship drivers) and the outcomes the firm is trying to achieve. A number of relationship drivers and business outcomes have been customized to each industry and will be present-
The methodology
was conducted using Carlson Marketing’s
ed for consideration by consumers. The
To conduct the research, Carlson Marketing’s
Relationship Strength Index (RSx). RSx meas-
survey will also explore the role of loyalty
Decision Sciences, Loyalty and 1to1 Media
ures relationship strength along three key atti-
programs in improving relationship strength.
teams partnered with MarketTools, a full serv-
tudes present in any relationship:
More than 2,000 responses are targeted for
ice, marketing research bureau. The research
Trust–a belief that the relationship partner
each vertical segment.
FINANCIAL SERVICES PREVIEW:
Early Results Show Banks Winning Hearts But Not Business Remember the old saying, “Actions speak louder than words”? According to the early results of the Relationship Builder 2007 Financial Services survey, that familiar axiom is alive and well. Over 1,900 participants told us about their relationships with their financial services providers, including Chase, Citibank, American Express, Bank of America and many more. As it turns out, financial services providers are doing a respectable job of winning their customers’ hearts. In fact, 51% of respondents agree that they will be a customer of their primary financial services provider 12 months from now; and 93% say their provider delivers a service experience that meets their needs most or all of the time. But does all that affinity turn into profitable actions and real dollars? Not necessarily. Despite their stated satisfaction, just 16% “strongly agree” that they are likely to utilize more services from their primary financial services provider in the next 12 months—a leading
Only
16%
indicator of future cross-sell success. Nor are these customers “strongly agree” that they telling others about their financial are likely to utilize more services relationships. Twentyservices from their primary nine percent of respondents are financial services provider “very likely” to recommend their in the next 12 months provider to a friend or colleague— and, as we all know, the willingness to recommend is a good loyalty predictor. As a result, in financial services, the potential for churn lurks in customers except for those with truly strong relationships. While only one in five strongly agree that, time after time, the value they receive from their primary financial services provider is better than the competition, those with high levels of relationship strength are nearly five times more likely to add additional products.
The full report will be available in December. For more information contact Jack Sundstrom at 763-212-3255
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Loyalty Insights ASK THE EXPERT : MARK SAGE, Loyalty Director
Four Hot Trends Transforming Loyalty Programs Around the World
i
t has been said that most loyalty programs have
phone and already many loyalty programs are
4. Micro-payments:The acceptance of small payments by card issuers will open a new genre of merchants to loyalty and test loyalty solutions to their limits.
not changed much from the frequent flier pro-
embracing mobile phones as a cost effective
grams launched in the early 80’s. People still collect
channel that is “always-on” in a way that the
points, still carry a card and still redeem for some
Internet is not. New contactless technology is
form of reward. There have been innovations along
coming though, which will also make the mobile
For years cash has predominated in the small
the way such as real-time earning and online
phone a key device in customer identification
payments market for sales at newsagents and
redemption, but to the members these programs
and payments. Near Field Communications (NFC)
fast food restaurants. This is now changing with
have changed little. However, things are beginning
will allow a mobile phone to securely pay for
the introduction of credit/debit cards that can
to change. As Luc noted, innovative companies
goods and services and also act as a unique
accept small transactions. In the US, purchases
are starting to use the insight gleaned from their
identifier within a loyalty program, possibly
under $5 accounted for more than $1 trillion in
loyalty program data to really understand customer
displacing the wallet and other cards in it. By 2010
2003 across 400 billion transactions–these may
wants and needs, communication preferences,
it is estimated that 50% of all mobiles, some
be small payments but there are a lot of them.
demographics, and more–and have begun to
500m units, will have NFC capabilities built in.
It’s no wonder that card issuers are keen to tap
engage them with relevant dialogue. So what does the future hold for loyalty programs, and how could this change the proposition to program members? Here are four major trends that are beginning to take hold: 1. Communities: Social networking techniques applied within a loyalty retention program.
into this market…and this means changes for
Mobile Is Heating Up By 2010, it is estimated that 50% of all mobile phones will have Near Field Communications (NFC) built in enabling secure payment over a mobile device.
place relevant advertising in the community, and with good reason. It’s estimated that 54% of 16-
as to how an expected 45% increase in transactions will be handled as well as how points values for cents will be attributed and calculated. To contact Mark Sage email him at: mark.sage@carlson-europe.com
Brand Loyalty Leaders
Marketers are currently focused on the acquisition aspects of communities, working out how to
loyalty as well. Consideration needs to be given
3. Customer Experience Management: The rich data afforded by loyalty programs will be used to create personalized programs across all channels.
24-years olds are using a community at least once per week. However these communities
Well-run loyalty programs have always used
may have more value as a retention vehicle,
the data available to personalize the
allowing strong relationships to be formed
program around the customer across all
between members, increased value for members
loyalty channels such as service center and
in the form of peer reviews, recommendations
direct marketing. This trend, however, is
and discussions and providing a way for compa-
embracing the loyalty program and its data
nies to identify and communicate with advocates.
across all channels. This includes the point of sale, so that employees are trained on
2. Mobile “cuckoo”:The convergence of services into the mobile phone will drive its increased usage within loyalty programs.
the various customer types and their needs,
In the UK 83% of households have a mobile
calls the loyalty service center.
and can respond accordingly in all customer interactions, not just when the customer
3
For the past six years Brand Keys has surveyed a panel of more than 16,000 consumers to calculate its well-known Customer Loyalty Index Award. Winners are selected based on leadingindicator assessments that probe customers’ relationships with 238 brands in 35 categories. It identifies such drivers as quality, experience, and affinity with marketing programs that bond customers with a brand. Category winners this year include: Airline: JetBlue Sneakers: New Balance Retail Bank: Wachovia Car Rental: Avis Catalog: L.L. Bean Computer: Apple Credit Card: Discover Hotel: Hyatt Retail: Target Wireless Service: Verizon
Loyalty Insights FOR THOUGHT : WILL WITTKOPF, Director, Decision Sciences Consulting
The New Math on Loyalty When examining the results of a loyalty program, there’s more to measuring its success than ROI alone.
nstead of focusing on the return-on-invest-
return,” focus on two elements of the equation: causality and incrementality. Causality is the ability to trace a clear link from a program initiative (such as an email marketing acquisition campaign) to an observed outcome or result (new members
New Loyalty Measures: A Test Case To show causality versus incrementality, consider the case of one promotion: a retail coupon to be redeemed at point of sale. A test group gets the coupon while the control group does not.
Revenue
ment equation, which is the standard “rev-
enue minus investment expenses equals
acquired, increase in intent-to-purchase
(Captured Through Loyalty Program)
i
True Incremental Revenue NonIncremental Revenue
Control (hold out)
score). Failure to establish causality can lead companies to attribute too much or too little
Test (promotion)
Revenue NOT tied to promotion
Source: Carlson Marketing Worldwide
Revenue tied to promotion (e.g., redeemed coupon)
revenue to a loyalty program. Causality will add to the weight of such
To put all the pieces together for your
prevent ideal program measurement use
values as sales lift or customer satisfaction
program, start by defining success then
alternative design and sampling methods to
because it sets up a clear connection
design a measurement plan that meets
get the job done.
between a program initiative and its results.
those criteria. The ideal measurement plan
Without knowing what caused a change in
will allow for generalization, reduce or
consumer behavior there’s no room to make
control bias, isolate causal factors, and
program improvements.
establish causality and incrementality. If there are operational constraints that
Failure to establish causality can lead companies to attribute too much or too little revenue to a loyalty program.
To learn more about the New Math on Loyalty read Will’s white paper available at www.1to1media.com/links/newmath.html To contact Will Wittkopf email him at: wwittkopf@carlson.com
About Carlson Marketing Carlson Marketing is a recognized global leader in Relationship Strategy and Marketing. We help global Fortune 1000 clients solve their critical customer-
Incrementality is the ability to know whether a program initiative is delivering the right outcomes. For a loyalty program to show real results, it must show that the results being measured are incrementally better than those generated without the program. Would the consumer have behaved the same way (e.g., recommended your program) and driven similar benefits (e.g.
related business challenges and increase Return on Customer(sm) by designing integrated marketing strategies and programs that build better relationships with the audiences that clients depend on for success: customer and prospects, employees, and channel partners. Our unique set of integrated capabilities include Loyalty Strategy and Execution, 1to1 Direct Marketing, Meetings and Events, Interactive Marketing, Decision Sciences and more. Carlson is ranked by Advertising Age as the largest marketing services agency in the US and the 10th largest marketing organization in the world.
attracted a new member) if he were not a member of the program?
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