Saturday, 24 September 2011

Halifax Bank gambles on loyalty?

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Halifax Bank announced this week that it is intending to run a lottery style monthly promotion called Halifax Savers Prize Draw. The scheme will reward savers with deposits of £5,000 or more (and who opt-in) with the chance to win one of three top prizes of £100k a month or smaller prizes of £1,000 or £100 - paying out a total of £6m in the course of the year.

While this is undoubtedly a promotion to attract new customers, it also has an interesting loyalty angle to it.

If Halifax attempted to create a "full" loyalty programme for savers this just wouldn't be rewarding enough to make it motivating. Savers are already paid out interest on their deposits and if there was much more room to manoeuvre on this to provide greater value then you would expect the bank to be looking here instead.

A lottery style programme however lets them provide a powerful retention mechanic for a fraction of the reward budget.

There are great previous examples of how powerful this can be. Research from the National Lottery Commission showed that 67% of the UK population had purchased a lottery ticket at least once and that about 40% of people played regularly (at least every week).

A more direct comparison to the Halifax programme would though be Premium Bonds, the UK government savings account which also pays out a lottery style prize. These are still proving popular with around 40% of the UK population having on average £1,131 in bonds. They have also proved increasingly popular in these tough economic times with a 26% increase in the amount saved since 2008.

Despite Harold Wilson MP, reportedly calling Premium Bonds a 'a squalid raffle…a national demoralisation' when he opposed their introduction, it seems they're the more acceptable side of gambling - with £21m of Premium bonds sold every day.

In an article back in 2010, the Daily Telegraph discussed why Premium Bonds are so popular saying:-

They remain popular primarily because, unlike most lotteries, Premium Bonds guarantee to return your capital. So they are widely regarded as a free chance for a flutter.

Just like a loyalty programme, both Premium Bonds and the new Halifax Savers Prize Draw do the same thing - provide a little extra for nothing. You still get to keep your money and uniquely with the Halifax you actually get to earn interest; however you also have a chance to get a reward. It's this reward, this promise of something for nothing which will make this scheme not only good for acquisition but also help to retain balances.

In a loyalty programme points are used to make the programme sticky, customers build up value in points and this helps to focus them on collecting more - remaining a customer and shifting/concentrating category spend. The power of this depends on how achievable the rewards are perceived to be.

In a lottery style programme however there is no increasing points balance - there is just a prize, potentially.

Instead, the stickiness in these types programmes comes from something less tangible - the gamblers fallacy. This is the fallacy of the maturity of chances, the belief that past results have an impact on future results.

If the coin keeps coming up heads, there is more chance of it coming up tails.

If the roulette wheel keeps coming up red, there is more chance it will come up black next time.

If I didn't win this month, or the previous 10 months then it's my time now.

This belief is what keeps people buying their lottery ticket and it's what will keep people retaining their savings account.

Whether you call it a lottery, a prize draw or a flutter, the gamblers motto still applies... "I’ll quit when I’m ahead".

Thursday, 15 September 2011

PayPal banks on convergence in offline retail

A recent PayPal blog by Scott Thompson, President of PayPal gives a strong overview of their future direction - and in a word it's convergence.
  • The convergence of offline and online retail
  • The convergence of social and retail
  • The convergence of EPOS and payments
  • The convergence of offers and payments
  • The convergence of payments and loyalty
  • The convergence of the purchase and the purchase decision
That last point is the most powerful - previously banks and payment providers like PayPal moved money.  It was all about the transaction with little regard for the person making it or the reason behind it.  However as Thompson indicates in his blog, this is changing:-
PayPal is re-imagining money and making it work better for merchants and consumers.  The act of paying for something should be as seamless as your decision to buy it. The future is about creating real consumer choice, flexibility and control over how people shop and pay.
Payment providers are realising the power they have within the data they hold and the relationships they enable, and now they are starting to do something about it.

    PayPal are squarely banking on convergence across all of these areas into a single solutions provider - and obviously they would like it to be them.

    They're not alone however, both Google and Square, amongst others, are competing in this space, bringing together mobile, payments, POS, offers and loyalty rewards into a single platform / eco-system.

    The ability to drive a purchase from demand generation and follow it right through to purchase and post purchase recognition is something that is going to gain traction and there will be winners and losers.

    I suspect any single vendor will struggle to dominate and open standards (or mass payment networks) will win out, but it does set the tone both in terms of customer and retailer expectations - and it throws down the gauntlet for all players within the payment and retail transaction space.

    Sunday, 4 September 2011

    Avios says adios to BA Exec, IB Plus and Airmiles

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    Loyalty is making headlines again.  With Airmiles announcing that it's to rebrand to Avios, there has been a media feeding frenzy discussing everything from the u-turn on taxes and potential devaluation through to the re-branding and how long it might last.
    Overall the publicity seems to have been negative but then this is to be expected; Airmiles is a well loved brand but has become a little like Woolworths before it's demise - everybody of a certain age knows about it and many remember it fondly, however actual usage has declined over time from it's height in the late 80's and early 90's with only 2m active members now out of the 8m total.
    Renaming it will feel like the end of an era for many.  However people mellow over time and get used to change, even for every day brands like Norwich Union (Aviva) or Marathon (Snickers).
    While most of the mainstream commentary though is focusing on the fact that Avios is replacing Airmiles, what's interesting is that it's also replacing the BA Exec club and Iberia Plus, now all part of International Airlines Group (IAG).  Both of these frequent flyer programmes will retain their current branding, but the underlying currency (whether that's BA Miles or IB Puntos) will change to Avios.
    This is also not just an alignment of currency name, it's also an alignment of the currency itself.  BA have been quoted on Flyertalk as saying:-
    We realise that we may have members in the Executive Club, the Avios reward programme or in Iberia Plus so we are developing a new tool called Combine my Avios which will allow you to combine some or all of your balances into one or the other programmes
    This is actually quite an interesting step.  By combining Airmiles UK, BA Exec and IB Plus into a single currency they have instantly created an international loyalty programme - albeit heavily biased to the UK and Spain.  If this was just BA and Iberia combining then you could argue it was more of a consolidation of schemes in the same way Northwest and Delta programmes combined.
    The inclusion of Airmiles UK though which is not a frequent flyer programme and is instead a more traditional coalition programme suggests an ambition for the currency to be used wider.
    This is backed up by Andrew Swaffield, Managing Director of the Mileage Company who runs Avios when he was quoted in Business Traveller Magazine as saying:-
    [The intention of the new programme was to] "create a new shared global reward currency to provide benefits for all three members"
    While the main focus of discussion is still around how members perceive the change in benefits with the introduction of Avios I suspect the real discussion is yet to be had about the potential impact of a new, global reward currency with around 17m members (Iberia Plus 4.2m, BA Exec 4.5m and Airmiles UK 8m).