Sunday 30 August 2009

O2 creates loyalty through entanglement

O2 Providing additional ways for a customer to interact with your brand is a great way of creating “entanglement”.

The phrase “entanglement” is well used in loyalty marketing and typically refers to the process of meeting an increasing number of your customers needs with additional products and services in the hope of both becoming a trusted first point of call and making it harder for a customer to unpick themselves from the relationship. 

In the book Customer Winback: How to Recapture Lost Customers and Keep Them Loyalthe authors describe that the goal of entanglement “is to earn the customers dependence on your firm in as many ways as possible”

Interestingly, the phrase entanglement is also used in quantum mechanics.  There is a property known as quantum entanglement and it is described as where the quantum states of [two or more] constituting objects are linked together so that one object can no longer be adequately described without full mention of its counterpart.

I quite like the idea of that definition of entanglement for brands – essentially two or more products or services that can no longer be adequately described without their counterpart.  This would indicate that a brand was not only fulfilling a wider breadth of a customers needs, but that the product/service extensions actually supported and enhanced the originally offering – dare I use that much overused phrase – a synergy.

It’s rare to see a brand extension that works this well – sometimes they can appear disconnected, standalone and clumsy – but one company that stands out to me is O2.

They have recently released the O2 Money prepaid card which allows customers to top-up the card and use it in the same manner as a standard credit card, but with the condition that you can only charge as much as you have balance to support. 

There is nothing new with this product – prepaid cards have been around for a number of years now and are increasing in popularity within certain segments such as teenagers (allowing parents a vehicle to provide pocket money), the unbanked (allowing people to access online deals even if they are not credit worthy) and travellers (providing a safer way of carrying money). 

But it’s no secret that in these uncertain times people are looking for better ways to control money and this evidenced in a shift from credit to debit card payments as customers try to live within their means. 

A prepaid product can be seen as a modern version of household budgeting.  Rather than drawing out a fixed amount of cash and using this during the month for household expenditure, consumers can utilise a prepaid card in the same way, transferring a fixed amount onto the card and then using this to pay for goods and services during the month.

The only downside – and it’s a big one – is that you need to be on top of your expenditure to know what’s left on the card to ensure you don’t overspend or have the embarrassment of not having enough funds for the purchases.  This is where the O2 offering fits so well.

O2 have linked the prepaid product tightly into their mobile offering so that the two are entangled – in essence they can no longer be adequately described without their counterpart.

The mobile is used to check balances on the card, to top-up the card and a really nice feature is that real time balance updates are sent to the card after every transaction -  so it’s easy to keep on top of  the available balance and to manage funds.  Of course, as it’s cash, the card can also be used to top-up the mobile phone.

As you’d expect, the card is only available to O2 mobile customers and if you stop being a customer you can no longer load credit onto the card.  O2 see the card and the mobile as inextricably linked, with O2’s UK Chief Exec Ronan Dunne, saying:-

“We believe we are at the start of a journey of the coming together of phone and wallet and we intend, through O2 Money, to be at the forefront of this trend”

The entanglement of the two products – the mobile and the payment card – will inevitably lead to the entanglement of customers with the O2 brand.  For customers who build the card into their daily routine, this could be a powerful retention mechanic for O2 – and as it’s one of the few “fee free” cards on the market, it makes it an even more attractive proposition. 

It’s clear when you look at recent O2 innovations such as the branding of the Dome to “the O2” - and the entanglement this creates between the mobile and music - or the O2 Juggler – and the link this creates between the home, the family and the mobile – that O2 really get how to augment the basic provision of a mobile phone service.

It might not be quantum physics, but creating brand extensions that fit with, enhance and synergise with the core proposition is no easy task.  However it’s one that O2 seems to understand and is a strategy that is sure to create customer entanglement – ultimately resulting in greater loyalty.

Saturday 22 August 2009

Tesco change the game?


The Tesco Clubcard loyalty programme has been in the news again recently, with the announcement that they are offering double points on all earning. This follows the current campaign where they are offering double the value of reward vouchers in-store – so your £10 reward voucher could be worth £20 across certain lines or continue to be worth £40 with selected Deals partners.

If you’ve ever listened to Andrew Mann speaking about Clubcard (before his recent departure to Sainsburys) you’ll have heard how they positioned the scheme, not as a loyalty programme, but as “a way of saying thankyou”. However, the recent changes to the scheme show clearly what it really is – it’s a way of changing customer behaviour – it’s a loyalty programme through and through – for Tesco it has always been game changing and they are now raising the stakes.

In the book Scoring Points: How Tesco Continues to Win Customer Loyalty, Clive Humby and Terry Hunt discuss how they trialled both 1% and 2% back in value and there was no real difference in customer response – so 1% it was. However, a combination of a highly competitive market and stagnant growth have - 14 years later – forced Tesco to up the game; offering double points or 2% back.

But Tesco like to write their own game rules. Back in 2002, Clive Humby was discussing loyalty in an article first published in Customer Management Journal. He was discussing loyalty programmes and how, at Tesco, they don’t take loyalty “best practice” at face value and instead look to prove what works and what doesn’t. When looking at “Loyalty Ladders”, Humby states:-

“There’s a myth that there’s some sort of magical ladder. Customers come in on the bottom rung at the beginning, they go up a ladder, becoming more valuable to you and, over time, they become advocates of your brand. It just doesn’t happen like that.”

Now I suspect all of us in the industry are guilty of having used a version of this ladder before in a PowerPoint presentation somewhere, and as a simple way of expressing the different types of customer segment, from unknown through to advocate they do have a use.

LoyaltyLadderHowever, Humby goes on to discuss how they had done some work on advocacy and actually found that:-

“Advocacy peaks when you’ve just made a choice…when you’ve just made a decision and seek affirmation by talking about it with your friends”

This of course makes sense – in order to make a purchase, customers will have (hopefully) researched the best product, price and retailer and having made the purchase and been satisfied with it, will quite obviously discuss this with other people. In fact, if they had not had a great experience they are probably just as likely to discuss this too – becoming detractors.

This process is ongoing however. The purpose of a loyalty programme is to “smooth” the way to the next purchase – removing barriers to purchase through a better understanding of a customer’s desires and preferences and removing constant re-evaluation through non-price related benefits.

A better representation of the “loyalty ladder” is in fact as a circle.

Relationship CycleThe ideal customer journey is to go from Awareness (of your brand/product/service) to Desire (wanting it) to Behaviour (the interaction/purchase).

If this is a new relationship it’s more than likely the customer will Evaluate you with your competitors based on price, service or other customer reviews. This is where you need to be able to differentiate your product on more than price alone (unless you’re the price leader of course)

If all goes to plan and the customer is satisfied then this leads to Advocacy. The whole process give you a chance to Learn and Customise further communications in the hope of continuing the cycle. Ongoing, the loyalty programme should hopefully create further differentiation and lessen/remove the constant Evaluation.

Of course every interaction has the opportunity to create advocacy – and to destroy it – but this obviously subsides for most customers unless you change the game a little.

For Tesco, changing the game is exactly what they have just done.

With upwards of 50% of households already enrolled in Clubcard and near market saturation, customers would be more complacent – seeking to increasingly Evaluate against competitors. This has resulted recently in Tesco losing market share as customers evaluate alternatives such as discounters like Lidl and Aldi.

By changing the scheme to make both earning and redemption more valuable, this will be a pleasant surprise for existing customers, creating new opportunities for advocacy. It also increases the value exchange, allowing Tesco to create non-price based differentiation and reducing constant competitor evaluation.

I’ve said before that this is the year of loyalty – first it was Airmiles doing a major re-launch earlier in the year and now Tesco – the behemoth of retail loyalty have raised their game and made loyalty the centre of their marketing strategy – in case anyone thought this had ever changed.

Tesco continue to show that if loyalty is done right, with a robust test and learn strategy and a willingness to keep innovating within the programme, customers will respond positively.

It remains to be seen how these recent changes will affect Tesco’s fortunes, but you can bet they already have a good understanding of how the game will play out.

Saturday 15 August 2009

Nudge Nudge, Wink Wink. Know what I mean?


There was an interesting addition to the urinals at work this week – each one had a small red bulls eye stuck onto it.

Now bear with me on this blog post before you run off thinking I’ll be discussing the men's cloakroom – I will however be linking that addition to the urinal to loyalty marketing…

The bulls eye was in fact trying to achieve the same effect as the image of the fly that was famously etched into the urinals at Schiphol airport – and that is to improve the aim of men and hence reduce spillages – and it works, reducing spillages by up to 80%.

Men weren’t asked to change their behaviour, instead the addition of the fly image caused men to automatically try to hit it.

This type of solution has been termed a “Nudge”, documented in the book of the same name as:-

Knowing how people think, we can design choice environments that make it easier for people to choose what is best for themselves, their families, and their society

Whilst this is a very noble thought, many companies have been using this type of solution for many years – not to help people (explicitly) but to sell products. Retailers (and brands) for example know the effect of product positioning on shelves and overall store layout on the sale of products.

One of the interesting examples from the book however is the story of a School Food Services Director, responsible for school meals across a large city school system. She found that by moving around how food was positioned – where desserts, french fries or carrot sticks were placed – it was possible to increase or decrease consumption of certain foods by up to 25%.

This is stark contrast to the large scale public campaigns there have been in the UK to encourage healthy school meals by restricting choice – and the backlash this has caused in some cases.

This is in essence the point of the Nudge approach – it’s not about taking away things but instead making subtle changes to the environment to encourage the desired behaviour – termed “choice architecture”.

Obviously this can work in positive and negative ways. If required, the schools could easily have promoted unhealthy options as much as healthy options through the positioning.

An example more related to loyalty marketing is what I presented in my last blog post where I discussed how when visibly reassuring people about the security of their information, people provided less personal information than when this was hidden away more. This security information (or lack of) is in essence a form of “choice architecture” or a nudge.

Within loyalty marketing there are a number of key behaviours that many programmes are looking for. This may include initial programme acquisition, usage of cost effective online channels, or getting members to redeem - and a Nudge could help in these areas.

We’ve used Nudges across a number of loyalty programmes and indeed built whole programmes around them.

For a card network, we ran a programme which rewarded retailers for simply asking customers “Can I put that on your <card network> card” – and the results were impressive. Simply asking for a particular brand of card resulted in people picking that card type out of the wallet in preference to their normal card.

In another programme we provided “concierge” style rewards which allowed people to redeem their points for anything they wanted. These types of rewards are typically aimed at high value/premium customers but the issues with them can be two fold. Firstly, giving ultimate choice can actually limit redemption; as Nudge discusses:-

More choice isn't actually in keeping with human nature - in fact people can be overwhelmed by choice and either choose to do nothing or choose poorly when presented by many options.

The second issue can be around sourcing and fulfilment; whilst being able to source anything can be a great “sell” for the programme, in practice this can take time if each request is unique and individual. Instead, we used Nudges to to help “prime” members by presenting ideas for rewards they could use their points against.

In line within priming theory, if we make suggestions for something and then ask what people want, the original stimulus in the form of the reward ideas results in more requests within these categories.

Nudging is an interesting concept and whilst we probably use many of the techniques currently through a combination of common sense and experience, explicitly considering how we can Nudge members along a defined customer journey can help keep programme costs down and increase member engagement.

So next time you see a fly in the urinal, think about your customers – or maybe wait until you’re at least out of the bathroom ;o)

PS. The title was just an excuse to link to the classic Monty Python sketch.