Loyalty Marketing Blog - Sage Words

Tesco profit warning - how much was Clubcard responsible?

2012-01-21T15:10:00.001-08:00

If they say a picture is worth a thousand words then the following graph is no exception.

Using Tesco market share data from TNS/Kantar Worldpanel, there seems to be an interesting correlation between changes in their market share and changes in the reward value of Tesco Clubcard.

With declining market share in 2007-2008, Tesco implemented the Double Points Promotion which gave customers a huge lift in loyalty value and in response, Tesco didn't just stem the decline in market share, they lifted it 5.5% from 2008 levels.

In 2010 the double points promotion was changed to make it less generous, reducing reward deals from 4x value to 3x. This still meant the reward value was higher than the original scheme, but it was much less than customers had been getting used to during 2009.

Despite this positive impact on market share however, Tesco decided to change strategy, moving from a loyalty focused approach to a price focused one. This took a huge amount of value out of the Clubcard programme and pushed it into £500m of price discounts.

At the time a Tesco spokesperson was reported to have said:-

"Our customers have said what really matters to them at the moment, is the price at the till"

This is no surprise - customers will always say that it's price that matters, whether it's boom or bust. What is a surprise is that Tesco listened to this feedback and then acted on it. With ASDA already having a price match promotion and Sainsburys quickly implementing their coupon at till Brand Match promotion, Tesco's big gesture around price was essentially neutralised. This also didn't go unnoticed by ASDA, who at the time said:-

"Yawn. We were 10 per cent better value yesterday. We're 10 per cent better value today. We'll be 10 per cent better value, whatever they do, come Monday."

In the process though Clubcard had taken a double whammy. Not only had they reduced the value of the scheme to it's lowest point ever, but by reducing prices in-store they had taken further value away of around 1.2%.

For an average loyal Tesco Clubcard customer who was shopping in-store, picking up Tesco fuel and using their credit card for purchases, this change amounted to a 40% drop in value from the high of 2009.

What did they get for this? Well just over 346,000 extra customers according to Kantar.

How many of these will stick around though is the more interesting question. As The Daily Telegraph said in it's article "The cuts that lost Tesco £5bn of its value"

"Though Tesco shoppers took advantage of the lower prices, they did not feel they were getting a bargain and failed to return for another shop"

It seems Tesco forgot how powerful loyalty could be and played straight into the hands of EDLP retailers like ASDA. Whilst publicly they are now focusing on their store offering as the new point of difference, it will be interesting to see if Clubcard once again takes centre stage.

Example Tesco Clubcard Reward Value

Category	Monthly Spend	2008 Original B/E(4x/1x)	2009 2x Points B/E(4x/2x)	2010 3x Deals B/E(3x/2x)	2011 Current B/E(3.2x/1x)	2011 Current (Adj) B/E(3.2x/1x)
Supermarket	£600	£24.00	£48.00	£36.00	£22.40	£22.12
Fuel	£240	£9.60	£9.60	£7.20	£8.96	£8.96
Car Insurance	£25	£1.00	£1.00	£0.75	£-	£-
Credit Card	£1,000	£10.00	£10.00	£7.50	£7.47	£7.47
Monthly Reward		£44.60	£68.60	£51.45	£41.60	41.29
Annual Reward		£535.20	£823.20	£617.40	£499.16	£495.50
Difference		-£39.70	-£327.70	-£121.90	-£3.66

Notes:

Supermarket / Fuel spend calculated as spend via Tesco credit card
Current Burn rate average as 3x across wide range of deals
Current (Adj) assumes 1.27% lower supermarket spend due to £500m discounts across £39.3bn food sales (2010)
Car insurance no longer has any active Clubcard deals

You and Yours (3 key loyalty trends for 2012)

2011-12-24T04:03:00.001-08:00

At this time of year, thoughts tend to be about you and yours. This however may be a continuing theme going into 2012 as I think loyalty marketing is going to become a lot more interested in "you".

This is more than just mass personalisation or segmented communications. I believe 2012 will be about individual engagement and empowerment as consumers provide more and more data, expecting increased control over it and better experiences being delivered because it.

You (and your data)

Back in 2006, Time Magazine named the Person of the Year as "You". Pointing out the cultural shift that social media had begun to bring, they recognised that it was democratising communications, with people sharing with each other and big institutions and governments beginning to lose control. They described it as:-

"[The] founding and framing [of] the new digital democracy. It's [..] about community and collaboration on a scale never seen before [..] about the many wresting power from the few."

It's unbelievable to think that this was 5 years ago now and Facebook was just starting out and MySpace was king. Whilst the tools we use may have changed, the pace itself hasn't. Social media has indeed wrestled power from the few leading to Time Magazine nominating the Person of the Year in 2011 as "The Protester". Highlighting the role of social media in showing injustice and gathering support they said:-

"One of the unequivocal generational virtues of these movements has been their use of the Internet and social media."

It's not just in politics that we're seeing this democratisation however. Consumers are also gaining more and more power with the UK government for example recently announcing that they plan to give consumers more control over their data by releasing it back to them. In describing this they say:-

"[It] will give consumers increasing access to their personal data in a portable, electronic format. [..] Individuals will then be able to use this data to gain insights into their own behaviour, make more informed choices about products and services, and manage their lives more efficiently."

Outside of government, some of the biggest collectors of personal data are loyalty programmes and so I'd fully expect them to begin taking part in these kinds of initiatives, allowing members to use their data to better understand their buying habits, but also to unlock more relevant offers and promotions on their terms. Indeed, many of the companies signing up to the UK midata initiative are companies with their own loyalty programmes. Generically termed VRM (Vendor Relationship Management) or PIDM (Personal Identity Management), I think 2012 will be the year when we start to see this trend gaining ground.

Your Behaviours

Increasingly, as you carry out an activity you leave a trail of bread-crumbs which others can use to follow you. Whether its location information that your smart-phone tracks, items you view but don't purchase or the TV programmes you watch (and then discuss on Twitter), all of this information is out there waiting to be collected and used.

This data is providing insight into previously hidden behaviours. Bricks and mortar retailers will start to get the same visibility as that enjoyed by online retailers, seeing those customers who have visited, but not bought or which items they viewed before purchasing. TV advertisers will have more visibility of which adverts were seen by which individual customers, allowing them to create a true ROI from awareness to purchase.

This is all being made possible by a combination of smart-phone/tablet penetration, innovative new apps and an established social graph. Using tools like twitter and Facebook as identity management, companies can collect together and refine this raw information from apparently disparate sources.

People are already using twitter for example to comment in real-time on TV programmes and this experience is being enhanced through new applications like Zeebox in the UK and IntoNow from Yahoo in the US. Zeebox co-founder Ernesto Schmitt says:-

The emergence of net-connected TVs; the mass proliferation of companion devices like smartphones, laptops and tablets; and people's expectations that entertainment will be socially connected felt like a perfect storm. The time was right to revolutionise TV

Increasingly using "fingerprinting" technology, these applications can automatically detect what TV programmes you're watching and any associated advertising. Linking this to your loyalty purchase transactions is simply the obvious next step and something i'd expect to see appearing in loyalty programmes in 2012.

Your Experiences

Apple changed the face of electronics retail. By combining great looking products with a great in-store experience they managed to make the electrical stores more of a destination than a retail outlet. Others have quickly followed, most notably Dixons in the UK with their pilot store Dixons Black in Birmingham. As offline retail increasingly struggles against online, especially where the products are more commodatised like in electrical, then the focus is shifting to the in-store experience. Using a combination of knowledgeable staff and well presented products, retailers are fighting back.

As retail expert Clare Rayner of Retail Acumen says:-

When you don’t offer anything special then the only thing you can do is compete on price… and that’s a downward spiral where the retailer with the deepest pockets to “buy their customers” is going to be the winner.

Retailers like Apple, Dixons, Game and Disney are starting to offer something special to turn the shopping experience from a physical one to an experiential one.

Apple do more however. They have turned the purchase process into a relationship. Making the stores also a centre for servicing and support through the "Genius Bar" as well as running seminars and training, they actually want customers to return. Whilst this isn't a loyalty programme in the traditional sense, i think it indicates how retail loyalty is changing. It can't simply be something stuck onto the side of the retail process and instead needs to be deeply embedded into the experience.

Expect to see more retailers upping the experience in-store and needing their loyalty programmes to help both support and drive this.

Conclusion

As these 3 key trends converge we're going to see a blurring of the lines between online and offline retail, with consumers having a more tailored and personalised in-store experience and with retailers gaining a better understanding of (and ability to influence) the end to end purchase process for each individual customer. Loyalty programmes play a key and central role in all of this as a means of proactively gathering consumer data in an opted-in manner and allowing appropriate reward and recognition to be given back.

This will result in "you and yours" - your data, your behaviours, your friends, your experiences - being a central theme for 2012.

I probably say this every year, but 2012 is going to be an exciting time in loyalty marketing!

Image credit:♫muxu's photostream

When excluding customers adds value

2011-12-04T04:40:00.001-08:00

I'm a loser. I've been a loser lots of times.

When I play poker, I very rarely win big and tend to be happy if I break even. When I was young and we'd play games like pass the parcel, I'd lose more times than I won. Losing is part of life and it's what makes winning feel that much more special.

When my kids play games like pass the parcel now, every wrapper has a gift in it. Everyone's a winner. Yay! Strangely enough they don't really play it that often.

If everyone is a winner then essentially no one is a winner. All it does is dilute the whole process to the point where taking part ceases to have value. Sure it's inclusive, but it doesn't take long to realise we don't want inclusive, we want exclusive. We want to be winners.

Imagine a frequent flyer programme where everyone was a winner. It didn't matter how many times you flew, you were top tier. I'd feel great with my Platinum frequent flyer card, with its exclusive benefits. Priority queuing - with everyone else. Lounge access - with everyone else. Priority Boarding - with everyone else. Somehow that's not going to feel special very long if everyone is included.

This peaked my interest recently when I read about a new card that has been launched for what the Evening Standard termed as the "digerati". Called the FoundersCard, they state

"[It] is a first-of-its-kind membership community for entrepreneurs and innovators" providing members with "access to frequent networking events held throughout the year [..] exclusive benefits, upgrades, and amenities from the hottest travel, lifestyle, and business brands, carefully selected to meet the needs of the entrepreneur"

Only 5,000 people worldwide have been accepted for one so far and it costs $495 to have it.

So I have to pay for it, I want it, I don't know what "it" is but I can't have it.

Still, it's cheaper than another card that I'm excluded from, the Centurion Card. Another "invitation only" card with annual fees of $2,500, the FoundersCard looks cheap in comparison, especially given the Centurion card also has an joining fee of $5,000.

What do you get for that kind of money? Well basically, in the words of Tolkien, it's "one ring to rule them all" or more accurately "one card to rule them all". Providing elite membership in frequent flyer/guest programmes including Virgin Atlantic, US Airways, Delta and American Airways, elite status in Hertz and Avis and personal shopper access within many top retailers. It's one card that can open doors to almost any other loyalty programme.

The only reason these cards work though is by controlling access and membership - including some and excluding others. If Amex opened the floodgates to the Centurion Card, not only would it devalue the card to other members, but also to their partners.

This is something Groupon partners keep experiencing. There was another report in the press this week of a partner being overwhelmed by the response to a Groupon deal. A baker in the UK was inundated with orders for a 75% discount on 12 cupcakes. Expecting only a "few hundred" orders, they received over 8,500 and had to make over 100,000 cup cakes - at a loss.

The original purpose of Groupon was to provide exclusive deals. As they say on their website "Just imagine the joys of an exclusive spa day or a four course meal for half price". The problem is, if it's not really exclusive then it won't be valued, either by the consumer or the partner. This will mean it'll be harder for Groupon to source genuinely "exclusive" deals and consumers won't be getting a deal, they'll simply be getting what they paid for.

These exclusive offerings work on the scarcity principle, with people valuing (and overvaluing) something when it is in limited supply. The real value of exclusive access within an airport is about £2.50 for fast-track security and £15 for lounge access - assuming of course you could buy it. Limiting supply however allows airlines and operators to provide these low cost benefits as part of high cost business class seats and loyalty programmes.

Google used this principle when launching Google+ as an invitation only service. For something many of us didn't know if we wanted (and probably still don't), there was a clamour for invitations on twitter with a clear divide between the haves and the have nots with Inc.com reporting on this saying:-

When Google shut down inviting [for] a few hours [..] hype only intensified. Lesson: going slow with a launch is not only good for your servers and your sanity, but can extend a feeling of exclusivity to users.

By excluding potential customers initially, Google simply increased the desire of potential customers to gain access and at the same time increased the value of the service to those who already had. Creating winners and losers created a win-win and in the process created the fastest growing social network in history.

This also applies where there is no real value.

Achievements or digital rewards may be cheap to manage and fulfil, but they'll also be cheap in the mind of the recipient if they don't have exclusivity tied to them. Foursquare works because they make getting badges a challenge and also make it hard to find out exactly how you get them. This means when you are awarded one there is genuine surprise (and delight if you're a little sad like me) or a genuine feeling of achievement.

This is something that the MacArthur Foundation is counting on along with the Mozilla Foundation. They are looking to tap into it with a proposal to use achievement badges as a form of virtual CV. Recognising that increasingly, formal qualifications don't express the richness of someones skills or those skills they learn ongoing, the badges would form a visual recognition of acheivement. However these only work if they genuinely recognise achievement as a Mozilla spokesperson said

"The badge itself is more than a static image or button. Its value comes from the information or metadata attached to it [, including an] implicit validation system"

In reporting this the New York Times said "If valued, they might also inspire students to accomplish new tasks."

This in the end is the key to all of these solutions - the consumer has to value them and that value can be created and intensified by limiting their supply through achievement.

It doesn't really matter what the rules are, whether it's demonstrated by the size of your brain, your klout or your wallet. There has to be winners, those who are included, and losers who are excluded for things to have enough value that it encourages motivation and engagement.

Loyalty flows better with design

2011-11-13T13:36:00.001-08:00

Being a little impatient I found myself slightly annoyed on the London Underground this week by a closed station. It wasn't that the station in question was my stop, it was simply that the train went on a go-slow when it approached and went past the station to maintain the schedule for the train but without actually stopping. Overall the journey time wasn't changed, but this didn't stop the slightly irrational feeling that I was being held up.

Whether it's a traffic jam, the delay of a plane or crowded streets, no one seems to like a loss of momentum.

Interestingly, momentum and the need to maintain it is one of the main aims for Controlled Motorways which use techniques like Variable Speed Limits. The thinking is that as roads near capacity due to congestion, it's possible to increase capacity by controlling driver behaviour - making it more uniform. When people are advised with the messages "Congestion - Stay in Lane" and are restricted to a lower speed limit, they reduce lane switching (which uses up two lanes capacity) and the need for braking behind which sends shockwaves down the lane. It also seems to work, reducing accidents (and the associated delays) by 55.7% and most drivers (60%) saying they'd like to see more of this kind of traffic management elsewhere on the road network.

The purpose then of these traffic management tools is to maintain flow and to essentially avoid "flow breakdown" by actively managing driver behaviour.

It's not just traffic management which benefits from directing peoples behaviour, games designers also utilise flow control. Based on a concept originally proposed by Hungarian psychologist Mihály Csíkszentmihályi, flow is the mental state someone is in when fully immersed in an activity. Maintaining flow within a game or keeping people playing is based on balancing a users skill level with a games challenge level. A games designer has to manage these two aspects for any game to ensure different users with different skill levels are always kept engaged.

Make it too easy and they'll get bored and move on. Make it too hard and they'll become anxious and frustrated and move on.

At a recent gaming conference called Games for Brands, speaker Mike Hawkyard from games design company 4T2 explained how they actively manage this within games they make for brands like Lego, making the game slightly easier each time a user fails to complete a level until their skill level and the games challenge level are balanced.

Flow is also something we have within loyalty programmes, even if we're not actively managing it.

Within a loyalty programme the skill aspect of flow is a little different. There may be some skill in terms of making the right choices to get the best from a programme, but this is also controlled to a great degree by ability. For example, I may have the desire (and skill) to get to Platinum tier, but if I don't have the reason (or money) to fly enough or stay enough then that skill alone won't be enough.

However, for those customers who have the ability to do more, something we term headroom, then flow becomes a big part of a loyalty programmes appeal. Making sure members have sufficient challenge is important for keeping them engaged, whether this is the rewards and their achievability, the tiers and how they are attained or achievements and how these are gained.

Loyalty programme design needs to take account of this such as using early days engagement journeys to on-board members or making sure that top performing members don't "top out" of the scheme and cease to have any meaningful challenge.

Most important though is a customers personal journey. In the same way that games designers actively manage each and every round of game play, we need to make sure we actively manage each and every customer journey using targeted and triggered communications and offers so people come back for more.

Keeping them in the zone. Keeping them engaged. Helping them flow.

The end of the line for payment cards?

2011-10-19T14:02:00.001-07:00

Payments cards are a legacy of the last century.

Their design was necessitated by a need to be able to communicate the identity of the holder and the provider/guarantor of the funds. This resulted in a physical card format, originally paper, more recently plastic which has since proliferated in our wallets as both payment choices and payment providers have ballooned.

Originally used in the 1920's, the first payment cards were issued by merchants with customers having a different card for each merchant. Seeing an opportunity to simplify payments for customers and possibly to create competitive advantage, several companies in the late 1930's started to accept each others cards. However it wasn't until the 1950's when Diners Club, Amex and Carte Blanche came about that the wider concept of a payment network was created.

Now customers could use a single card to pay for goods and services and since then the expansion of merchants accepting these has grown to cover almost every conceivable category and territory. Indeed, the latest contactless cards are finally opening up new sectors like transport or fast food which have been stubbornly cash based up until now.

Whilst this has made life simpler by removing the burden of physical cash, it is not however how people think about money.

The use of these plastic cards has forced us to channel our purchases through them as we attempt to manage our finances but ultimately our finances are more complicated and granular. This means we tend to carry more than one card - a debit card for every day small payments, a credit card for personal spend, a second credit card for business spend, an Amex...just in case.

Even with these different cards, they still don't align to our budgeting.

When we save for a holiday then the payment for that holiday comes from our savings (which may then have to be moved to our current account to then pay the credit card). When we incur business expenses, we have to pay for these through our personal account based on payments made by our company which are then paid to our credit card. We're constantly moving money around to make it work in a convenient way and we just accept it as normal. It's how things have always been done.

Then I saw BankSimple and saw what the future may actually hold.

There are a number of great ideas and innovations within the BankSimple interface, but in my opinion, one of the greatest is the ability to manage your money within goals.

Essentially these allow customers to decide what they actually want to use their money for (new car / holiday / home improvement / nest egg) and then can allocate funds automatically to this. BankSimple make decisions about how to invest this (long term/ short term) and the customer is always in control, able to change payments, end dates or simply pause the goal for a while.

This works because they are not forcing a customer to take out a new payment card or setup a new savings account to keep their money separate. Instead, BankSimple lets the customer worry about what they want to do with their money and they will work out the best way to manage this behind the scenes.

This jam-jarring prinicple is how people think about money. They decide on different goals/expenses and make allowances for these on a regular basis to try and manage their finances and keep within their "safe-to-spend" balance as BankSimple term it.

Where I think this could get more interesting is when you look at this combined with some of the recent announcements about mobile payments - from Google Wallet to Visa Peer to Peer. At present, all of these solutions have tended to look at linking in a payment card or bank account to make the solution work. The mobile wallet concept simply moves the payment card from a physical plastic device to a virtual one.

Indeed, Google Wallet allows you to simply swipe the screen to pick the right payment card before a single tap then allows you to pay, redeem a coupon and earn points. Launching Google Wallet they said:-

The launch reflects Google's efforts to simplify and redefine the shopping process for both consumers and businesses. [..] Because Google Wallet is a mobile app, it will do more than a regular wallet ever could

Whilst their desire was to redefine the wallet, instead all they've really done at this stage is substitute it.

Osama Bedier, VP of Google Payments is quoted as saying:-

Our goal is to make it possible for you to add all of your payment cards to Google Wallet, so you can say goodbye to even the biggest traditional wallets.

To me though, the bigger question is whether there is a need for payment cards at all?

In the BankSimple world where money doesn't visually reside within accounts and instead has more meaning attached to it based on goals and budgets, then you can imagine that these virtual wallets may be able to access funds in this more natural way.

When I go shopping, I should be able to pay from my household budget
When I pay for a holiday, I should be able to pay from my holiday savings
When I pay for a car expense, I should be able to pay from the allocation for motoring expenses

Don't have enough money in my budget? Well then simply extend me a line of credit for that purchase in that budget.

This would immediately give me visibility that my car expenses are in the red, and I can choose to pay these down more quickly. Rather than an aggregated, monthly credit card statement with every expense stuffed into a single number, i'd have real visibility of my money as it relates to my life.

Technology like Google Wallet is fantastic and i'm genuinely excited about what it will offer in the short-term. However it's going to take some real visionary thinking like that shown by BankSimple to truly redefine our relationship with money.

When that happens I think the need for payment cards, as shaped by the last centuries requirements may actually become a thing of the past and mobile technology will redefine not only what we pay with, but how we manage that payment.

Millennials - More open, but no less private

2011-10-08T03:57:00.001-07:00

Well if you have any association with loyalty marketing, you can't fail to have noticed the new brand on the block, Aimia.

Whilst exciting news (full disclosure - I work for Aimia), it was also great to see some new research released at the same time which we've just carried out on the loyalty market. Part of an ongoing strategy for loyalty thought-leadership, the new research entitled "Born this way - the US Millennial Loyalty Survey" focused on the growing importance of the Millennial generation. Numbering over 1.7bn globally, this generation is bigger than the Baby Boomers and three times the size of Generation X - they are also coming of age and so will be increasingly important to brands who want to connect with them.

Whilst the research focussed on many different areas, a really interesting aspect was the Millennials opinion of data privacy.

Interesting because for many, including Facebook chief, Mark Zuckerberg there is a feeling that younger people don't care about privacy and will share anything and everything. Zuckerberg was quoted as saying:-

People have really gotten comfortable not only sharing more information and different kinds, but more openly and with more people

For a generation growing up in a connected world with internet access, mobile phones and social networks it's probably no surprise that they have a different take on privacy, openness and the sharing of data - but does this mean they are any less concerned about their privacy?

The Aimia research does indicate that they have higher levels of openness than non-Millennials being more likely to share personal information with websites (36% vs 22%) and more likely to share information with a reward programme (50% vs 37%).

However what doesn't seem to change with age and is consistent across the generations is the desire around data to be both informed and to inform. Consumers overwhelmingly want to know why data is being collected (84% Milllennials / 86% None) and want to be able to opt in to sharing it with with over 77% preferring to opt-in when sharing location information or online behaviour.

There is however a higher level of trust with reward programmes, with Millennials trusting these even more. It seems when the value exchange is explicit and the consumer knows why their data is being collected they are much more comfortable with sharing it. Highlighting this within the report, it says:-

Millennials expect the Value Exchange to be transparent and permission-based. [they] are willing to grant you a measure of trust—but will quickly end the relationship if you violate that trust.

Social network privacy is also important to all consumers with Millennials valuing this even more (40% vs 38%), indicating both the value they put on social networks and the value they put on their data. This is backed up by new research from Forrester in a report entitled "Personal Identity Management". The report discussed findings from Gigya which highlighted how consumers tend to use different social network identities to log into different types of web content, stating:-

Users are most likely to log on to entertainment sites via Facebook Connect, for example, but prefer to log in to news sites via their Twitter handles. Each option shares a different set of data with the authorized site, so the fact that consumers are making an active choice highlights how they differentiate among the various sites with which they engage.

The Forrester report goes on to highlight a growing trend for consumers taking more control of their personal information, something they term PIDM (Personal Identity Management) but which is also similar to the growing movement around VRM (Vendor Relationship Management). This is something which is backed up in the Aimia research where the consumers desire for more control of their data is expressed with a strong preference (76%+) for being able to create a portable "privacy profile".

Forrester go on to discuss the implications of this for marketers, highlighting five main areas that need to be addressed in order to "unlock" consumer information and which echo the Aimia research around the consumers desire for privacy, security, value exchange, transparency and portability.

In conclusion, Forrester articulates what they feel a value exchange looks like for consumer personal information saying:-

[..] Two factors will come into play when it comes to the notion of value. First, consumers will need to receive highly targeted and relevant content, offers, discounts, and rewards for sharing their data. Second, we envision a rewards-based system wherein individuals will accumulate points across a closed ecosystem of marketers, services, and vendors that wish to retain maximum access to consumer data

This sounds a lot like a loyalty programme to me and given the increased likilihood for consumers to provide this information to reward programmes as highlighted within the Aimia research, it would suggest that the future of loyalty is very bright indeed. Wrapping this up the Aimia research concludes by saying:-

[..] The tools of loyalty management can make the difference. By facilitating the value exchange through targeted applications of reward and recognition, you’ll gain customer data that provides insight into Millennials as individuals. You’ll learn to deliver offers that focus their attention. They’ll respond to your efforts with increased loyalty, profitable behavior and word-of-mouth advocacy.

Halifax Bank gambles on loyalty?

2011-09-24T13:05:00.001-07:00

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".

PayPal banks on convergence in offline retail

2011-09-15T05:55:00.001-07:00

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.

Avios says adios to BA Exec, IB Plus and Airmiles

2011-09-04T07:20:00.001-07:00

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).

"The Internet of Things" is the new Sorcerer's Apprentice

2011-08-24T02:49:00.001-07:00

In Disneys Fantasia, Mickey Mouse as the Sorcerer's Apprentice brings to life everyday objects such as brooms and buckets to help him with his tasks of cleaning - what starts as a good idea though ultimately ends with terrible results as he fails to be able to control them.

Whilst Mickey may have gotten out of his depth, this thinking of everyday objects being brought to life isn't just a fantasy.

Obviously not in the literal sense we see in the Sourcers Apprentice (although that would have been great!), but more in the sense that previously inanimate objects can now start to record their activities. Termed the "Internet of Things" this was discussed in part by a talk at DICE by Jesse Schell about gamification and how this may extend into everyday items and tasks. (The video is really worth watching if you haven't previously seen it)

What Jesse discussed in terms of earning points for brushing your teeth has now been enabled by start-up Green Goose. Using a combination of intelligent stickers or product add-ons, Green Goose claims to be able to track any activity, from cleaning your teeth to drinking a class of water. The system utilises a base station linked to your internet connection to allow the different tags to communicate activities wirelessly and for these to then be tracked centrally. Each device/sticker includes a 1 year battery making them truly untethered and so there is no syncing required, you just use them (or not) and see the updates online.

There are obviously implications for this within industries that care if you do these activities, whether that's a tooth paste manufacturer or a dental insurance company. If the Green Goose solution gains traction and most importantly open standards then we could easily see products in the future including these kinds of monitors as part of the manufacturing.

Already the car insurance industry is using tracking products within cars to provide more cost effective insurance for young people or low mileage drivers based on when they use their car and how they drive it. Green issues aside (lets assume it's a hybrid/electric car) - imagine if that technology could also be used by the car manufacturer or tire producer to track the miles you drive and to reward you for that, giving you feedback on how to get the best from your purchase, when it needs to be renewed/serviced and discounts off your next purchase.

Internet of Things pioneer, Kevin Ashton said of this:-

The problem is, people have limited time, attention and accuracy—all of which means they are not very good at capturing data about things in the real world. [...] If we had computers that knew everything there was to know about things—using data they gathered without any help from us—we would be able to track and count everything, and greatly reduce waste, loss and cost

But it's not just waste, loss and cost in terms of the tasks we're tracking, but also the marketing budgets of the companies we purchase from. Knowing who uses the products, how often and for how long can enable targeting of spend and offers to customers based on their current and potential behaviour.

Originally Green Goose was positioned more as an energy monitor, letting you track time spent in the shower, riding your bike versus taking the car or turning the thermostat down rather than up. The idea was to track these little decisions in real-time as well as the potential financial savings you accumulated so that these add up to a "nest egg" value which provides a nudge to do more.

Great in terms of saving my money, but not necessarily great in unlocking savings from companies who provide the products and services.

Their new positioning suggests a movement to tracking wider activities including many they haven't even thought of. Opening this up to developers (which they have) means more solutions and more ways to commercialise it. Companies wanting you to use their products and use them more often will soon be able to tap into a continuous stream of data about how and when people are consuming them bringing in a wealth of information and requiring new ways to reward and recognise this.

The challenge for both brands and consumers however will be the same as that faced by the Sorcerer's Apprentice - once we start providing/collecting this information, can we keep control of it, manage it and get the best benefit from it... or will it simply overwhelm us.

(images copyright Disney)

The future of customer interactions is yesterday

2011-08-01T15:19:00.001-07:00

One of the interesting aspects of the rise in mobile devices is how these are reinventing established ways of doing things.

Things that we've been used to for decades have suddenly been made accessible and interactive by being combined with mobile devices like a smartphone.

Take the payment cheques for example.

This was a technology waiting to die. The thought of filling out a piece of paper to make a payment to someone else that then took days to transfer between accounts was an idea rooted in the last century. We're much cleverer now - allowing payments via a tweet or a simple bump of the phones. One of the most popular innovations however is remote deposit of cheques whereby customers can pay in a cheque simply by taking a picture of it. Banks such as US Bank, Chase and USAA have introduced it, with USAA originally pioneering this back in 2009 and now introducing the service to the iPad2. Having processed nearly $4bn transactions in just 2 years, this reinvention of an old technology has proved a hit with customers.

Taking this one step further, start-up Card.io have introduced a solution which allows a customer to make a payment by simply taking a photo of their payment card.

Another innovative use of the smartphone was demonstrated by Tesco in Korea when they transformed outdoor media from being passive to interactive. Recognising that people didn't always have time to visit a store, but had to make time to stand, waiting for a train, they decided to bring the store to them. Using outdoor media within the station platforms that mirrored store shelves, customers were able to add goods to their virtual basket by taking a snap-shot of items they wanted. These were then delivered that day so that orders made on the way home could be enjoyed that evening. With sales reportedly increasing by 130% and registered users up 76%, this cross-over from old school media to new media struck the right note with customers.

This can also be applied to loyalty interactions between customers and a brand.

Startup Punchd is looking to change how traditional paper-based punch card promotions work. Moving the card to the smart-phone and replacing the punch with a QR code - and in the process they are revitalising punch card loyalty programmes. Recently purchased by Google, this start-up is offering retailers a cost effective (free) solution for tracking and rewarding customer frequency. Better still, they are then utilising this data to provide retailers with reporting and the opportunity to target communications, something the paper based solution alone could never provide.

Another start-up has done the opposite of Punchd and used a paper based solution to create a cutting edge loyalty programme. Blitzly uses paper cards with unique codes on them to let retailers reward customer purchases. Aiming to create loyalty for smaller retailers who don't have the POS infrastructure in place, the Blitzly solution is both simple and elegant. Each retailer is given a set of cards which are uniquely linked to them, this then allows Blitzly to track customers by retailer, providing reporting and insight for the business and ensuring that only points earned at that retailer can be spent there.

It's not just silicon valley start-ups however they are using the mobile phone to augment traditional customer interactions.

Within the Nectar programme for example, the standard paper coupon has been moved onto the smartphone. This not only allows customers to see all of their coupons in one place but also provides a means of having more up to date coupons based on current behaviours. The usage of coupons is further simplified by not requiring the customer to present them at the time of purchase and instead, simply opting in when they see it.

Sears are currently testing the integration of QR codes with traditional catalogues to let customers get more information such as product videos. This combination of offline media with online content is something loyalty programme catalogues could also utilise.

Although some solutions such as QR codes or Punchd need an app installed which typically isn't there by default, this doesn't deter many customers. In a campaign run by Australian product coupon specialist Letterbox Deals, they reportedly saw 25% of customers using a QR code to submit their entry for a deal - for a campaign that went to 1.3m Sydney households. Even more interesting, 60% of customers who entered via the QR code downloaded a QR reader for the first time.

Sometimes using offline solutions, whether it's printed catalogues, unique printed codes or paper punchcards can be the most effective choice to reach customers. However, combining these with online technologies such as smart-phone/tablet technologies can bring a different angle, increase speed of response and allow ongoing tracking of those interactions.

Article first published as The future of customer interactions is yesterday on Technorati.

The problem with foursquare...

2011-07-19T13:14:00.001-07:00

Foursquare is seen by many as a template for a new style of loyalty programme - trading physical rewards for virtual achievements in the form of badges and showing how tiering can be scaled horizontally, not just vertically. Whilst these achievements may technically be valueless, they do seem to provide value for Foursquare with various reports indicating that it is still the King of location based services with up to 5x more check-ins than rival, Facebook Places.

But as a (reasonably) dedicated Foursquare user, what's becoming clear is that the design of foursquare is really less about retention and more about acquisition. Sure, I'm still playing so it's done a great job of keeping me engaged - in essence retaining me. However at an individual behaviour level it is less convincing.

The challenges in terms of collecting badges ensures I continue to check-in, but each badge, once attained is essentially done. I don't need to do anything more for that badge, it's mine, forever. The same for mayorship. If I don't do anything more (and if no-one else checks in) then I retain that ranking.

Simplistically, Foursquare is a behaviour change acquisition programme, not a behaviour change retention programme.

Foursquare probably don't care too much - they don't need me to exhibit the behaviours necessary for the "Crunked" badge more than once, they just want me to keep checking in and to chase that next badge.

However, as we begin to echo these kinds of gaming and recognition mechanics into mainstream loyalty programmes, we need to consider the consequence of recognising a behavioural achievement only once.

We can see this consequence in traditional loyalty programme tiering. While tiering can be quite limiting in that it normally only recognises one behaviour - that of spend - it is also limiting in that it "tops out" with many scheme operators seeing customer behaviour begin to tail off once a customer has reached a designated tier level. In essence they have achieved it.

This isn't because the customer has given all they have, instead the customer has simply moved on to a competitor programme. They are "gaming" the whole loyalty eco-system, racking up recognition across different brands as they've exhausted the challenge (and the benefits) within that one brand.

This isn't just limited to loyalty.

Banks see the same behaviour around card fees. Where a customer is charged a fee but can essentially "earn out" that fee based on spend, there is a noticeable drop in spend once this earn out period has been met. Customers haven't stopped spending, they have just reached the goal or challenge set, even though this wasn't the intention.

Given that customers have a psychological need to finish what they've started and a competitive streak to do better, it doesn't make sense to limit achievement recognitions to a once only event. Instead, we need to make sure that they can keep progress, either to maintain that recognition or to lift it further.

Looking across to games, they recognise different levels of achievement for the same behaviour. The iPhone game Cogs for example provides a bronze, silver and gold recognition for different behaviours such as the time taken or the number of moves required. This means even when the task is complete, I can usually do better.

This isn't to say that one off recognition isn't important. Customers need to feel they have achieved something, "banked" it and can move on. However, if this is the only sticky retention mechanic a programme uses it risks losing focus on key, repeatable behaviours.

Behaviour isn't simply changed, it is maintained.

A great example of recognition which looks to maintain behaviour (if slightly unique) is United Airlines acknowledgement of frequent flyer, Tom Stucker, who has racked up 10 million miles on their programme. In recognition of this amazing feat, Stucker was given a unique (for the moment) titanium loyalty card and has had his name put on the side of a United Boeing 747. Whilst a tearful Stucker was overwhelmed by this recognition, the problem for United is they have just raised the bar again. There is now a new challenge to be achieved and you can bet there are some out there with their eyes set on it.

As we start to democratise our loyalty programmes, bringing in horizontal recognition and increasing the engagement through broader challenges and rewards we need to make sure we don't limit a programmes growth by letting a customer simply tick the box and move on.

Gamification expands the loyalty toolbox

2011-07-06T03:25:00.000-07:00

I spoke at Marketing Week Live last week on the "Future of Relationship Marketing". It's always great speaking about the future of something as in theory nobody can question you; by definition the future is yet to happen - so I could be right...

However, whilst the topic was on the future, in reality the future is already happening, we just aren't seeing much of it within mainstream loyalty programmes (yet).

As I've written about previously, the presentation was all about Interaction Loyalty and the impact that recognising every interaction - every check-in, status update or product review - has on loyalty programme design and specifically reward and recognition.

Given the requirement to recognise activities which don't always have a nice neat margin attached to them, we also now need some different tools in the box to support this - and this is where gamification thinking comes in. Through gamification we can exchange rewards with actual value for rewards with social value and link recognition not just with rewards but also with core motivation. However, what's interesting to note is that gamification is simply a set of tools within Interaction Loyalty - not a new definition of loyalty itself.

Embedded below are the slides I used, feel free to review and comment.

Interaction loyalty vs 1 0

View more presentations from Mark Sage

Pizza Express app - a glimpse into the future of VRM?

2011-06-19T13:09:00.001-07:00

Pizza Express have launched a new iPhone app which redefines the space for retailers and at the same time provides a possible glimpse into both the future of payments and CRM (but more on that later).

The application includes a number of clever features such as allowing customers to view their past receipts (great if you need to expense something), create "favourite" restaurant locations and pre-book a table. The really interesting part however is a deal with PayPal that also allows a customer to pay their bill directly via their mobile by entering a unique 12 digit code printed on their receipt - letting the customer then simply get up and walk out as it's seamlessly integrated into the restaurants POS.

This in itself is an interesting loyalty play as Pizza Express get to know who the customer is, what they purchased and how often they come and there is not a loyalty point in sight. It's a compelling application that smooths the purchase process, making the next purchase more likely.

Whilst this is a really innovative app for Pizza Express it's actually part of a wider trend to disintermediate the payment eco-system and the functionality is quite similar to that offered by payment start-up Square.

Jack Dorsey, Square's founder is quoted as saying that they want to replace cash registers, wallets and loyalty cards. Rather than simply trying to replace a specific part of the existing process - exchanging the plastic card for the mobile phone - Square are actively trying to join the whole process up with Mr Dorsey saying:-

"We think it should be one system"

One really interesting innovation within Square is their application Card Case. This allows a customer to create a list of their favourite places and to setup a tab with them, simply paying by giving their name - no swipe of the card necessary. Like the Pizza Express app it also provides access to your receipts; in essence centralising your payment and purchase history and making it accessible.

This is a really interesting feature that both Pizza Express and Square have in common - the provision of customer data back to the customer - and it is becoming increasingly common as customers begin to expect their data to be collected, but increasingly consider it "their" data. When I shop at Tesco I know they are tracking my purchases, however when I go online and see new products added to my favourites list it begins to actually feel like my data.

This trend of providing information back to customers and giving them access to and ownership of it is also gathering pace.

Within websites and applications for example you are increasingly given the option to login via social networks such as Facebook or Twitter. While you still login, connecting via a social network provides a subtle change. You are actually granting permission to that application to connect to you rather than the other way round. At any time, I can review my relationships with different applications and simply close them down by removing the authorisation. I can also look at the permissions I've granted to those applications and change what information they can see.

There has been a transfer of power within identity management. It's now my identity and I can choose who has access to it, how much access they have and when I want to end it.

Imagine this trend being extended to all your interactions.

Within a supermarket loyalty programme for example you could link your purchase history to an app from a CPG manufacture like Unilever. You'd be doing this in the full knowledge that Unilever could then access your purchases and provide you with relevant offers (or reward points). You'd be choosing how to use your information for your benefit.

This is a really amazing thought and something that has been termed VRM or Vendor Relationship Management by Doc Searls, a veteran technology journalist and key founder of ProjectVRM which he describes, saying:-

Since the dawn of the Industrial Age, large companies have been working to "capture" and "lock" customers inside what we today call "silos" and "walled gardens."... ProjectVRM is a new Berkman Center research and development effort that is working to provide customers with tools that provide both independence from vendor lock-in and better ways of engaging with vendors -- on terms and by means that work better for both sides.

I love the idea of this - letting customers engage with brands on their terms with their data - and can see many applications across different industries.

How far this can go will be interesting to see (and to define), but the principle of making customer's data accessible to customers is a key trend. Facebook, Twitter et al. have already proved that making their systems open and giving customers control has only made their service more compelling.

Brands and loyalty programmes collecting customer data and interactions may have to take a leap of faith and empower the customer for the greater benefit of both the customer and the brand.

As Doc Searls said in his earlier thinking within the Cluetrain Manifesto:-

We are not seats or eyeballs or end users or consumers. We are human beings—and our reach exceeds your grasp. Deal with it."

Soap.com washes away points based loyalty

2011-06-12T04:51:00.001-07:00

Sometimes it's good to remember that loyalty marketing doesn't necessarily mean points marketing. Whilst points provide a great way of letting customers track their progress over time and link multiple purchases into a continuous journey, they are not the only way to execute a loyalty programme.

Within a loyalty programme, what we're trying to do is link one purchase to the next - to build a context around the purchases. Sales promotion tends to encourage a single purchase, typically rewarding customers instantly with a discount or premium. This is normally aimed at customer acquisition or as a way of lifting short term sales. Loyalty on the other hand tends to recognise behaviour over a number of transactions to create repeat purchases. Ideally it recognises and rewards regular custom without discounting products and services to new customers.

A good example of this is Soap.com, an online retailer of cleaning, health and beauty products. They have developed a programme which allows customers to nominate 5 products for which they want to receive a discount on with future purchases. The customer can then change these nominated products every 90 days.

Whilst on the face of it this may not be considered a traditional loyalty programme, there are in fact a number of interesting loyalty mechanics at play here:-

Scarcity Dynamic - By limiting the discount to just 5 products, it forces the customer to really think about the products they buy (and the ones Soap.com sells). The limited number will make it more valuable for customers and something they'll want to use wisely.
Commitment - By getting customers to select 5 products, they essentially get the customer to psychologically commit to buying these before they actually purchase. Research in this area would suggest customers committing for a small thing (creating a favourite) then go on to commit to a bigger thing (the purchase).
Appointment Dynamic - The change every 90 days means a customer keeps the discount front of mind. They know they have a window of opportunity to "re-stack the decks" and so this forces them to think about their purchases (and Soap.com).

Discounting would not be a traditional loyalty mechanic. Points are normally used to provide price differentiation without actually changing the price. However, this programme design is clever in that it limits the discounts, personalises them and gets full price for the rest.

There are some other levers which could have been used such as a Progression Dynamic which could have allowed a customer to unlock more discounts over time, but it's still a strong design.

An online retailer like Soap.com doesn't need a loyalty programme in order to identify their customers, they need one to change behaviour. Their programme design would seem a great fit for their audience and a clever use of loyalty mechanics.

American Express provide another good example of this in what could be described as both a sales promotion or a short term loyalty programme. The programme, called "25" encourages customers to use their card in 8 out of a possible 18 outlets. In return, the customer is awarded a £25 statement credit.

As with Soap.com there are a number of mechanics used within the programme design that make this effective.

Appointment Dynamic - The programme is time limited meaning customers have to do something now in order to benefit.
Repeat Purchases - It encourages multiple purchases, reinforcing the right behaviours that Amex are looking to promote.
Behaviour Change - Not only are Amex trying to get customers to use their card, showing their wide acceptance, but they are also trying to get customers to understand that they can use their card for smaller purchases, with brands such as McDonalds or Pret.
Collection - The programme materials include a reminder card which shows the 25 participating brands and a visual cue to the 8 needed to collect. Customers can tick each brand off as they shop.
Recognition - The reward on offer is motivating enough for most customers to at least think about taking part.
Customer Identification - Whilst Amex already know who their customer is, the programme requires an email address to take part, helping to make it easier to communicate with them in the future.

Again, this isn't a traditional loyalty programme; however, the loyalty mechanics are still clearly in operation. This is a great example of targeting specific behaviours with a targeted programme.

When we think about loyalty we need to make sure that this isn't limited to an always on points programme. There are many different ways of engaging customers, creating repeat custom and recognising changes in behaviour.

Can't judge a book (or a customer) by it's cover

2011-05-25T14:17:00.001-07:00

As marketers we're always keen to put customers into specific groups or segments. Typically creating personas for these segments that attempt to describe the customer - detailing where they shop, what they watch, what they read or how much they earn.

Sometimes this is based on research; many times it's embellished with our own "insight".

So if asked to describe a typical consumer in Windsor - one of the most affluent areas of the UK - and the stores they frequent, you probably wouldn't be including the discount store Poundland amongst the profiles.

However this hasn't stopped them from opening a store in Windsor and according to reports in the Daily Mail

There are women in pearls elbowing each other out of the way, and a couple of smart old ladies are having the most awful row over a gardening fork.

Ok - so this is an article in the Daily Mail which may mean there is a little creative licence in the reporting. However Poundland state within the Financial Times that 11% of their customers are from AB social-economic groups.

Research from Nielsen last year on coupon usage in the US also demonstrated this apparent mis-match with affluent customers by showing how those earning more than $50k per year actually represent 60% of the top coupon users - something most people would naturally assume would skew to less affluent customers.

Google's recent announcement about bringing coupons to the mobile phone via NFC further back this up. With 64% of Android users being on incomes of $50k or above this is something they clearly see a market for within a more affluent customer base.

Another example of how we can misjudge customers is shown within ebook sales.

Sales of romance and erotica books have apparently exploded within the e-book format with the main reason thought to be the lack of the embarrassment factor associated with these books in hard copy format (such as reading them on public transport).

Looking at the raw sales numbers you could assume that customers no longer enjoy the romance genre; however, understanding customer motivations as to why they aren't purchasing the books allows for a new channel to be utilised and sales revitalised. Research from Tesco for example indicated that 31% of customers said they prefer not to be seen buying the books due to their association with an older demographic. A spokeswoman for Tesco is quoted as saying:-

Some bashful customers prefer to use e-readers so they can access stories privately. However, there is no reason why reading Mills & Boon should have to be a guilty pleasure

A report I heard recently about a European bank who were trying to encourage customers to shop online also demonstrates this.

They attempted to utilise points promotions to over reward this specific behaviour of online shopping but this had little effect. Instead, what finally worked and significantly increased online card usage was in fact the introduction of an online fraud and delivery insurance. Not taking things at face value and instead trying to understand customer motivations around risk allowed them to unlock a new category of spend.

As the saying goes, you really can't judge a book by it's cover. Whether trying to second guess which customers shop at discount retailers or why certain customers won't shop online, it's important to look at all the angles as customers really aren't one-dimensional.

GOOGLE: Legacy - The Game Has Changed

2011-05-16T05:22:00.001-07:00

In film Tron Legacy apart from some fantastic music from Daft Punk, there is an underlying story of the online world trying to break out into the offline world. They come close but with the risk of spoiling it for those that haven't seen it - Kevin Flynn (Jeff Bridges senior) manages to hold back Clu (Jeff Bridges junior) and his armies of "programs" - and in the process saves the free world.

However fantasy is great, but when fantasy starts to become reality things get a whole lot more interesting.

Google has steadily been taking control of the online world; beginning with search they have increasingly permeated all aspects of our online interactions from browsers, tablets, mobile, mapping and online tools.

You can almost imagine them uttering the words of Kevin Flynn in the film when he says:-

In there is a new world! In there is our future! In there is our destiny!

But things are changing.

Google are apparently looking to trial the use of coupons at till with retailers using NFC Android phones. Working with eftpos terminal manufacturer Ingenico they will look at a series of trials at retailers in New York and San Francisco.

Philippe Lazare, CEO of Ingenico was quoted as saying:-

Google wants a system where, when you enter a shop or supermarket, you receive a special offer on your telephone. At the checkout, you can take advantage of this offer" by touching your phone to the Ingenico POS terminal, which will be capable of reading the coupon and will automatically apply the discount to the shopping bill.

This may seem like a small piece of news but what's interesting here is the combination of online and offline services from search to location based services through to NFC and POS integration. In theory a customer could search for a product online via Google, be presented with an offer which they can then immediately use to purchase that product when walking into a store.

This ability to track online interactions through clicks and onto online purchases is something that Google and affiliate networks have been doing for years. However the ability to track these right through to offline purchases in-store really brings multi-channel retailing to life.

It also promises to change how loyalty programmes operate. You only have to looking at the number of loyalty programmes with online shopping malls to understand that these programmes really benefit from the affiliate revenue generated when they get members to shop in partner stores. Being able to drive these purchase decisions into everyday transactions however is the real key here.

But Google isn't the only player. Facebook is increasingly linking online and offline with Facebook Deals allowing offline merchants to create deals for online members. While this doesn't (yet) directly link the interaction to the transaction you can bet Facebook will be looking at how they increasingly make it relevant within bricks and mortar retailers.

There was an interesting blog by Adrian Hon in the Telegraph recently about the battle between Google and Facebook and while on the face of it they would seem to have very different businesses, in reality as Adrian points out:-

Google and Facebook are increasingly set up as competitors [for] sorting through the material on the Web.

While each has a very different approach; Google with its highly sophisticated search algorithms and Facebook with it's personal recommendations from friends they are both in the same business - namely monetising interactions between consumers and brands.

Google has done well in providing a more direct and accountable channel for marketing budgets but if Facebook can demonstrate better "bang for buck" through the power of personal advocacy they could see their revenues slowly eroded.

Not one to sit back and accept the status quo Google are firing on all fronts. From taking ownership of the channel itself (mobile/tablet via Android / PC via Chrome) to trying to develop their social strategy (and tying their employees bonuses to the success of this).

This latest effort of linking offline and online through POS is another step in this battle. Making marketing budgets increasingly accountable and in the processes owning the consumer interaction from search to purchase.

As Clu says in the film when looking to break out from the online world to the real world:-

Out there is a new world! Out there is our victory! Out there is our destiny!

While the battle for our attention online is intensifying, Google making a move offline suggests a whole new game and one worth keeping an eye on.

Apple tracks your location - who cares?

2011-04-25T05:24:00.001-07:00

Last week the world was rocked by the discovery that Apple iPhone users were being tracked. Apparently a users co-ordinates were being stored along with a date/time stamp on both the users phone and their desktop when synced. Even worse, it was then reported that this information was being sent back to Apple. Like something from a Bond novel, Apple was tracking the activities of millions of people, just waiting for when it could... well therein lies the question.

What exactly was Apple doing with this data and why were they collecting it? In fact, why do we care so much when we're all giving away our data every day. Was this just a slow news day or is there really an issue here?

Data privacy is a strange beast. On the one hand people are getting all worked up about Apple collecting location data (despite indicating this within it's terms and conditions) and on the other people are using the very same devices to check into Facebook Places, Foursquare or Color providing a wealth of location information (and photos) for all the world to see.

It seems that people don't have a problem with the data itself being collected or shared, its the fact that they didn't seem to know about it that is at issue and that they don't know why.

Google had the same issue when it was mapping it's Street View product. As well as collecting images of the streets it was mapping, it was also collecting WiFi information on the networks it came across. This has caused outrage at a national level with governments (and the EU) clamouring for an explanation, yet as F-Secure reported, Skyhook has been doing this for years and nobody bats an eyelid. Indeed, it was recently reported that Google has stopped collecting WiFi data from Street View as it can now do this via the handsets (just like Apple)

BT also fell foul of this public feeling when its "service" Phorm started tracking users web visits (initially secretly) to provide better targeted advertising. There was an online privacy backlash which resulted in a European commission investigation and the service being pulled. At almost the same time however, Nectar was announcing a new service which seemed to do a similar thing, targeting advertising to people based on their behaviour. Called Consumer Connect, it serves up online adverts through Yahoo to opted in customers based on their offline shopping habits with Nectar. There was however no consumer backlash and it was reported positively in the media.

It seems then that our reaction to data privacy is based on the context of how the data is obtained and used, not just the data itself:-

Value Exchange - Do we understand why the data is being collected and what we get from it. Skyhook collect data to provide location based services which work in tandem with other technologies to map your location - thats useful. Both Google and Apple may have had the same intention but this isn't obvious. Increasingly consumers understand the value of their information and are willing to "trade" it in order to receive other benefits.
Clear Boundaries - With BT Phorm all web usage would be tracked to serve up better ads. This feels a little too broad and unecessarily intrusive. With Nectar Consumer Connect, users are clear about what data is being utilised, it's their shopping details, something most people realise is already being used for offline targeting of offers already.
Permission - Consumers like to do things on their terms. I can choose to share that dodgy photo on Facebook (although I may regret it later), I can choose to share my location when I check-in and increasingly I can choose to share this through services like Facebook Connect. However, when this information is simply taken without permission we feel aggrieved.

With data increasingly being monetised across many organisations, whether it is credit card transactions, loyalty programme transactions, web visits or phone calls, all of this information says something about us and has real-world value to many others.

This also means that increasingly companies may be collecting or using information in a way which consumers didn't expect. It doesn't matter if this usage is buried in your terms and conditions (Apple clearly stated they were collecting GPS information) - if it's not obvious to your customers then you risk a backlash from them when they find out.

This isn't hard though; just take a look at the Tesco Clubcard Customer Charter and Privacy Policy. This isn't pages of small print. Instead it's a plain English explanation of what Tesco will do with your data, how this benefits you and what to do if you don't want it.

If we want the benefits that come from increased usage of customer data we need to remember that ultimately it's the customer's data. Always ask permission as begging forgiveness rarely works.

Forget your competitors - focus on your customers

2011-04-17T12:40:00.001-07:00

"Today, you're no longer trying to keep up with the competition... you're trying to keep up with your customers!"

This was a recent tweet by Mari Smith (@marismith) on a comment by Bryan Eisenberg (@thegrok).

It might only be a tweet, but it's a very interesting insight.

Our marketing efforts have traditionally been about the competition. We've got a better widget, better pricing or more outlets. We clean whiter, have greater coverage or reach parts others don't - probably.

The message is clear. It's better, faster, more - always about beating the competition.

There are very few unique products. Companies like Apple who create a brand new market with a brand new product like the iPad are rare. Typically you're selling a different version of something that already exists and trying to set it apart from the competition.

Loyalty marketing is no different. It's focused on building relationships that make doing business easier and more rewarding - the aim is to keep customers and by definition keep them away from competitors.

But if it's now less about the competition and more about keeping up with your customers, should this change our approach?

Well this is something that the book Blue Ocean Strategy discusses when it says:-

The only way to beat the competition is to stop trying to beat the competition. In red oceans, the industry boundaries are defined and accepted, and the competitive rules of the game are known. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Instead of focusing on beating the competition, they focus on making the competition irrelevant by creating a leap in value for [customers].

Blue Ocean Strategy talks of shifting your strategic focus from competitors to alternatives and from customers to non-customers. Focusing on alternatives - on how a customer may achieve the same overall outcome without using you or your industry forces you to think about what customers actually want and how well they are being serviced today. When you focus on customers you're free to break the rules and free to create them.

Apple broke the rules. They created something new that did the old things better. Browsing the web, reading books, playing games. The iPhone, iPod and iPad don't compete, they create new rules.

Groupon broke the rules. They focused on the little guy - the under-served small retailer to get deep and local discounts while everyone else was hawking the same coupons and discounts from the big boys.

Interestingly though you don't have to be Apple or a new start-up to do something different. A recent blog on netbanker shows how easily credit card companies could add value by just thinking differently about the competition - in this example the competition isn't another issuing bank, it's another way to reach customers spend decisions - namely Groupon!

Don't focus on the competition, make them irrelevant. Go break the rules.

O2 free Wireless - is it for keeps?

2011-04-04T12:19:00.001-07:00

Back at the end of January it was reported that mobile network operator O2 is planning to launch free, premium wifi hotspots across the UK for all - not just for their own customers.

It occurred to me at the time that this was an interesting, if slightly crazy proposition. Sure, I can see the reasoning for this for existing O2 customers. It provides a great retention offering and also frees up capacity on their network for data traffic - something which is growing exponentially. However, opening it up to the general public seems a large cost with little gain.

It begged the question as to whether this was sustainable?

More and more is becoming "free". The content we consume - from BBC News to Spotify - it's all available for free. Now, with O2 providing the access itself for free, it raises the question of who ultimately wins. In the words of Jerry Maguire :-

"Show me the money!"

Even Google who constantly innovate by providing increasingly complex consumer services for free have to make money; and they do. Information is power and more importantly information is money. By controlling the source of this information - over 84% market share - Google are able to sell access to consumers through targetted advertising.

So there we go, problem solved. O2 will make money through advertising and will build volume be making it free. All nicely packaged up - and that was how this blog was going to flow until I read a really interesting blog by Bill Gurley entitled "Android may be the greatest legal destruction of wealth in history" - go read it, it's a fascinating viewpoint.

In this blog Bill argues that Google provides products like Android simply to protect its core product - it's search engine - and the revenues associated with this. Describing the core product as an "economic castle" he argues that products like Android are simply "un-breachable moats" which are created to take out any potential threats to it's "castle", which in this case is anything which gets between them and their consumer. Bill goes on to say:-

In essence, they are not just building a moat; Google is also scorching the earth for 250 miles around the outside of the castle to ensure no one can approach it. And best I can tell, they are doing a damn good job of it.

Companies entering adjacent businesses simply to put pressure on competitors who were looking to enter their core market is nothing new. While working at IBM many years ago I was told a (possibly apocryphal) story about how they only entered the photo-copier market at the time to put pressure on a competitor who was looking to enter their core mainframe market.

However, Google's strategy could easily eclipse that. Offer your product for free (or as good as) to build a market which essentially you control so that revenues continue to flow into your highly profitable core product offering.

Could O2 potentially be doing the same thing?

Is free wi-fi less about making revenues from advertising and instead more about creating an "un-breachable moat" to protect their core mobile offering.

Making sure they own the connection with their customer's handsets (both current and potential), however they connect means they are less likely to be displaced or intermediated. In addition it provides a great way to displace competitors with the potential offered by the data - allowing them to possibly see the devices used, locations visited, sites visited - all of which can be used to help target both online marketing as well as their own.

Although both free wi-fi across the UK and a new mobile phone platform are not small projects, the principle of creating ways of protecting the core business is nothing new - this is ultimately what many loyalty programmes are trying to achieve.

The loyalty programme is trying to protect the core revenue - the economic castle - by creating an un-breachable moat around it. The points currency does this in part by ensuring customers have a vested interest in making their next transaction with you rather than your competitor. However the real power, the bit that makes it potentially un-breachable is the "context" you develop with the customer based on their data.

If this information is utilised to reduce ongoing "friction" in the relationship by providing better service and more relevant product offerings then competitors will struggle to breach the walls to capture your customers. If on the other hand the data stays locked up and unused, then this is tout-amount to leaving the drawbridge down and the doors open.

Facebook credits - a lesson for retail

2011-03-05T09:38:00.001-08:00

Facebook credits are starting to gather pace, with the deadline set for July 1st for Facebook games to use them exclusively. To support these a number of features have been created to allow developers to integrate this new currency into their games.

What's interesting is how Facebook and the gaming community are designing and using these features and what lessons real-world retailers (and payment providers) can learn.

Buy with friends

This is a really simple idea which essentially allows the customer to promote their purchase to friends and in the process, giving their friends an opportunity to make the same purchase at a discounted rate.

On paper this wouldn't seem particularly compelling for real world purchases. Imagine an offer from a retailer saying "Purchase x and receive a 20% discount coupon for your friends" - the typical response would be whats in it for me.

However social media changes this concept completely. Firstly, people are more likely to want to promote their purchase (or anything else for that matter) as it provides "social currency" that they can share. Secondly, the immediacy of the offer which is linked directly to the purchase in real time and the ease in which it can be carried out (just clicking "Share") makes it less of a decision and more of a reaction.

The removal of barriers to making decisions is critical to get opt-in and this is what "Buy with friends" is doing. Facebook says:-

"more than half of people who were offered a deal in-game decided to share it with their friends, and the engagement and conversion rates on the resulting posts were also strong.”

For a retailer, linking their customer loyalty programme (which provides the identity) with a social network like Facebook makes this type of offer a real possibility - and the promise of over 50% of purchases being promoted to friends is very compelling.

Common knowledge (and common sense) says that it costs more to acquire than retain a customer, however that doesn't stop acquisition being really important; its just also really expensive. Providing an offer such as 50% off for friends in order to acquire them makes this both targetted and cost effective - something which services like Groupon have been exploiting.

I suspect it won't be long before real-world retailers have a "Share" purchase option at the end of their e-commerce process with a discount offer attached to it for friends. For offline retailers, technology services such as SNAP combined with a retail loyalty programme are beginning to make this a reality.

Frictionless Payments

The implementation of frictionless payments allows customers to spend up to 30 credits without interrupting game play with confirmation messages such as "Are you sure?". Again, the idea here is that the less decisions a customer has to make the more likely they are to make the decision.

Amazon see this all the time with their "one click" feature. As a customer I've hovered over the one-click button hesitating to make a decision and then just clicked it - one decision. Done. Instead, had I added it to my basket, then confirmed my basket, confirmed my payment settings and confirmed my overall order i'd have had plenty of chances to say no - and many customers do just that.

Contactless payments are looking to achieve the same thing within offline retail, however this will be a little harder. They will certainly help with impulse purchases when a customer doesn't have cash to hand, but I don't think they make the process frictionless. You still need to queue, deal with a cashier and hand over payment cards - it's just a little quicker.

Imagine instead if you could walk around a store and simply decide then and there to purchase the item. Picking it up, tapping your card/phone and walking out. That would be truly frictionless and is something we are starting to see through self-checkout.

Get Balance API

For loyalty programmes, a feature that lets partners retrieve a customer balance via a real-time API is pretty standard. Loyalty programmes keep a balance of points and partners can interrogate this balance to see if a member has enough points to redeem for an item.

What's interesting though is that while this is how the feature is normally used - to just power redemption - developers using Facebook Credits see a totally different opportunity here.

Inside Facebook had a blog recently discussing this feature which said:-

Determin[ing[ the Credits balance [...] allows them to identify high rollers with a large balance of Credits and dynamically price virtual goods to increase purchase probability or profit margin, improving monetization. Rarely in the physical world do retailers get the chance to look inside a potential customer’s wallet and price their wares accordingly.

That's a very different way of looking at things and something that equally applies to real-world cash as to virtual currencies like loyalty points or Facebook credits.

Loyalty programmes do this to some degree today, using customised offers, targetted points promotions and tiering to recognise different types of customer and their ability to change behaviour. However, the ability to dynamically price goods and services (whether directly or using offers/points promotions) in real-time is something few, if any are doing today.

Open this wider across coalition loyalty or payment services and you have the ability for a retailer to make real-time decisions on pricing or cross-sell offers based on customer headroom, value or purchase categories.

As Facebook Credits become the defacto in-game currency, expect game designers to continue innovating in ways that make their products stickier and setting the agenda for how payments and retail will be evolving moving forward.

One customer responsible for Ladbrokes profit drop?

2011-02-20T12:19:00.001-08:00

Could a handful of customers be driving the majority of your profits?

It's well known that the pareto rule typically applies within customer value with around 20% of customers representing 80% of profits. However, even within this 20%, this can still skew to a smaller number of customers who contribute a large percentage of profits.

Ladbrokes apparently discovered this to their cost recently, with just one customer reportedly being responsible for the majority of the fall in high-roller profits from £66.9m to just £5m. This translated as a 20% drop in overall total profit from £235.4m to £207.3m.

The gaming industry typically suffers more from this skew in large revenues from a small number of customers with some areas of the online gaming side of the industry seeing upwards of 80% of revenues from a low single digit percentage of customers.

Knowing this, Ladbrokes introduced the OddsOn loyalty programme within their retail stores to get better visibility of their over the counter (OTC) and fixed odds betting terminal (FOBT) customers. This is something Ladbrokes is working hard to exploit, saying in their latest interim results:-

We have made good progress in 2010 in defining key customer segments and will shape marketing activity around them, using the valuable information on our customers that OddsOn! is providing. Trials adopting this approach are already beginning to show encouraging results. We have also introduced a dedicated service team aligned across all products, to manage high value customers.

Whilst this customer value segmentation might not be as severe in other industries, it's still just as important. Within speciality retail for example, one retailer sees 30% of customers representing almost 70% of sales revenue. This is the difference between an annual spend of around £60 for low loyal customers versus over £400 for high.

Importantly though, these customers not only spend more, they visit more - over 7 times more. This means if customers don't like changes to your prices, products or customer service, these high loyal customers will be the first to notice. Using the speciality retail example above, if just 10% of these customers defect, whilst they would only represent 3% of customers overall, it would result in a 7% drop in profits.

Not all business are impacted as much as Ladbrokes seems to have been by a small number of high value customers, but at least they know who these customers are. The picture could be much worse if high value customers were defecting, profits were falling and ultimately you had no idea why.

The real value of loyalty programmes is in the insight and visibility on customers they bring. High-rollers aside, this is something which Ladbrokes will increasingly be leveraging as their OddsOn programme expands and something which gives them first mover advantage over their competitors.

Low cost supermarkets put loyalty in doubt?

2011-02-13T11:41:00.001-08:00

There was an interesting result for the second year running in the latest Which? supermarket customer survey. This wasn't about the winner which was Waitrose (again), or the runner-up in second place Marks & Spencer - you could almost have predicted both of those. Instead it was about the brands which took the next two top spots, Aldi and Lidl (coming third and fourth respectively) and the distinct lack of two of the biggest retailers in the UK from the top 5 altogether with Sainsbury's and Tesco at 6th and 8th place.

You could immediately argue that in this climate, price was a major factor in swaying customer opinion - but then discount brand Netto came bottom of the table with just 41% back in 2010. Plus the top two spots were taken by Waitrose and M&S - neither of which you would describe as every day low price retailers.

In fact, the top 5 retailers in the 2011 survey all managed to increase their customer satisfaction score with Morrisons overtaking Sainsbury's by moving into 5th place with a 3% lift in satisfaction and ASDA increasing by 4% to 53%.

Yet Tesco stayed static at 49% and Sainsbury's actually went down 1 percentage point in customers opinion to 57%.

Outside of customer satisfaction, the most recent Kantar WorldPanel Survey shows Tesco holding it's market share and Sainsbury's showing a marginal lift for 2011 - however both Aldi and Lidl have shown almost double the lift in sales growth at almost 10% - almost twice that of larger chains and the market overall which is growing at around 4%.

So what's going on?

Why is it that the two biggest retailers in the UK are getting scored lower by customers than discount retailers?
Why are these retailers actually going down in customers opinions when all other retailers are on the up?
More interestingly, why are these retailers not seeing an effect to market share if customers have such a low opinion of them?

The answer is I think, in a word - loyalty.

Uniquely both Tesco and Sainsburys have a customer loyalty programme which recognises and rewards customers for all of their purchases. Whilst a loyalty programme in itself cannot mask customers opinions on other factors such as pricing or service, it does create a very "sticky" customer proposition. Through a combination of regular customer communications, relevant and targeted offers and the inherent reward value within the points currency, customers are minded to continue purchasing even when the overall experience may not be on a par with others.

There may be other factors driving the lower scores attributed to these retailers which are more to do with their size and coverage of the UK market than simply pricing and service. In trying to be a jack of all trades, they are essentially a master of none. Whereas Waitrose, M&S, Aldi and Lidl each have specific customer segments they serve, both Tesco and Sainsburys look to serve all segments within one single store. This naturally creates complexity in both range and choice (Finest / Taste the Difference / Basics) - something which is known to cause more customer angst.

Again though, the loyalty programme allows them to respond better to this in the long run by being able to target relevant messages and promotions to customers within specific segments. This is more easily done online (and both Tesco and Sainsbury's see their online scores matching/exceeding M&S offline), but will always be a problem within the offline store due to the scale and range.

Loyalty will only stretch so far however and as other retailers provide more breadth of locations, increased range and competitive pricing this will be continually pulling on customer loyalties.

For the moment though I think both Tesco and Sainsbury's are seeing the benefits of their respective loyalty programmes, allowing them to hold onto market-share in highly competitive and increasingly price orientated market.

Loyalty - the achilles heel of Groupon (and Facebook knows it)

2011-01-29T14:07:00.001-08:00

If Google are willing to try and pay a reported $6bn for a company which is little more than two years old then it must be doing something interesting - and Groupon is certainly generating some interest.

Depending on how you look at it, Groupon is either the hottest trend since...er... the last one, or is simply a purveyor of local discount deals via email.

However, if "imitation is the sincerest form of flattery" then with both Google and Amazon looking to have a bit of the discount deals pie by each creating (or buying into) their own version, there must be something to it.

Group buying is nothing new, back in the (first) dot-com boom years there were a number of group buying start-ups, but these failed to gain traction despite significant above the line spend. One of the reasons for this is that these early pioneers focused on selling branded goods like a standard e-commerce site, but would lower the price based on the number of committed sales. In reality however, they would have bought the goods beforehand and so the "group discount" wasn't negotiated based on the group itself. Even if it was, mainstream retailers would already be buying significantly more volume of the same item and so beating their prices was hard.

So whats changed? Quite simply, relevance - based on location, timing and friends.

These offers are typically from local businesses, with subscribers selecting their chosen city to receive offers from. The offers are distributed via email and with most subscribers now having always on internet access via smart phones or tablets, the offers become timely, with users able to react quickly to get the deal. Finally, social media means both the offers and the offer provider and getting more visibility as subscribers quickly push them out to friends.

Current group buying leader Groupon describes their service as providing "valuable new customers, guaranteed". Going on to say:-

These subscribers are not looking for “the perfect deal.” They’re looking for the perfect excuse to try something new. We get them to your business, and you bring them back again and again.

Quite clearly, Groupon see themselves as an acquisition channel. A way for smaller brands or independent retailers to cut through the clutter of both digital and traditional marketing channels, many of which are inaccessible to smaller merchants, accessing customers directly with an attention grabbing offer.

The issue with this though is something which Groupon seem to know, but possibly don't recognise when they say "We get them in [..] you bring them back again and again". They may drive customer acquisition in the first instance, but it's clearly up to the merchant to get the customer to come back - and this requires a retention strategy, something Groupon is simply ignoring.

Facebook on the other hand is not known to miss a trick.

As reported in Forbes, they are testing a new feature called "Buy With Friends" which allows users to publish a purchase within their newsfeed and for friends to be able to click on this and purchase it themselves with a discount. The feature will let a user "unlock" a deal and then share that same deal or discount with other friends who can take advantage of the fact that it's already been unlocked. In tests, Facebook reported that more than 50% of people chose to share their purchase.

Currently it only works with in-app purchases using Facebook Credits, but it's easy to see how this could be expanded to real worlds goods and services.

As I discussed in a previous post, there is a trend now for retailers linking their e-commerce activities directly into Facebook, something we've discussed in more detail in a white paper called "The Future of Relationship Marketing". Joining the dots, if retailers linked their e-commerce into Facebook this would allow them (large and small) to both publicise purchases by existing customers and to push deals to prospects.

The combination of Facebook Places, Deals, "Like" and "Buy With Friends" provides a unique array of services to merchants with an pre-existing audience of 600m people. It won't take much for Facebook to combine these in a way which competes head-on with Groupon, but adds longer term value through the ability to track these interactions and build further contact - linking the initial acquisition to ongoing retention and loyalty.

You could argue that Groupon shouldn't be the only one worried here - every loyalty agency will (should) also be looking over their shoulder at the fast approaching Facebook juggernaut. The winners will be those embracing it to drive even greater value for their clients and customers.

ASDA launch a loyalty programme?

2011-01-16T08:28:00.001-08:00

UK supermarket retailer ASDA has publicly stated a number of times that it doesn't believe in loyalty programmes. CEO Andy Bond famously said "You can't buy loyalty with plastic points" and their website actually has a page describing why they don't do "loyalty", saying:-

At Asda we reward all of our customers for their loyalty by charging low prices every day of the week, all year round.

ASDA has always prided itself on being an Every Day Low Price retailer. In a article last year, ASDA said:-

EDLP is very much at the heart of our pricing strategy. [The aim for 2010 is] sucking out the promotional money on offer from our suppliers [in order to] invest all of it in lowering prices across the board.

The problem with an EDLP strategy though is three-fold:-

Hard to prove - Will consumers really believe you when you state you have the lowest prices. With so many deals around, so many different brands within the same category and so much HiLo style pricing strategies even within EDLP retailers, consumer are confused about what a low price really is.
Lacks Engagement - Even if a customer sees initial savings on their first shop, this quickly becomes "normal" on subsequent shops meaning the whole EDLP strategy becomes forgotten. It may work initially for acquisition, but fails in the long term when it comes to retention.
Encourages dis-loyalty - When EDLP are mixed with sales promotion activities this actively creates dis-loyalty. It plays to a promotional audience who will shop around and only buy products on special offer. Long term, rather than EDLP locking consumers in with a trusted promise, the sales promotion activity simply dilutes it.

When reviewing various retail loyalty programmes a couple of years ago, COLLOQUY stated “A marketing strategy focused solely on sale prices and promotions not only faces diminishing returns, but can also actually breed disloyal customers [..] retail marketers have an opportunity to shift their focus from EDLP towards loyalty drivers that build true customer engagement, larger transactions and improved margins.”

Despite all this talk about not doing loyalty programmes and how an EDLP strategy in some way doesn't fit with loyalty, have ASDA in fact actually launched one?

ASDA had recently strengthened its Every Day Low Prices (EDLP) strategy with a Price Guarantee. Not just a "refund the difference" guarantee, but a 10% less guarantee.

They state "We'll guarantee your comparable grocery shopping is 10% cheaper at ASDA or we'll give you the difference".

As an example they say:-

Your comparable grocery shop is £110 at ASDA, £100 at Tesco, £111 at Morrisons, £125 at Sainsbury's and £130 at Waitrose. Tesco are cheapest. 10% cheaper than Tesco's £100 comparable grocery shop is £90. As such in total you'll receive a voucher for £20.00 to ensure your comparable grocery shop is 10% cheaper at ASDA.

This is a bold promise.

Of course there are those who point out potential issues with this such as the breadth of products covered. Whilst 15,000 products are compared, about 10% of products are deemed "unique to the retailer" and are not included.

However in a recent article in Which? where they tested this promise, it did deliver (even if 50% of products couldn't be compared with Morrisons). Although ASDA were the cheapest overall, they were not 10% cheaper and so they gave a refund.

What's different about this programme for ASDA though is that they now have the potential to both provide every day low prices and to build increased customer engagement - and here's why.

ASDA have made it really easy to check prices after a shop using their online website or in-store using their iPhone app and as part of this process the customer can register their email address.

And there we have it - they have created a loyalty programme.

They're connecting purchase data to customer data, creating the ability to run a loyalty programme. This isn't a points programme, it's a uniquely ASDA loyalty programme. But it is a loyalty programme.

There are even customer rewards in the form of the 10% money back and this bit is quite clever. Using this scheme ASDA don't need to be the overall lowest price all of the time, they just need to be low. Non-loyal customers pay the sticker price, but loyal customers can essentially be refunded (or rewarded) any difference. By flexing this margin they'll be able to manage short-term benefit versus long term engagement.

This ability to link transactional data to individual customers will also give ASDA increasing insight on their customer base and allow them to begin mining this data in ways which retailers like Tesco and Sainsburys now take for granted.

Finally, It creates a reason for customers to further interact with the retailer online and on the move, continually reinforcing the ASDA price promise.

There are many ways to improve this programme to make it work harder, but hats off to ASDA. I think they may have the start of an interesting and powerful EDLP loyalty scheme - even if they don't like the word loyalty.

Loyalty in 2011 - A marriage of location, gaming and social

2010-12-31T08:22:00.001-08:00

Predicting where things will be in the next 12 months is notoriously difficult as you don't know what you don't know, and an unexpected innovation can pop up at any time. However as respected journalist and technologist John Battelle said in his blog recently about the "next big thing":-

Often times what's directly in front of you is, in fact, the next big thing.

Something however that doesn't need any amount of prediction is that there will be a peak in the sales of commemorative tea-cups, plates, tea-towels and other Royal memorabilia in 2011. With the recent engagement of Prince William and Kate Middleton it seems we'll have the first Royal Wedding in a quarter of a century as well as an additional bank holiday for us Brits to enjoy it. 2011 will be the year of wedding fever, nostalgia, bunting and street parties.

This does neatly segway into another type of engagement however - customer engagement and the associated loyalty we look for from it. What 2011 looks like for loyalty is a little harder to predict - there are no fixed dates or big events. There are though some key trends that we are seeing in the wider market which will all impact on loyalty in some way - taking us one step closer to solidifying that customer engagement into wedded bliss.

No self respecting bride however would consider walking up the aisle without taking account of the Victorian tradition of taking something old, something new, something borrowed and something blue - and neither shall my loyalty predictions.

Something old - Coalition

Coalition programmes have been around for decades, starting with the original stamp collecting programmes. However they have really come of age now with existing programmes going from strength to strength and new programmes rolling out worldwide. Group Aeroplan has recently launched Nectar Italia and Nectar Chile and Loyalty One has taken stake in Dotz in Brazil. Now American Express has bought Loyalty Partners who run PayBack in Germany. Ed Gilligan, American Express Vice Chairman said of the deal:-

“The loyalty coalition model is growing rapidly in many parts of the world [and] Increasingly, consumer decisions about where to shop and how to pay are based on loyalty offerings"

It's not just the growth of new programmes, the existing ones are also gaining strength, with Nectar UK recently following up it's new partner Homebase with leading utility company, British Gas.

This is a high growth, and increasingly competitive area so expect to see more of these programmes coming to a country near you.

Something new - Geo/Local

You can't have failed to miss the explosion of Groupon in 2010. It's meteoric rise culminated in Google trying to buy it for a reported $6bn and when that fell through they then managed to secure $0.5bn in additional funding. While Groupon has an interesting (but not unique) business model, what really makes it interesting is the local merchant aspect. Representing about 1/3 of all sales within the US, these independent retailers are a large pool to fish in, but the challenge has always been economies of scale.

What Google ad-words did for online marketing however, services like Groupon are doing for offline. Barclaycard Freedom is another example of scheme engaging the thousands of small independent retailers and although this has yet to become well established, I think the prospect of creating services that engage local merchants will grow.

The reason for this is simple - relevance. All brands need to be relevant to get cut through and it's much easier to be relevant when the marketing is from a local restaurant or retailer than when it relates to an increasingly sterile national (or global) brand. It also provides larger brands with the ability to target marketing spend more effectively, rewarding spend at locations that have room to grow without simply rewarding spend everywhere.

As Fast Company recently reported on Google's move into this area and it's recent move of Marissa Mayer from Search Products to Geo/Local, Google said

"Marissa is moving over to an exciting new role covering geo/local, which is crucial to our users and the future of Google" (emphasis added)

It's not just Google, Facebook or Foursquare that get this; location is going to be a key variable in our marketing toolkit in 2011.

Something borrowed - Gamification

Well 2010 was when gamification really burst upon the scene and along with it a lot of controversy about the term itself. However, despite the controversy most people agree that the idea of utilising gaming dynamics to help create motivation is worthwhile.

It's interesting that currently early adopters have been either online communities/e-commerce sites or offline automotive companies with both Ford and Nissan using gaming mechanics to improve driving techniques within their electric vehicles.

I think 2011 will see this become more mainstream, with full blown traditional loyalty programmes such as hotel, airline or retail loyalty utilising gaming mechanics explicitly. As I've blogged about a number of times this year, this one trend has the possibility to really lift levels of engagement within a loyalty programme and looking forward, to possibly remove the redemption currency itself (and the associated liability)

You don't get very far however within gaming mechanics before the need to go social kicks in - the real power being based on the bragging rights that come from achievement - and so this is the theme of the final predication.

Something blue - One word. Facebook.

Facebook has come of age. It now has the majority of the Western world assimilated into it's network. It has the lions share of their online attention (recently beating Google) and a depth of information on individuals that rivals Wikileaks.

Retailers like JC Penny and Best Buy are integrating their e-commerce offerings directly into Facebook and brands such as Oreo cookies are now driving all of their traffic to their Facebook page. The reason for this is simple - brands want to fish where the fish are, and Facebook represents a very big ocean.

What's interesting though is not the use of Facebook, brands have been doing this for a while now. It actually that Facebook is for many brands starting to replace their own online offering. I think in 2011 we'll start to see loyalty programmes actually launching their online offering directly within Facebook or at the very least, using Facebook Connect for security.

This will bring three huge benefits. The first is simplicity. Members will be able to login and service their loyalty accounts without any effort - no credentials to remember. The second is interaction. Members will be able to see posts from their loyalty programme directly within their social feeds - no email, no direct mail and much more immediate. The final benefit is social proof - members will be able to see what other friends are doing, what other friends have bought and what other friends have redeemed for.

Combine this with the potential that Facebook brings to virtual goods in the form of social gaming - something that Amex has recently introduced into the Membership Rewards programme and that Citi qucikly followed by introducing them into the Thank You programme - and you have a major change in how loyalty programmes are designed and deployed.

Whether proprietary or coalition loyalty, the marriage of these three main trends of location, gaming and social will change the face of loyalty over the next 12 months.

Image credits: Google T-Shirt, Badges,

Give and ye shall receive (it's guaranteed)

2010-12-23T15:13:00.001-08:00

Visa Europe reckons we'll be spending nearly £14,000 per second this Christmas Eve - and it might be even more than that based on the disruption the snow has caused to peoples plans.

All that money ringing through the tills just so that we can give.

For the most part that's giving without any expectations of getting something back; buying presents for the kids or close family and friends. However for others you may give simply because you previously got given - returning the favour year on year.

What if though, rather than giving gifts as a selfless act, you instead gave gifts specifically for what you could get back. What if you knew before hand that buying a certain gift for a certain person would guarantee an even better gift in return.

Would you be more tempted to buy them a gift?

Well hopefully this isn't a scenario you'll experience this year at Christmas, but it's certainly one you might be experience in the near future - as a consumer.

Recently reported by AdAge, the Palms Hotel in Las Vegas is giving away access to specific services and amenities to customers they feel have influence. As Palms' chief marketing officer, Jason Gastwirth puts it "allow[ing] high-ranking influencers to experience Palms' impressive set of amenities in hopes that these influencers will want to communicate their positive experience to their followers."

In essence, "giving" not in return for what they have already been given. Nor even "giving" based on what they think a customer may be able to give back. Instead they are "giving" so that a customer will tell others about it, increasing everyone's value.

This is no longer a "Random Act of Kindness" so beloved of loyalty marketing - this is a highly engineered act of bribery, sugar coated as a gift.

Whether you feel this is right or wrong though - this will surely work, and the reason for this is all to do with the customers clout.

More specifically, this is the customers Klout score as measured based on their online social activity. Described by Klout as :-

The Klout Score is the measurement of your overall online influence. The scores range from 1 to 100 with higher scores representing a wider and stronger sphere of influence. Klout uses over 35 variables on Facebook and Twitter to measure True Reach, Amplification Probability, and Network Score.

With the Klout score a brand can be more assured that a member has the capability to make some noise - they just to give them the reason to do so. (Or in the case of a customer service issue, even more reason to get it resolved well)

While it is easy to be cynical about this, it does add another dimension to loyalty programme design. Traditionally programmes have been very insular, rewarding individual customers for their individual behaviour, but only after they have demonstrated it.

Some have become a little smarter, looking at an individual customers behaviours and rewarding them based on predictions on their future behaviour - many frequent flyer programmes for example will now "fast track" new members who appear to look like top tier members.

It's a natural extension then to begin rewarding customers based not only on their predicted ability to be advocates, but also based on their actual capability. This is fine line between "rewarding the behaviours you seek" and blatant bribery, but used well, I think this becomes a key tool within an overall loyalty offering.

Maybe the saying in loyalty should now be:-

[Before you] give, [checkout their ability to give] and ye shall [be guaranteed] to receive.

Not quite the Christmas Spirit, but possibly a more prosperous New Year.

Merry Christmas. ;o)

Did the Grinch steal Christmas (TV)?

2010-12-12T14:15:00.001-08:00

I miss the Christmas movie.

As a child, when we only had three TV channels, no VHS and single screen cinemas, the Christmas movie was for many people the first time the movie had been seen.

We'd cherish the Radio Times to see what was on and then plan ahead to watch all the great movies.

How times have changed.

I now have IPTV on 3 different boxes, I can choose to watch a film on demand through BT, Sony or LoveFilm. Invariably I've already seen it at our 10 screen cinema, purchased it on DVD or loaded it onto my iPad.

I watch more films, but they don't have the same special magic they used to. I still buy the Radio Times, but that's largely because it's the Christmas thing to do - I have an EPG on my TV and TV Guide on my iPad.

The Grinch didn't really steal Christmas TV - instead it was our desire to have everything now at the touch of a button, and the medias desire to supply it.

I'm not saying any of this is a bad thing. We've essentially traded the Christmas Movie that was created through scarcity for the everyday convenience of entertainment on demand.

What's interesting though is how this plethora of choice for something we really wanted and valued can actually result in us valuing it less.

Seth Godin discussed this in a recent blog entitled The inevitable decline due to clutter where he discussed the trend within digital to just keep giving consumers more of everything - more messages, more offers - because essentially it's free. However he points out that:-

Once you overload the user, you train them not to pay attention. More clutter isn't free. In fact, more clutter is a permanent shift, a desensitization to all the information, not just the last bit.

We saw exactly this effect in some research we carried out a couple of years back. When looking at communications within retail, there was a increase in relationship strength as communications increased - suggesting that building a dialogue with customers is a positive thing to do.

However this quickly turned into a decrease as these communications became too frequent. Customers were tuning out of the communications as they got overloaded and at the same time, were tuning out of the brand.

If you want to keep customers coming back, want to keep them interested, then you need to keep things special.

Change the experience - Mix things up a little. Email is great and it's cheap, but finding other ways to communicate, even if it's just an occasional quality DM piece can really cut through.
Keep it relevant - It's better to send nothing than to send something irrelevant. If a customer consistently finds nothing of value in your communications they will simply cease to value them.
Facilitate, don't just communicate - As the clutter increases, people shut down the overload and start to look internally to friends for opinion. Be part of that conversation.

A great example of someone doing this currently is Coca-Cola. They have always "owned" Christmas, having Santa Claus in their advertising since the 1930's, but there is always a risk that people become "desensitised" to it.

This year however they have had their Coca Cola Truck touring Europe and this has managed to do all three things.

It has changed the experience, bringing the advertising to life. It has kept it relevant, doing something we'd expect from Coke at a time of year when we want it. Most importantly though, it has facilitated the conversation, with friends snapping pictures of the truck locally and posting them to Facebook (here's one a friend of mine took)

Having driven past it on the motorway, there is something almost magical about seeing it in real life - even if it is just a truck. I may have been even more excited than my kids - but it's nice that some things are still special.

Grinch image by Mykl Roventine (Flickr)

Easier to critique than create (3 steps to a great idea)

2010-11-27T06:57:00.001-08:00

There was an interesting blog post a couple of weeks ago entitled "1.0 is the loneliest number" by Matt Mullenweg where he discussed how to bring something to market. Arguing that ideas need oxygen to grow and if they stay in development for too long then they are actually dying. Matt says:-

If you're not embarrassed when you ship your first version you waited too long. Usage is like oxygen for ideas...every moment you're working on something without it being in the public [domain] it's actually dying, deprived of the oxygen of the real world.

Using Apple as an example, Matt highlights how the iPod was first reviewed as "No wireless. Less space than a nomad. Lame." and "$400 for an MP3 player!... it wont sell, and be killed off in a short time...". The iPad has received similar reviews for it's lack of flash support or camera or weight - but as Matt says, it shipped. This now means Apple have a chance to understand how it works in real life - it now has the oxygen it needs to develop.

The reason for this is that it's easier to critique than it is too create. Creating something new is hard, however once the idea has been floated, it is much easier to then shape this - adding to it, extending it - helping it to grow.

As with many things, the 80/20 rule normally applies here with only 20% of features being used 80% of the time. This means you don't have to wait for it to be perfect or for it to contain everything - you simply need to get it out there. As author Jay Heyman says:-

“Perfect is the enemy of good – if you keep prodding, tweaking and tampering with something good, trying to turn it into something perfect [..] it is possible you might never get there at all, in effect turning a good idea into no idea.”

You also can't beat first mover advantage; the fact that Tesco was first to launch it's loyalty programme gave it a distinct advantage over competitors subsequent attempts.

The increasing connectedness of consumers however also means that this critique is more readily available and almost immediate in it's feedback.

At Loyalty World this month, Nectar provided details on their new iPhone app. Members wanted it - the app has been downloaded 280k times and was #3 in the free download chart within 4 days. Members used it - up to 57% of users opt in to mobile offers, generating £4.4m in incremental sales in just 2 months.

But what was their feedback?

Well Jan-Pieter Lips, MD of Nectar indicated that the feedback had been "great start". This wasn't a negative though - this was recognition that consumers expect to be able to feed into the development of products and services. Consumers are now used to having their say on almost everything a brand does and increasingly are expecting the brands to listen.

Gap is the classic example of this. Forgetting that the brand is where it is because of it's loyal customers, they failed to consult them on their recent aborted logo change. Within just a week of launching it's new logo, the brand backtracked quickly saying:-

“Ok. We’ve heard loud and clear that you don’t like the new logo. We’ve learned a lot from the feedback. We only want what’s best for the brand and our customers. So instead of crowdsourcing, we’re bringing back the Blue Box tonight.”

You can argue how much of this feedback was as a result of genuine concern/dislike for the logo versus simply a "lynch mob" mentality, but either way, once in the spotlight, it's hard not to pay attention.

Whether it's launching a product, app or loyalty programme, the advice would seem to be:-

Get your product out to market quickly - Making sure it is "good", but not waiting for it to be "perfect"
Listen to consumer feedback - Let consumers tell you what's important, what's missing and what's a priority
Apply feedback and repeat

It's certainly easier to critique than to create so let your customers help out - turning a good idea into a great one and at the same time allowing them to feel part of the process.

Is access control modern day protectionism?

2010-11-20T09:47:00.001-08:00

There is a real tension boiling up between content owners and content consumers.

In a recent US legal case Ticketmaster was successful in getting Wiseguy Tickets prosecuted for "conspiracy to commit wire fraud and hacking" with maximum prison sentences of five years and a $250,000 fine.

What was the crime? It was finding ways to by-pass Ticketmaster's CAPTCHA technology which was put in place to try and stop people from automating the process of buying event tickets. They were basically using multiple computers to buy tickets for events in an automated way so that they could do it more quickly and do more of it.

Now you can argue that Wiseguy Tickets were essentially ticket touts, purchasing tickets to sell on and depriving "normal" consumers of an opportunity to buy them - but this wasn't what they were prosecuted for - they were basically prosecuted for hacking.

Even though they essentially only gained access to the same screens and information that everyone else could see, the means in which they gained access - bypassing Ticketmaster user controls - constituted computer hacking.

As Jennifer Granick, Civil Liberties Director at Electronic Frontier Foundation said in a press conference:-

"Anyone who disregards — or doesn’t read — the terms of service on any website could face computer crime charges. Price-comparison services, social network aggregators and users who skim a few years off their ages could all be criminals if the government prevails.”

In a separate case, record label EMI is suing MP3tunes which is a cloud storage solution that allows users to upload their music and then play this from any device/location, arguing:-

“[MP3tunes] does not own the music it exploits; nor does MP3tunes have any legal right or authority to use or exploit that music"

To top all this off, a new law - the Combating Online Infringement and Counterfeits Act (COICA) - is currently in the process of being passed in the US which will essentially "give the Attorney General the right to shut down websites with a court order if copyright infringement is deemed “central to the activity” of the site — regardless if the website has actually committed a crime."

In contrast to all of this however, there was a recent example reported on by Bank2.0 of someone who "disregard[ed] the terms of service" of a company - and actually got thanked for it.

The company was the second largest bank in Russia, VTB24 and they were in the process of building their own iPhone app, but budget constraints meant they couldn't invest in it until 2011. They were surprised then to see a tweet stating:-

"Great to see VTB24 finally has their iPhone app!"

On further investigation - and initially suspecting fraud/phishing - they found the app had been developed by a customer who had re-used their existing WAP site to create a working API for the iPhone app.

When asked why he'd done it the customer replied:-

"Well, I wanted iPhone banking and you guys didn't have it"

In story that could have been written by Disney, VTB24 have since hired the developer and now have a live iPhone app - and everyone lives happily ever after.

What's interesting about this example though is the fine line companies walk. On the one hand, Ticketmaster is prosecuting users for "leveraging" their website for another purpose, and on the other a major Russian bank is hiring the person "leveraging" theirs.

Ultimately, when something is let out into the wild - whether it's an internet site or a new product like Xbox Kinect (hack 1 / hack 2 / hack 3)- people will always want to extend it and re-purpose it. Companies may need to protect their content - but increasingly they will struggle to protect how it's consumed.

If companies start using legislation however to define and constrain this re-use to protect their business model, rather than trying to solve the actual business problem, it could harm innovation for all.

Whether it's music, tickets, banking or loyalty programmes, providing ways for consumers to retrieve, consume and share information is ultimately going to be a better policy to embrace than trying to build more and more protection around it.

Less is more when it comes to Path

2010-11-16T15:34:00.001-08:00

New social photo sharing service Path has just launched amid a lot of social chatter and mixed, but largely positive reviews.

The big difference however with this service which is creating a lot of debate is the fact that Path is limiting friends to just 50, citing amongst other reasons, Dunbars law of social connections. However the reason and the amount are irrelevant, what's interesting is the limit itself.

As every other service keeps on providing more, with email providers giving more storage, smart phones giving more apps, foursquare giving more badges and facebook just giving more of everything - it's strange to see a service setting limits.

On the surface their reasoning seems sound - this is a personal network for sharing photos with close and "real" friends. The limit of 50 helps to reinforce this, meaning you can't simply import all your friends, followers and hangers on. However, who's to say what a close friend is and how many of them you should have (ok, so Dunbar's 150 is probably about right), but in reality, this arbitry limit seems a little restrictive and big brotherish - a "we know best" mentality.

But it's none of these things - the limit of 50 friends is simply a gaming dynamic.

If you limit something, you create scarcity. Scarcity means things are valued more. Things which are valued more get used more and promoted more.

At a time when we feel everyone is a winner - with A grade exam pass rates seeming to ever increase and reward ceremonies giving a Gold for more and more obscure categories, it's nice to see someone saying no.

Scarcity can be a powerful mechanic and when worked well into a marketing programme can encourage increased engagement. It can also be lost very quickly by making everyone a winner - this is a situation where you can't have your cake and eat it.

Not everyone can win Gold, not everyone can be Platinum tier and not everyone can be your friend.

I think Path is forcing users to make a choice on who the most valuable people are to them - and in turn are probably selecting the most valuable people to Path.

Creating scarcity can be a sure fire way of creating value.

What is gamification?

2010-11-07T12:47:00.001-08:00

With the risk of sounding like a broken record - do I write another blog post about gamification.

Well in the last 6 months alone there has been an almost 300% increase in the number of blogs written about gamification and when you look at the twitter stats around the term gamification it's clear that the last 6 months have seen a significant uplift in chatter.

There was also a buzz around gamification at the Virtual Goods Summit and now it has it's own conference coming up, the Gamficiation Summit. The summit will feature authors such as Gabe Zicherman who co-authored the book Game-Based Marketing, released earlier this year that looks at how gaming mechanics can be applied within marketing programmes.

So far be it from me to buck a trend - this is obviously a topic which is both increasing in interest and dividing opinion.

People can't seem to talk about gamification without somehow linking in virtual gaming platforms like World of Warcraft or explicit real world gaming platforms like SCVNGR.

For me though this confuses the whole topic.

Gamification is not the linking of marketing efforts into games. It is not the evolution of marketing programmes into games. Instead it is the inclusion of gaming recognition mechanics into marketing programmes.

This is a subtle difference but it doesn't stop it from courting controversy.

Arguing that the term gamification is wrong, game designer Margaret Robertson from game design studio Hide&Seek says adeptly in her blog post

"Points and badges have no closer a relationship to games than they do to websites and fitness apps and loyalty cards. They’re great tools for communicating progress and acknowledging effort, but neither points nor badges in any way constitute a game".

Going on to say

"games set their players goals and then make attaining those goals interestingly hard", contrasting this with loyalty programmes such as My Coke Rewards where she says "collecting enough My Coke Rewards for a Coca-Cola Telenovela Club Beauty Rest Eye Relaxation Mask is hard, but it isn’t interestingly hard."

This is very true. A loyalty programme such as a frequently flyer programme is not a game in the true sense. It does not have what Margaret describes as the "rich cognitive, emotional and social drivers".

However, whilst there are obviously people who love playing games for the games themselves and are drawn into the virtual worlds they create, if you took out the "points and badges" from these games so that there was no progress indicated, no achievements collected, no way to measure your performance against previous plays or your peers, you can bet the game play wouldn't last long.

These "great tools for communicating progress and acknowledging effort" do more than just communicate it - they positively encourage and motivate it.

It's these recognition and motivation mechanics that gamification is trying borrow and develop and not the ability to replicate the actual game play such as being able to "dump my sniper rifle for an energy sword"

The collection of points for rewards isn't gamification - it's simply one behaviour which is being encouraged and recognised. Instead, gamification is how this behaviour is integrated with other interactions, how these are orchestrated together and how overall goals are set, progress measured and achievement recognised.

It is possible to make attaining goals "interestingly hard" within the context of a marketing programme, and it doesn't need a virtual world or special powers to acheive it. Instead it simply needs to be interactive, responsive, timely and relevant to the participant.

Caution is still required here though. Just as I'd argue that a loyalty programme is not simply the provision of points for transactions which can be exchanged for rewards; gamification of a marketing programme is also not simply the awarding of badges and achievements for given behaviours.

Instead, the overall customer journey needs to be taken into account including how it is presented, communicated and shared. Awarding points or badges is the easy bit - making people actually want them, that takes great programme design.

As Margaret said, games should "make attaining those goals interestingly hard", and whilst the game play might be different, the sentiment should be the same.

Maybe there isn't so much difference between designing games and marketing programmes after all.

3 reasons why 3x Tesco Clubcard Deals will work

2010-10-26T07:28:00.001-07:00

Just over a year ago I wrote about how Tesco had introduced double points to the hugely popular Clubcard scheme, making it far more rewarding and really capturing peoples attention at a time when they were increasingly evaluating their retail choices.

Those in the industry questioned how long they could continue to offer double points given the cost of it and so thought it a short term promotional campaign rather than a longer term programme change. Now, 12 months later, we have the answer - it was both.

From the 6th December the Clubcard scheme is changing again, however it's not double points which are going, it's the 4x Clubcard Deals. Tescos state:-

We've decided to keep double points going, because it has been so popular and has made a real difference to how much value we've given to customers. So, your shopping will earn you twice as many points (especially useful when you do your Christmas shopping!) which means twice as much value back in your next statement.

It would be easy to be cynical about this and suggest that as they give with one hand they take with another. However while the scheme value will drop from the current high that the double points promotion brings, this is not a scheme devaluation. By keeping double points going and at the same time dropping the Clubcard Deals from 4x to 3x value, the scheme is still more rewarding than it was 12 months ago - but only just.

The table below shows example spend levels for a customer who earns points across a number of different areas. Assuming they also use their Tesco Credit Card to buy their Tesco shopping and Fuel, they are still 15% better off under the new rules than before double points were introduced.

Category	Monthly Spend	Original Scheme	Dbl Pnts Promo	3x Deals
Supermarket	£600	£24.00	£48.00	£36.00
Fuel	£240	£9.60	£9.60	£7.20
Car Insurance	£25	£1.00	£1.00	£0.75
Credit Card	£1,000	£10.00	£10.00	£7.50
Total Reward		£44.60	£68.60	£51.45

Of course, the current double points promotion has significantly increased the reward value for customers so there will inevitably be a big drop for many. If you look at this as just a promotion however, the Clubcard scheme still appears to be more rewarding.

So what is going on. Why have Tescos complicated things by essentially devaluing rewards and increasing earning simply for the scheme value to stand still?

My guess is this has been done for 3 reasons.

1. Rewards too good to be true - Customers don't trust promotions that give too much value. When testing points rewards, you typically get no additional lift moving from double to triple points and increasingly, as you lift the points value, you decrease participation. This is basically because customers begin to see the offer as being too good to be true and feel there is some other objective at play and so shy away. Ironically, in order to increase the take-up of Deals, Tesco may have had to reduce the offer to make it appear less appealing.

2. Partner Participation - The Clubcard Deals are fantastic value, but it is rumored that partners have to fund 50% of the value. With some partners like Legoland seeing an increasing number of customers using Deals vouchers to gain entry, I suspect it is becoming harder for Tesco to keep these partners engaged and to keep the offers open and free from restrictions. There is probably a gain in this programme change for partners as well, lowering their participation costs.

3. Two points is better than one - Customers don't "do the math" when looking at loyalty schemes, they simply compare one scheme to another based on the earning rate. If they get 2 points per £1 on Clubcard and only 1 point elsewhere it immediately feels more rewarding, regardless of the ultimate exchange rate. Tesco had previously tested giving 2% rather than 1% when first launching Clubcard and had seen no uplift in spend with the higher return. However, in a competitive market, this increased earn rate is probably doing a better job of attracting and retaining customers, even if it doesn't actually result in any more uplift. This was evidenced by Tesco managing to hold and slightly increase it's market share in a tough economic climate and taking share from ASDA who was fighting on everyday low prices and had previously shown signs of growth at the expense of Tesco.

It takes a lot to communicate changes like this to customers and causes potential confusion and re-evaluation. You can bet Tesco wouldn't be doing this if it wasn't going to result in a return.

What I think is great is that Tesco is not content to sit back and just go through the motions. They really want to sweat their loyalty scheme to get the most from it, even if this means making bold changes to keep it on track.

Loyalty is far from a commodity for Tesco - it still has the power to change the playing field.

Is US DoJ Lawsuit actually a win for MasterCard & Visa

2010-10-17T06:21:00.001-07:00

Credit card loyalty programmes took a potential dent last week when Visa and MasterCard settled a dispute with the US Justice Department. The dispute centred around the restrictions the card schemes placed on retailers about card acceptance and how they are able to promote or incentivise different payment methods.

To accept Visa or MasterCard, retailers have to essentially sign up to an "honor all cards" commitment. In principle this rule is a good thing as it means that wherever you see the card scheme logo, you can be assured your card will be accepted. The problem however is that increasingly not all cards are equal.

Card schemes typically charge merchants a fee for every transaction which ranges anywhere from 1-3%. This interchange fee is the cost of doing business if you want to take credit cards and as a retailer you cannot impose a surcharge to cover it. This basically means that whether I pay using cash, debit or credit card, I should pay the same price.

While for the consumer these restrictions sound fair, what really niggles merchants is the fact that these fees are increasing. Card schemes are free to set the interchange rates at whatever level they want and increasingly they are charging more for "premium cards" and "reward cards".

Again the principle behind this seems fair - if you want to access a better class of customer who has more disposable income, you need to pay a little more for the privilege. The problem though is that increasingly the bar is being lowered for a "premium" customer meaning merchants pay more fees across more customers and don't necessarily get more benefits.

The retailers argument is that as they cannot surcharge for these cards or refuse to accept them they are essentially held hostage to whatever the card schemes want to charge.

This has now changed though. While the retailer still has to accept all cards within a given scheme they sign up to, they can now incentivise customers to use other payment methods including cheaper credit cards. This could mean for example that a customer may be offered a 2% discount for using a cheaper credit card or debit card, making them decide at the POS whether they want 2% off now or pay 2% extra and earn reward points.

The value exchange and payment decision is suddenly going to get very complicated.

However, it's not all that bleak. The Visa and MasterCard settlement is actually quite clever and probably more of a win for them than a loss.

The first rule of the proposed settlement states:-

[Allow merchants to] offer consumers an immediate discount or rebate or a free or discounted product or service for using a particular credit card network, low-cost card within that network or other form of payment

This means that the offer at POS will have to be something like "2% discount for using debit card" rather than a "2% charge for using rewards credit card".

Given that consumers will have already seen the price of goods published and will have been mentally prepared to pay that price, this I suspect won't have such a great effect. In addition, the amount of rebate that can be offered is also very small on a per transaction basis - anyone who's enrolled in a card reward scheme knows that you have to spend thousands to get a small amount back. On a $50 transaction, any free gift worth around $1 isn't going to be worth having - I'll just have the points thanks.

While larger merchants can probably combine this with their own loyalty scheme, offering say double points for transactions using a different payment card, it is likely that highly loyal customers already have the merchants own payment card - so little traction here either.

For smaller merchants this is likely to work even less. They are in a constant battle for customers against the larger retail behemoths and so unless you're the only merchant for miles, setting payment hurdles higher is likely to just make footfall lower. Their only saving grace is the proposed rule:-

[Allow merchants to] communicate to consumers the cost incurred by the merchant when a consumer uses a particular credit card network, type of card within that network, or other form of payment

This tugging on the heart strings for a small mom and pop store is likely to be more motivating than any discount on other payment mechanisms.

Also, don't expect consumers to win in this deal any time soon. Attorney General Eric Holder said:-

We want to put more money in consumers’ pockets, and by eliminating credit card companies’ anti-competitive rules, we will accomplish that.

However, any potential savings that retailers make out of this won't be passed on to the consumer in lower prices, they will simply go into greater profits for the retailer. The experience in Australia when they halved interchange fees showed that basically consumers get less rewards on the cards, pay more in bank fees and end up still paying the same price. While this settlement is slightly different, it certainly won't result in savings for consumers. If anything it will move money from consumers pockets in the form of points and into retailers pockets in the form of increased profits.

There is though I think a happy medium here.

For many merchants, especially the smaller ones, they don't have the ability to recognise and reward customers in a meaningful way either due to purchase frequency or the running costs around a loyalty solution. What this judgment does do is provide a wake-up call for banks that they cannot keep retailers at arms length and expect them to just payout for a loyalty programme which is basically there to create stickiness to the bank - not the retailer.

I think now is the time for banks to embrace retailers and provide added value back to them in return for accepting their cards. Banks have a wealth of data and very sophisticated loyalty platforms. The opportunity to create a win-win here for banks and retailers is immense and if the judgment delivers this it will have been worth it.

7 Principles of Loyalty

2010-10-03T03:02:00.001-07:00

From time to time we're asked what makes a good loyalty proposition. Whilst each programme should be designed around the unique properties of a brand, it's customers and the relevant objectives, there are some common elements we use when thinking about different aspects of the programme.

1.Subscribe; not bribe – For people to feel motivated they should feel that they are making smart decisions. A loyalty programme should not appear as a bribe - something that would taint the brand - and instead should appear as added value which customers want to sign-up to.

As the book Scoring Points puts it, better a "chosen" than a "given", but it's also wider than this; not just about whether the customer has chosen it, but the customer also needs to feel chosen - they need to feel it's not a bribe. Within recognition for example, people are more motivated when recognised based on a stated behaviour they have exhibited rather than a one size fits all.

Nectar demonstrates this principle very well in it's latest innovation; their iPhone app. Customers are provided various points offers from Nectar partners, but rather than simply awarding these at POS when the customer makes a purchase, instead the customer has to say "I want it" - they have to subscribe to the offer; this ensures they value it more and that they see it as a smart choice.

2.Loyalty is a journey not a destination – A well designed loyalty programme is made up of many small individual behaviour changes which link together to create deeper engagement. The programme should make it clear what these behaviours are and look to encourage them through the reward and recognition design.

Increasingly, recognising wider interactions as part of this is becoming more important as it allows a programme to start the journey earlier in the buying decision process. When designing a programme, consider all elements of the customer journey, how to highlight and recognise these to customers and how to move people along and up using the tools within the programme.

3.Recognition: it’s own reward – Don’t underestimate the value of recognition in it’s own right. A simple “thank you” can be very powerful and for some the mere act of accumulating points can be motivating in itself. Harness all avenues to recognition including new forms that are coming out of the increasing trend of gamification within loyalty.

This can also provide a great way of engaging less frequent or less valuable customers by providing recognition as a reward in itself and not tied to expensive rewards which they cannot accumulate or access.

4.Show me the value – Customers need to see a value exchange; they need to understand that their activities are an integrated set of steps to a given goal and that this goal is achievable. However, don’t confuse value with money. Whilst monetary value is important, value can also be achieved through social currency and privilege.

Whilst highlighting to customers what rewards are acheivable, it's worth remembering that many customers will underestimate the amount they spend (and could spend) with you and so early on, rewards may look out of reach. Focus on the reward itself and what other people are achieving (social proof) and not simply on the cost.

5.Much cheaper to be relevant – Standard mantra for CRM programmes is Right Message, Right Time, Right Channel. This still holds true and behaviour change can be much more effective when the message is relevant.

The principle also applies within the programme design itself as designing a programme to acquire and retain the right customer segments can be much cheaper than a mass programme for all.

6. Facilitate (don't initiate) advocacy – Take every opportunity to turn the scheme inside out and make it social. Word of mouth is very powerful but it must be genuine and not purchased. Giving people ample opportunities to share means they actually will. With many retailers seeing traffic more than double with the integration of Facebook “Like”, this can be a very powerful mechanic.

Don't expect customers to simply share the scheme though - it's unlikely many customers will say "join this great loyalty programme". Instead, build in the ability to share achievements - whether this is a reward they have redeemed for, a purchase they've made or a tier/level they've obtained. People are more likely to share achievements and share them more regularly than they are to make formal recommendations.

7.Create reasons to stay (and stay loyal)– This is not about locking people in, but instead is about ensuring they understand the value they have (and will lose) if they leave. Points do this very well, with people building up deferred value they don’t want to lose. Many programmes also use recognition mechanics like tiering which help people to build up more invested value if they concentrate more of their purchases with the brand.

One area to watch out for though is a programme design which actually causes disloyalty. For example, if your tiering structure allows people to "top out" and the customer sees no benefit to continue, they will start to shop around to build up loyalty standing with other brands - essentially playing the tiering field.

Keep in mind that points and tiers are not the only tools for creating a sticky programme - privileges, social connections and content can also be very compelling, as can increased game playing elements like leader boards, levels and status.

I've no doubt people have their own versions of these principles - and additional ones that they use. Feel free to share and discuss.

After 25 years - Amex games card loyalty

2010-09-25T13:11:00.001-07:00

Back in 1985 there was a revolution in computing which although small at the time went on to dominate our everyday lives - this revolution was Windows.

For many, Windows 3.1 was the first version that will be remembered and this was also the first version that could be extended to support TCP/IP - or essentially the internet.

While it has been full-steam ahead for both Windows and the internet since this time, there has also been major change with the likes of Apple and Google increasingly innovating - whether this is new operating systems, new hardware or new ways of distributing applications.

There was however another revolution that started 25 years ago - credit card loyalty schemes.

In 1984 Diners Club launched "Club Rewards" which allowed card holders to earn frequent flyer miles or merchandise rewards based on card spend. This was closely followed by Sears who launched the Discover Card. Although quite revolutionary at the time as it had no annual fee, higher credit limits and most importantly for wider acceptance lower merchant fees, the big innovation was the inclusion of a cash-back rewards programme - giving card holders 2% of spend back.

What's interesting however is that while Windows 1.0 would be unrecognisable for many today, the Diners Club and Discover Card loyalty programmes they pioneered are pretty much the same used on all loyalty credit cards today.

In fact the latest programme from Chase called Ultimate Rewards has all of these features including a new one "Pay Yourself Back" which allows you to offset any qualifying spend on your statement with points - something which is essentially what Discover introduced 25 years ago - namely cash-back.

It was great then to see Amex breaking the mold and doing something different.

Their new scheme Social Currency has partnered with foursquare to allow card holders to check-in to retail stores to share purchases with friends.

Using a dedicated iPhone app, members can then share what they purchased, what they want to purchase and photo's of the event/product.

Keeping with the foursquare gameplay, members are rewarded for taking part with a selection of unique badges based on their behaviour such as the "Thrifty Spender" badge or the "Chinatown" badge.

I've discussed recently that loyalty is changing and that adding a gaming layer to loyalty programmes is one of the most important changes to loyalty in the last 25 years. It's great then to see an industry that once pioneered loyalty now embracing the next phase.

Amex may have been a little late to the party with it's original loyalty offering, "Membership Miles" back in 1991, but it's certainly at the forefront now. I wonder how many other banks will be brave enough to follow suit.

What we (and Guns N' Roses) can learn from Google Instant

2010-09-12T03:00:00.001-07:00

Google Instant has launched amongst mixed reviews. However, love it or hate it - it's part of an increasing trend amongst consumers to have have everything now. In the launch PR, the main selling point for Google instant was that it saved the worlds internet users the equivalent of 11 hours per second or 111 years per day.

On an individual basis this is just 2-5 seconds per user, and yet this is the main selling point.

It's easy to see why Google would want to minimise any possible wait time; in a recent survey, two-thirds of us have stated that we've walked away from buying something because we were fed up of queuing and 51% of us wouldn't even enter a store if we spied a queue.

This apparent impatience at having to wait for things also seems to be increasing. In the same research it was reported that British consumers are now only prepared to queue for up to two minutes - down from five minutes just six years ago. (At that rate we'd expect instant service by 2014)

This isn't necessarily just an impatience with queuing though - it's an impatience with anything that stands in the way of getting something now.

In a recent Experian survey it was noted that young people tend to use offline channels for purchases, despite researching them online simply because they "want it now" and don't want to wait for it to be delivered.

Even our leisure time doesn't escape this level of impatience as the legendary band Guns N' Roses recently experienced. At a concert in Dublin they were booed and bottled off stage after only performing four songs due to a late start to the concert. Keeping fans waiting for over an hour, they were shown peoples impatience when they did finally arrive on stage.

So with an increasingly impatient consumer, how do loyalty programmes fit which require a longer term commitment.

Many loyalty programmes work around annual timelines, with quarterly statements, annual tiering and rewards which take at least 12 months to make viable. This can make it hard to engage consumers early on when they are impatient for recognition from the programme they've joined, leading to disengagement.

For loyalty programmes to engage an impatient consumer they need, like Google Instant, to provide faster and more relevant recognition.

The standard response to this is to give more value more quickly. Giving double points, welcome point bonuses, hero rewards, instant discounts, merchant offers - anything which can bring the loyalty value exchange forward.

However, while I'd agree we need to make recognition faster and more relevant, I'd argue that the rewards tied to this recognition don't need to have a tangible value.

You don't need to give discounts, priority queuing or a £10 voucher to MAKE a customer feel special - you just need to make them LOOK special.

Giving someone a Black credit card might make them feel special - letting them show it to others makes them look special - and this in turn really makes them feel special. This is known as "Social Currency" and is defined as:-

Things that help me belong
Things that make me significant

Making loyalty programmes social so that peoples achievements can be shared allows this social currency to be leveraged. Using different achievement mechanics which have their roots in gaming dynamics, such as unlocking badges/levels or the use of leader-boards allows for many options to recognise and engage customers quickly and early on, without the need for monetary rewards.

Seth Priebatsch, CEO of SCVNGR recently wrote about some of the gaming dynamics which help form this social currency saying:-

Game dynamics are fast becoming a critical currency of motivation. Their power lies not in connecting us to our friends, but in directly influencing our individual behavior. Smart companies will take this time to look at their product portfolios and community behaviors through the lens of game dynamics.

Google is a smart company and is constantly looking at ways to improve its products and services to further engage consumers and stay one step ahead. If we don't want to be booed and bottled off the loyalty stage, then we also need to learn the same lessons; recognising and engaging consumers more quickly and more relevantly.

The use of social currency is one way to do this and is set to become the "Google Instant" for loyalty.

Loyalty Marketing - it's all a game. So play it.

2010-08-28T11:06:00.001-07:00

Ted Turner famously said "Life is a game. Money is how we keep score."

How well you play it depends on understanding the rules and Albert Einstein said "You have to learn the rules of the game. And then you have to play better than anyone else."

In marketing it would be true to say "Loyalty is a game. Points are how we keep score."

Points are accumulated - the more points the better the prize. Points don't just mean prizes though, points can earn tiers and these open up additional benefits.

If a loyalty programme was a video game, then tiers would be like a new level - letting you unlock secret rooms like the "airport lounge" or giving you a new weapon such as "priority queuing". The monthly statement would be your end of level score sheet - letting you know how well you did by showing you your current and cumulative score, and on the better programmes, highlighting which puzzles you unlocked in the form of promotions achieved.

However, if loyalty was a game then in the words of Seth Priebatsch from SCVNGER - it would suck.

Seth makes a really interesting and inspirational speech at TEDtalks when he describes building the game layer on the real world - and how loyalty programmes are the forerunners to this.

What really interests me about this as a loyalty marketer is that we've been doing this for a long time - we just haven't recognised it as an industry - and haven't maximised it's benefits.

If you played a video game though which had no real direction, only recognised you when you happened to stumble upon something, had little or no challenges, took 12 months to get to the next level and 18 months before you got a reward - few but the most die-hards would play it.

Yet this is what many loyalty programmes are like.

For example, we know who's playing well. We have people tiered based on their frequency, value and recency. We have them segmented based on the products they buy, the promotions they use, the web pages they visit.

We know everything - and yet we hide it.

Foursquare on the other hand knows when I've visited a venue with a photo-booth 3 times and shouts about it, giving me a reward for it in the form of a badge. It knows if I'm out late, shopping locally or shopping with friends - and rewards me for it. It's a game for me and better still a competition with friends - creating social currency and influence - even if it's just a bit of fun.

When it comes to tiering, we make it very hard for a very small number of people to make it to each tier. This is for good reason as the benefits opened up at each tier cost a lot to fulfil.

However, if you take the monetary value out of a reward/benefit and replace this with social value, then you can emulate games like FarmVille and Mafia Wars which are engaging and influencing over 80m people with 40+ tiers/levels - something I wrote about previously saying:-

[They] create a really well designed journey which drives early engagement, rewards interaction, encourages peer comparison and recognises increased experience.

Adding a gaming layer to loyalty - or at least making the existing game play better - is probably the most important change to loyalty marketing since it moved from paper stamps to computerised points.

This is great for consumers, great for brands and great for loyalty.

Lets play.

Technorati Tags: loyalty, gaming, gamification, SCVNGR, foursquare, points

Digital Channels - The Hidden Dimension

2010-08-22T08:41:00.001-07:00

We've all met someone who is over-familiar. Someone who just gets a little too close.

That feeling of uncomfortableness that arises is normally because they've invaded our personal space. However this raises the question, what is personal space?

Back in 1966, Edward T Hall wrote a book entitled The Hidden Dimension where he discussed the concept of personal space. Defined as:-

The region surrounding a person which they regard as psychologically theirs. Invasion of personal space often leads to discomfort, anger, or anxiety on the part of the victim.

The measurement of this space and the distances between people as they interact is known as proxemics. In a physical sense we all understand the concept of personal space, and whilst peoples tolerance levels in terms of distance vary, they can be broken down into 4 main zones which are:-

Intimate Space - For embracing, touching or whispering (= < 15cm)
Personal Space - For interactions among good friends or family members (46 to 76 cm)
Social Space - For interactions among acquaintances (1.2m to 2.1m)
Public Space - For interactions such as public speaking (3.7m to 7.6m)

In essence, the closeness of these interactions are based on the closeness of the relationship we have with the individual.

This is something we all understand in everyday life, but what happens when offline interactions move online and when interactions are not person-to-person but are instead person-to-brand.

It was recently reported that just under half (46%) of shoppers now feel they are "bombarded with irrelevant information and offers via a dizzying array of touchpoints." - so something obviously isn't working well.

Just because a brand has a customers contact details doesn't necessarily mean it has permission to talk to them across every channel. Not all channels are equal and some are considered more personal than others.

If a salesperson repeatedly invaded a customer's personal space, making them feel uncomfortable and causing them to walk away, you can bet they wouldn't be employed for very long.

Ok, not a great example as that's exactly what many salespeople do to try and cross that boundary from acquaintance to friend; from untrusted to trusted. However, brands risk customers switching off by doing similar things within digital channels.

In proxemics terms, my letter box is considered public - I expect mass marketing messages to be posted to it and re-act accordingly; which is probably why response rates are so low. My mobile phone however is far more personal and not a channel I'd welcome un-solicited messages on.

As an example, this is how I'd categorise interactions across the various digital channels in terms of proxemics.

Intimate Space = Telephone/Mobile Phone/SMS/IM
Personal Space = Facebook, Foursquare
Social Space = Email, Twitter
Public Space = Direct Mail

However these categorisations can also be affected by the relevance of the interaction.

Mobile can be a great channel when the message is very relevant and personal - almost when it could be a whisper in your ear. When Premiere Inn sent me a text message reminding me of my hotel booking and asking if I wanted SatNav directions (which I did), then this worked very well. It was like a friend quietly asking if I knew where I was going.

When my bank rings me up though on the pretense of a customer care call, loosely covering a sales call, then this isn't welcome as I consider this channel far too personal for that type of interaction. This is akin to the salesperson trying to establish trust and cross that boundary.

When I post my thoughts to Twitter - just because they are essentially public does not mean the channel is. I want friends on Twitter that have something relevant, entertaining, informative or witty to say - not a brand advertisement.

With the increasing growth of location based services including the new Facebook Places, this will add another level of complexity. Commentators are already discussing the potential of this channel for advertising revenue with the Telegraph recently saying:-

The business idea behind such applications is that all these individual check-ins can be used to drive advertising. [Adverts] can be targeted more specifically because a user's spending habits are known.

However, knowing this information is one thing, knowing how and when to use it is something else altogether.

Can a brand talk to me when it knows I'm in the area, but not in their store?

Do I expect it to talk to me when I check in at the store specifically?

Will it increasingly be a faux pas if a brand doesn't recognise me when I tell them I'm in-store - almost like refusing a handshake?

With the explosion of digital channels available to talk to customers on I think the principles of proxemics are more relevant than ever. Marketing messages should be looked at not just in terms of what channel do we have available but also in terms of what is the tone of the message and what is the relationship with the recipient.

The classic CRM mantra of Right Message, Right Channel, Right Time could be added to through the application of proxemics with Right Relationship.

Flipboard - Reinventing the advertorial

2010-08-08T14:46:00.000-07:00

Imagine a magazine or newspaper which has articles you're really interested in. Whether it's the latest industry news - in your industry - or the latest news from your friends and family. Combine this with the best media content you like - don't want sport, remove it. Now make this near real-time, in a glossy, tactile, user friendly format.

This is Flipboard. The much hyped - and in my opinion deserving - new application for the iPad.

Building articles based on your social network content including Twitter and facebook, Flipboard presents a highly personalised and relevant experience. With the content you read being based on your network, it means that those who's opinions you trust, value or enjoy are literally building and collating the content for you.

More importantly though it provides a whole new way of interacting with social media. Using Flipboard makes traditional Twitter streams look more akin to reading news on Ceefax.

It obviously doesn't replace Twitter for two way interaction or posting of thoughts, but does provide a fantastic way to consume the information that flows by.

In a recent article Flipboard co-founder Evan Doll said:-

"With the information overload, people are doing more sharing and it is more difficult for the signal to get through the noise"

Although it is currently free and revenue streams are yet to be realised, it is clear that this will be revenue generating. CEO and co-founder Mike McCue says:-

"We think we can bring a totally new form of advertising to the table that will allow publishers to monetize their content by a factor of ten from what they’re currently doing with banner ads".

However, for brands there would appear to be two opportunities. The first is to use standard advertising, much as they would do within traditional media - although given McCue's comments I'd expect this to be a lot more intelligent and relevant.

The second though is really about leveraging the power of social media.

If you create content and opportunities which get people talking about your brand, linking to your brand and sharing your brand within their social networks this will translate into articles in Flipboard.

Essentially a modern day advertorial - except without the cost and with more credibility.

With server capacity reportedly reached within 20 minutes of launch, over 130 media companies contacting them within 4 days and riding on the back of the iPad which is breaking all sales records, it's clear that Flipboard is both the one to watch and the one to get watched by.

Foursquare - from check-in to check-out

2010-07-18T09:44:00.001-07:00

Geo-location is a hot topic..and it's getting hotter.

Foursquare, one of the biggest location based social networks took 12 months to get it's first million users, just 3 months to get it's second and is reported to have recently secured an additional $20m in funding. Brands everywhere are experimenting with it to see what it might offer from Barbie to Jimmy Choo, Starbucks to Dominos.

In theory location is the ultimate marketing mechanism - being able to target consumers when they are actually out and about, wanting to buy, and right by your store. The idea is nothing new though. Ever since the mobile became ubiquitous, agencies and brands have been talking about how they could connect a consumer to a brands physical location.

The (somewhat unimaginative) idea was that as I walked past a store I'd suddenly get relevant, targeted offers sent to my mobile - beckoning me in with their irresistible offer. The reality would be quite different though and would consist of being spammed with irrelevant offers from stores I have no intention of frequenting and a mobile that is buzzing every few seconds.

In one recent article, this idea was still being promoted, saying:-

Cell broadcast works by blanket-sending a message to a mobile phone cell or series of cells within a specified location. The applications for this are endless. Food chains could text everyone in a shopping centre with their latest offers and details on how to get to their concession stands.

The problem with this original premise is that geo-location is being treated like traditional push based mass media. A marketing message needs to be delivered and it gets delivered where the potential audience is greatest - or is pretty close by.

The difference with tools like Foursquare is that they are much more collaborative. More pull than push, consumers choose who to interact with and when. Brands providing something relevant are rewarded with interactions or check-ins. Consumers choosing to interact are rewarded with offers, tips and occasionally meeting old friends or making new ones.

However I know from the flack I get from others for checking-in all the time that Foursquare in it's standard form will probably not appeal to the masses. Chasing badges just isn't going to cut it for many people. Foursquare are not resting on their laurels though - following the tradition of Facebook and Twitter, they have opened up their platform to developers to allow applications to be built on top and it is probably this more than anything which will really open it up to the masses.

In an interesting blog by Chris Dixon, he describes how this progression works with technological advances building on each other - forming a stack - so Intel chips -> PCs - > Windows. With regard to location marketing, GPS enabled devices have allowed for services like Google Maps, leading to utilities like Foursquare which connect people to places. The use of applications on top of Foursquare is just the next natural step.

So whats in it for brands?

Well for the moment, it's more of a one to one conversation between the consumer and the brand with many brands not even listening yet. Those that are listening are ahead of the curve and are starting to build a dialog with customers - rewarding them with offers, discounts or simply the knowledge that they are listening.

However, as the networks grow and the tools which sit over these become more useful, brands will benefit from implicit advocacy as consumers see their friends frequenting different places and choose to follow - turning advocacy into footfall or check-ins. In fact, Foursquare see this ability to allow peoples check-in's to drive footfall as a key area of growth with co-founder Dennis Crowley saying:-

We can anonymise data and use it to show venues trending at that moment. Twitter helped the world and the search engines know what people are talking about. Foursquare would allow people to search for the types of place people are going to – and where is trending – not what.

If results from early adopters like Dominos or Jimmy Choo are anything to go by, brands are then free to start a dialog to turn a check-in to a check-out.

Creating a pointless loyalty programme

2010-07-12T09:38:00.001-07:00

Many brands would love to have a loyalty programme, but don't see the point as they feel they can't make it work for various reasons such as low purchase frequency, low margins or brand fit. Worse still, other brands simply run head-long into creating a programme without giving due consideration as to what they want to achieve or even whether the programme will be valued by or add value to their customers.

However the mistake here is to simply assume that a loyalty programme means a points programme. That providing recognition to customers for repeat custom requires some form of currency and reward catalogue. This is not the case.

Loyalty is all about customer retention and anything which encourages customers to make that next purchase - and to continue to make purchases - is in essence a loyalty programme.

Creating a pointless loyalty programme (one without points) does not mean creating a programme which is simply pointless. Instead it's about looking at where your brand can facilitate and build upon customer interactions - creating deep engagement and participation, and ultimately increasing and maintaining loyalty.

So how do you provide added value without giving points? Below are a few recent examples of brands doing just that.

Exclusive Access/Content

Starbucks in the US announced recently that it is looking to use exclusive content to recognise and reward customers. Providing free WiFi, customers will be able to access a content network called Starbucks Digital Network which in partnership with companies like Yahoo will provide local content that you can't read anywhere else. Commenting on this, CEO Howard Schulz said

"Free WiFi is in my mind just the price of admission - we want to create.. new sources of content that you can only get at Starbucks, this is a thing that doesn't exist in any other consumer marketplace in Amercia."

This also fits well with their brand as they consider Starbucks "a third place" - somewhere between work and home - and the local, exclusive content may add to this.

The hope is that this will create loyalty with customers through content that is "so compelling that it drives incremental traffic"

Exclusive access and content is well used by many brands, such as O2 in the UK which provides their customers with priority access to concert tickets.

Social Currency

In a previous blog I discussed how people all want to feel a little special some of the time and that creating a means to let people set themselves apart can be a great way of gaining additional loyalty and increased motivation. A recent article in McKinsey Quarterly showed this working in a social networking context - discussing how providing people with a means to publicise their activities, whether this is through the award of badges as used on foursquare or the publication of achievements from sites like SportyPal.

The article pointed out:-

"Recognition from peers is a powerful motivator, and brands that allow users to gain it deliver real perceived value. When users publicise that recognition, it translates into word of mouth"

The author Michael Zeisser, VP of Liberty Media discusses how they have taken this one step further and actually look at word of mouth as a distinct form of media - allowing it to be treated as a form of content to which can be applied tried and true content management practices and metrics. Going on to say:-

We see this phenomenon daily—for example, on the forums of our Bodybuilding.com site. When members boast of reaching their target weight or other goals with help from Bodybuilding.com workouts, we receive authentic and credible word-of-mouth endorsements at almost no cost

This works to create loyalty in two ways. Firstly, it taps into peoples desire to chase goals, such as achieving/beating a best performance time - and being able to brag about it to others. Second it taps into the idea of Social Proof, letting people know that others are taking part and keeping them on track - helping them stay loyal.

Interaction Loyalty

Increasingly it is more important to recognise and reward customers for their interaction, not just their transaction. This means creating tools that allow these interactions to be captured as unlike a purchase there isn't usually a POS transaction.

Obviously it's possible to capture online interactions such as reading/responding to an email, logging into a website or recommending a friend. However some brands are beginning to experiment with linking offline interactions such as store visits with loyalty - and seeing great results!

In the UK for example, Dominos Pizza has linked up with foursquare to reward customers who check-in at Dominos outlets, essentially letting Dominos know that they have visited - even if they didn't actually make a purchase themselves. Whilst this is a very new phenomenon, Dominos feel they are really seeing the success of it, reporting that they have seen:-

A 29% surge in pre-tax profits to £17.5m, buoyed by a strong performance from e-commerce sales and attributing its link-up with Foursquare as key to its recent performance.

Competitor location based social network Whrrl in the US has also looked to link a customers physical location with a brand through its Society Rewards programme. Working with US petrol retailer Murphy USA, if a customer checks-in at any of their 1,100 locations they will immeadiately be in with a chance to win up to $50 of free fuel.

While at a basic level this programme is simply a sales promotion mechanic, where it starts to get clever is that the more a customer checks-in - and others act on their recommendations - the higher levels they achieve, providing additional opportunities to earn. In essence, the more a customer interacts with a brand, the more they get back. Whrrl describes this by saying:-

Whrrl’s Society Rewards is based on a person’s ability to inspire friends to try new ideas at real-world places. Users receive additional points when others “Want To” try that idea, actually do try the idea or pass on the recommendation to their friends. Users also earn points by getting others to join the Society and by checking in at qualifying locations.

These are just a few examples of brands creating pointless loyalty programmes which recognise, reward and engage their customers.

When thinking loyalty, don't just think points - there are many more creative ways to interact and engage with customers.

However points can provide a strong motivator, allowing customers to easily see what is expected and helping to shape ongoing behaviours - utilising any of these ideas as well as points will simply create even deeper engagement and make your currency that much more rewarding.

Either way it's a win-win.

What is iPad?

2010-06-26T10:06:00.000-07:00

Creating a new category can be hard. People know what a phone is so the fact that actually making calls from a smart phone is now a secondary function for many people doesn't stop it being marketed as a phone.

The iPad is different though.

It's not a phone, but is has 3G.
It's not a laptop, but it has a web browser.
It's not a TV but it plays and streams videos.
It's not a games machine, but it has thousands of games.

It's something new.

People will buy it because it looks beautiful, is intriguing and has an Apple badge. People will use it because it fills a need.

So as the owner of a new shiny iPad I was intrigued as to how I would use it.

What I've noticed is I use it differently to a laptop. Sure I web browse on it, check my email on it, access Facebook on it - even read my work email on it and review attached documents on it.

But I don't use it in the same way.

Whereas previously I'd have spent longer in my social networks on a laptop, I find the apps get a greater share of use on the iPad.

On the laptop, the browser was the centre of the entertainment, on the iPad though the machine itself is the entertainment. If my usage is in any way indicative of how others use it then I think this is important for brands and how information and access is provided for customers.

Brands are used to providing websites and micro sites for consumers and increasingly have been integrating into social networks like Facebook because, frankly, this is where consumers actually spend their time. However with the iPad, I think consumers will expect more interaction through the applications - providing quick, easy access to information.

When they want to track the status of an order, the number of points they've accumulated or even browse a product or reward catalogue, increasingly I think consumers will want these as applications. It's likely that as with all things, consumers will have limited space for individual brands in a given category, so those providing a great application experience will probably get increased loyalty and that front of page position.

One great example of this is Pizza Hut. They saw online orders increase exponentially when they introduced an iPhone app for ordering pizza. As with all pizza brands, they already had an online website, but the introduction of a specific application increased engagement within their key 18-34 demographic. Its popularity was confirmed with over 1m downloads and a number-two free app position.

Like the Pizza hut app though, applications available today tend to have been designed for the iPhone. It's about information on the move or in the moment. Accessing my loyalty card, reviewing my friends statuses, ordering pizza or searching for a new contact in LinkedIn.

The iPad though is different. It's a more sit back and browse experience - time is available and users will want experiences. They will want entertaining. Brands providing a compelling innovative experience will be rewarded with increased dwell time leading to greater engagement. The Financial Times application for example is a much more engaging experience on the iPad than the website version - it's tactile and draws you in.

In the end though what the iPad "is" may take a little more time to define and Apple is certainly hedging its bets with it's latest advert saying :-

What is iPad?
iPad is thin,
iPad is beautiful,
iPad goes anywhere,
and lasts all day,
there’s no right way,
or wrong way,
it’s crazy powerful,
it’s magical,
you already know how to use it,
it’s 200,000 apps and counting,
all the world’s websites in your hands,
it’s video, photos,
more books than you could read in a lifetime,
it’s already a revolution,
and it’s only just begun.

I think the last two lines sum it up perfectly - the iPad is a revolution that has only just begun and ultimately, what brands choose to do with it will be as interesting as the consumers.

Aligning shareholders and customers - is it possible?

2010-06-20T01:53:00.001-07:00

With the recent BP Gulf of Mexico oil leak there has been a lot of focus on the interests of shareholders over other stakeholders - with the US successfully putting pressure on the company to forgo paying dividends to shareholders until the current situation is resolved.

Whilst this was probably a wise decision, it does demonstrate how removed shareholders can be from the day to day running of a business and it's main stakeholder - the customer - creating potential issues from a misalignment with these two groups.

Typically a customer is looking for good customer service, competitive pricing and a great range of products. (plus wild life not covered in oil)

The shareholder is looking for a return on their investment - increasingly short-term - creating pressure to lower wages, increase margins and reduce product production costs.

However not all companies have this misalignment issue.

John Lewis for example is a very successful brand with a unique way of working. It has brought the interests of the shareholders closer to those of the customers by making it's employees partners in the business. Each employee has a share and a say in its success (with bonuses this year equivalent to almost 2 months salary).

Started by John Stedan Lewis, he believed:-

That it is "all wrong to have millionaires before you have ceased to have slums"; that "the dividends paid to some shareholders" for doing essentially nothing were obscene when "workers earn hardly more than a bare living"

I think John Lewis was inspired in this respect. He wasn't saying equality for all - you could be a millionaire - but you don't do it at the expense of others, in this case the employees.

This alignment of stakeholders seems to work as well.

Not only is John Lewis able to boast double the average industry rate of employee retention, but in an article in the Guardian it discusses research by the Cass Business School showing that employee-owned businesses create jobs faster; are significantly more resilient in an economic downturn; deliver far better customer satisfaction; boast substantially higher value added per employee; and, depending on the sector and size of the business, can deliver markedly higher profits.

Not all companies can follow the John Lewis model however and so for more traditional companies there is still a misalignment issue whereby the focus on the needs of shareholders - often short-term - causes a company to make decisions which affect the product and service delivered to customers.

Wouldn't it be great though if these two groups could see eye to eye more.

Where for example the desire of a customer for good service is matched by a companies desire to deliver it by investing in their staff - providing great benefits which retain them (and their knowledge).

Where the customer is prepared to pay a fair price for a fair product - even if this means paying a little more.

Where the products sold are in the long term interests of the customer not the short term interest of a quick sale.

Achieving this though can be hard if dividends paid to some shareholders for doing essentially nothing are more important than the needs of customers who are the lifeblood of the company. As Don Peppers and Martha Rogers said in an open letter to Wall Street.

The only thing in short supply these days? Customers. Customers are difficult to find and hard to keep. Without customers, you don't have a business. You have a hobby.

So here's a radical thought - why not combine these potentially opposing groups by making customers shareholders - rewarding them for their loyalty with an increased stake in the company. Not only would this give customers more of a voice but is also more likely to make them loyal.

Okay, so in reality this is not such a radical thought - co-opertatives have been doing this since 1844 when the Rochdale Partners first started paying a patronage dividend to customers. This has continued into the modern day with the Co-operative Group paying its members a share of profits worth £50.4m this year - up from £38.8m in 2009 and £19.6m in 2008 - and in the middle of one of the worst recession in decades.

As Patrick Allen, Director of Marketing at The Co-operative Group says:-

It is only right that our members, who ultimately own and control the business, share in our success

It's interesting though that it's not just these long established companies like John Lewis or the Co-Op that are thinking in this way - looking to engage their stakeholders directly within the business.

Recently there have been other examples.

Hotel Chocolat is reported to be seeking to raise £5m to fund capital projects by issuing "chocolate" bonds. Investors will be able to purchase either £2,000 or £4,000 bonds with the investment returned after 3 years. However instead of interest payments, the investors will receive value in kind in the form of chocolate boxes - the value of which is reckoned to provide a net dividend return of 5.38%. This will obviously create a closer engagement between the investor and the product and in all likelihood will recruit investment and hence shareholders from an existing loyal customer base.

Internet food delivery retail Ocado announced recently that it was looking to float the company next month and was offering existing customers the chance to purchase share in the company at the same rate as institutional investors. Aiming it at existing, loyal customers, to be eligible you must have spent over £300 since 1st January.

Has the public mood changed since the collapse in the financial markets? Do they want greater control and a closer relationship to the organisations they are loyal to?

It will be interesting to see if the public embrace these offerings - reversing what has been previously a decline in customer owned organisations such as building societies.

I do however think these are really innovative ways of engaging customers directly in the business and I also think there is a lot of scope for creating a long term loyalty programme along these lines which truly rewards customers for their patronage, by giving them an increasing share of the business and with it an increasing share of the profits they generate.

Not by doing essentially nothing - but by doing what every business needs - just being a good, loyal customer.

Photo credit kayak.wa

Is Google about to pull a Kansas City Shuffle on Murdoch?

2010-06-05T14:05:00.001-07:00

Do we purchase from a brand because they have the products we want or do we buy the products because we frequent the brand?

When surveyed, the number one reason for using many brands centres around rational reasons such as convenience - typically location in the case of a retailer and price. However, if all brands are in the same location and stock the same kinds of product at the same prices, then what drives loyalty between one brand or another?

Well this is probably a question many TV broadcasters have asked themselves.

With television, the viewer essentially has one location in which to consume many different brands - whether thats ITV, BBC, E4, etc. Each brand fighting for consumer loyalty by providing relevant content for their target audience.

There is really no reason to be loyal to a given TV channel when you can simply change over at the click of a button - but with an increasing number of channels, many viewers will have a small number that they "scan" when looking for content, knowing that these channels typically have something of interest to offer.

Writing in American Demographics back in 1998, Catherine McGrath pointed out that:-

Fifty years ago, households devoted nearly 12 hours a week to each channel viewed. Today, households spend a mere 4 hours a week per channel.

Time has moved on however and now it's not just more TV channels competing for attention, but also other media via the internet. Recent Nielsen research showed that an increasing number of people are using the internet at the same time as watching TV, reporting:-

Simultaneous use of the Internet while watching TV reached three and a half hours a month, up 35% from the previous year. Nearly 60% of TV viewers now use the Internet once a month while also watching TV

But ultimately, what is the purpose of a modern TV channel?

Outside of any regulatory requirements in terms of programming, is it simply a way of aggregating content that has some link - whether this is specific like Travel, Shopping or Comedy channels or a wider lifestyle segment like Entertainment or Family channels?

If in essence a TV channel is simply a way to monetise content and you provide the right content that attracts viewers then this will be more likely to attract advertisers and with it revenue.

So the better you can make that content fit a target audience, the more likely you are to get long term loyalty or brand preference and more stable viewing figures. This rationale results in more channels catering to an increasingly targeted and niche audience - all chasing after a share of that ad revenue.

At an estimated $70bn dollars of advertising revenue within the US alone and over 4bn TV viewers worldwide, that's a number worth chasing.

However, if this is the case and a channel is more focused on content aggregation than content creation, then their days may be numbered - there could be a new sheriff in town who's looking to re-write the rules.

With Google's recent announcement of Google TV, the need for a channel to aggregate content, to sign-post it for viewers may disappear. Google aims to make it as easy to find a programme to watch on TV as it is to find something on the web - using search.

In fact, it will be as easy to find and consume the TV show you want as it currently is to find and consume the news content you want - something which has already been making the headlines, with Rupert Murdoch being very vocal about what he sees as the damage that Google is doing to the printed media industry, saying:-

We are going to stop people like Google from taking stories for nothing. They take [news content] for nothing. They have got this very clever business model.

That however may be the least of his worries if Google pulls this off - while he's focusing on saving the printed media - and looking left - Google is about to move right and launch an attack on that best loved media channel - and Murdoch stronghold - the TV.

This isn't just a technical innovation like streaming content or the BBC iPlayer - it could also fundamentally change the relationship between content creators, broadcaster and the viewers.

As Murdoch says, Google has a very clever business model and you can imagine they also have a very clever one behind this innovation. Famous for being free at the point of consumption, whether its search, mapping or email, they make their money on personalised, targeted advertising - and they'll have their eye on a large slice of that $70bn in ad revenue.

For TV broadcasters to survive they are going to have to do more than just aggregate and sign-post content. They'll need to start building relationships with consumers.

There are great examples of this already - whether its Film4 who have a strong brand spanning from film production to distribution or Hallmark who have a "loyalty lounge" which provides viewers with access to content, forums and competitions - creating a social channel around a TV channel.

The printed media have only just realised that they need to build stronger relationships with their consumers and brands such as the Telegraph are already experimenting with programmes to do this. The jury is still out on whether these will work and whether this style of programme is ultimately the right approach.

However, if TV broadcasters don't build relationships now you can bet Google will and while broadcasters are still looking left (or worse simply navel gazing), Google will pull a Kansas City Shuffle and swoop in from the right - swiping a large share of the loot at the same time.

Boots to generate value from customer relationships

2010-05-23T03:12:00.001-07:00

It seems coalition is the buzzword of the moment, and I'm not just talking about politics.

Nectar and Airmiles have already seen recent competition from Barclaycard Freedom for the multi-merchant loyalty model, but now high street loyalty behemoth Boots has announced their intention to open up their Advantage card to other partners.

Although most Boots Advantage card holders are also members of another large loyalty scheme like Tesco Clubcard or Nectar, with 16m members they can hit the ground running with regard to engaging other partners - not least using their aquisition of Dollond & Aitchison which they have just pulled out of Nectar.

It's also not surprising that this is happening given the ownership of Boots by private equity firm KKR. They will be looking to maximise their investment of over £11bn when they first purchased Alliance Boots and a 16m customer database is certainly one asset that could provide profitable returns.

Looking at coalitions though, what's clear from the current government is that brand identity can become diluted. With most news reports referring to the government as the "coalition government", "Liberal Conservatives" or "LibCons" it's evident that sharing the platform with someone else can force individual brands to be pushed to the back a little more. For any partners looking to join the Boots Advantage programme, it may be difficult for their brand to shine as brightly as Boots.

So what's the attraction for any potential suitor to join a programme like Advantage?

Quite simply it's acquisition. The benefits of tapping into a large shared membership base can bring great benefits to a new brand joining, with a loyal base of members keen to maximise their earning and willing to change their behaviour to do so.

When Tesco for example joined Airmiles back in 2002 they say searches for the nearest Tesco store jump 450% and they issued 1m new Clubcards.

The other side of this though is tied into the reduction of brand identity, with customers becoming more loyal to the programme than the participating brands. When Tesco's for example saw an influx of Airmiles customers, it was reported in Scoring Points: How Tesco Continues to Win Customer Loyalty that Sainsbury's saw a corresponding loss of 1% of sales volume - equal to losing 60,000 of it's most valuable customers.

Another potential advantage though of a coalition programme is the shared earn & burn model. With many brands not seeing enough frequency to remain front of mind or enough value to make the loyalty currency attractive in it's own rights, then a model which contributes to a wider and more open currency seems like the natural choice. In fact, if you ask customers what they want these come out as key aspects.

For example, the Home Retail Group which recently launched Nectar points at Homebase to replace the previous Spend & Save programme said:-

In-depth consumer research that showed Nectar points were more attractive to customers as they are more flexible and can be earned and redeemed at a much wider range of outlets.

When part of a coalition, it's sometimes better to see it as a marriage of convenience - just like the Lib Dem and Conservative coalition. Neither political party would have chosen the situation, but the benefits of working together and representing a majority of the electorate outweigh the alternative.

For coalition loyalty the situation is similar. No company would ideally look to encourage focus on another brand, but sometimes the benefits outweigh the risks. Increasingly however partners are looking to protect their brand at the same time as benefiting from coalition loyalty.

Tesco for example has managed to navigate a route with Airmiles which allows them to be part of the coalition programme, without in any way devaluing their own brand or their own loyalty programme - really having the best of both worlds. Shell is another example - offering a variety of rewards within their Drivers Club programme including Airmiles and now being part of Barclaycard Freedom.

However, with an increasing number of UK coalition programmes to choose from, each offering different benefits and potentially different audiences, brands now have more choice - including creating or keeping their own proprietary programme.

What is increasingly not a choice is whether to have a loyalty programme at all.

As Justin King, Chief Executive of Sainsbury's recently said in The Times about retail loyalty:-

"There will be a big difference between the haves and have-nots"

So whether the choice is joining a coalition, creating a coalition or setting up a propriety loyalty programme - it's clear that loyalty marketing has evolved into the business tool to generate value from customer relationships - a value that Boots are obviously keen to increase.

What can politics learn from marketing?

2010-05-07T14:46:00.001-07:00

Am I the only one surprised that the pre-election polls were actually accurate for once? They predicted a hung parliament and now here we are with no single party having a majority.

It's still early days, but it looks like the LibDems may actually hold the keys to number 10, even if they themselves don't reside in it - and the price for that will probably be a vote at least on proportional representation.

I'm not going to comment on the rights and wrongs of this (phew! I hear you say), but what is interesting is that we have a political system which is based on at best the needs and desires of around a third of the voters. For example, back in 2005 the Conservatives had a 32% total share of the votes, won the largest share of the vote in England and yet had less seats than the majority Labour government.

Worse still, policy is largely dictated by those who shout the loudest and unfortunately the majority of people are so busy living their own lives that the minority who care passionately about a minority cause tend to get a listening ear through effective lobbying. The House of Commons Public Administration Selection Committee says:-

"The practice of lobbying in order to influence political decisions is a legitimate and necessary part of the democratic process. Individuals and organisations reasonably want to influence decisions that may affect them, those around them, and their environment. Government in turn needs access to the knowledge and views that lobbying can bring"

Lobbying may be necessary and the first past the post system may be the best of a bad bunch when it comes to ways of measuring the popular vote - but if government was a business, and voters were customers, it would have gone bust a long time ago.

Henry Ford famously said in his biography that

"Any customer can have a car painted any colour that he wants so long as it is black".

Essentially a one size fits all approach. That may have worked back then - and was actually used because it was the fastest drying paint so kept prices low by speeding up production - but time and competition have moved on.

Look at Ford now and their popular model, the Focus has 100's of different configuration options including 8 upholstery types, 12 body colours (with or without ST stripes), 13 wheel types, spoilers and body kits. No longer is the customer "free to choose as long as it's what you're given" - customers actually have a choice. Better still, if you don't like the Focus there are 14 other models to choose from!

If a retailer like Tesco worked like our government then they wouldn't worry about what customers actually wanted, they wouldn't provide choice. The products on offer would be just the Tesco Value range - essentially a selection of the cheapest, least attractive options that serve the masses - just. In addition there would be a large selection of organic, vegan and soya based foods, because those customers shouted loud enough.

Want some Gruyère cheese - it's not going to happen. Why would you want more than one choice of cheese - it's all the same.

Government is not normally subject to competitive pressures. Other than once every 4-5 years, they don't have to worry too much about whether their customers are frustrated - they don't have a choice. Until now.

With a hung parliament, there is no single mandate - no one size fits all.

Admittedly hung parliments don't have a great track record of success and there is no guarantee that the Tories and Liberals will be able to get an agreement. But with representation of almost 60% of the population, it will be interesting if they actually manage to form a government of the people, by the people which for once can represent the wants, needs and desires of the majority of the people.

If marketing shows us one thing, there is no success with one size fits all - it requires choice, flexibility and relevance. Now there's manifesto i'd actually vote for.

Photo credit -Cuban Store - http://www.flickr.com/photos/martin_hartland/

Tesco says "Good day number Six" (or 7, 8, 9...)

2010-05-01T15:46:00.001-07:00

So Tesco is moving into housebuilding - looking to develop four mini-villages in the South East, having already constructed flats next to stores in Clapham and Kensington.

Discussed in a recent news article in the Grocer, it talked of how Tesco is looking to diversify beyond retail. However I'm gonna go out on a limb here and suggest that these developments might just include one or two shops and I'm betting they have a Tesco brand above the door.

This does seem like a reversal of how things used to be.

In times gone by, companies like Cadburys would build villages to support their workers - with the beautiful village of Bournville being one such example. This allowed the company to ensure it's workforce was well looked after but also close by.

Fast forward 100 years and now it seems Tesco is building towns around it's stores to support it's customers. A ready supply of customers for their whole value chain, from the bricks and mortar houses, to the mortgage to pay for them, the Tesco Direct table and chairs to go in it and the food and drink to eat at it. When you throw in the clothes that they wear, the fuel in their cars and the life insurance in case the worst happens you've pretty much got cradle to grave coverage.

It's not just Tesco though looking for a greater slice of us.

Facebook is another brand that just seems to get closer and closer to it's end users. Its new Social Plugins functionality including the "Like" button takes Facebook (and all your friends) directly into a retailers e-commerce site. Allowing you to "like" products which your friends can see as well as seeing products that they like.

As this expands, Facebook will be building a wealth of information not only on the brands you like but the individual products, allowing advertising to be increasingly targeted and covering an ever growing slice of our online activities. As Mike Murphy, Vice President of Global Sales at Facebook says:-

If I’m Coca-Cola and if I have a Like button on my landing page, my site, and on Facebook, I’m looking to collect as many Likes as possible because it gives me the ability to publish into the news feeds. It also gives me the ability to use that influence on friends of friends on Facebook and makes them more likely to engage with my ads.

You only need to look at Yahoo Consumer Direct - which in the US joined offline purchase behaviour with online advertising - to see what an additional data overlay like that can bring to advertising effectiveness. On the Yahoo website it describes how well it worked saying:-

In an analysis of Yahoo! Consumer Direct versus non-Yahoo! Consumer Direct campaigns, Nielsen reported the average Yahoo! Consumer Direct campaign generated 50% greater short-term sales per impression than the average non-Yahoo! campaign measured by Nielsen. For a 60 million impression campaign, that translates to an incremental $300,000 in short term sales.

Not all brands or sectors are being quite so successful at getting closer to their customers though- with some almost seemingly in reverse.

The balance of power within insurance for example has shifted more to the comparison sites and away from the individual brands who actually serve the customer.

This is not through a lack of data though - this sector knows very well who their customers are, they have simply failed to build and develop direct relationships with them, focusing instead on acquisition and in the process losing the right to have an ongoing conversation.

This is also becoming increasingly difficult for online retailers, with a rise in affiliate marketing of 38.2% in 2009 meaning that the initial purchase decision is increasingly being pulled away from the retailer - and with it the customer relationship.

Relationships are key to long term, profitable success and if you don't know who your customers are and/or simply let someone else build up a stronger relationship with them then you end up losing the balance of power.

This doesn't mean taking the Tesco approach and looking to service literally all their needs, but it does mean adding value to the product or service you sell. Recognising and interacting with the customer before, during and after purchase so you remain front of mind and squeeze out the middle man.

Failing that, build your dedicated customer community quite literally as Tesco seem to be doing and cut out the middle man. However I suspect it will be quicker and easier to simply build better relationships rather than build new housing estates.

The art of collecting

2010-04-25T02:46:00.001-07:00

I was never a big sports fan, but for some reason collecting Panini football stickers was a big part of my childhood. I couldn't really care less about the teams or the players - most of whom I'd never have recognised - it was just the collecting itself which was exciting. Being able to swap with friends and if you were really lucky, getting the silver ones with the club badges on.

It seems nothing has changed - Panini are still pushing out sticker books and kids are still collecting them.

It's not just kids though - many people like to collect - whether it's shoes or stamps.

I'm not talking about pathological collectors -those who feel a need to collect things so that it affects their ordinary life. Like the guy from California (why is it always California) who just had to recently sell his banana themed collection.

I'm also not talking about those who's desire to collect something first drives them to extraordinary lengths. For example, the 15 year old Parker Liautaud who was first to collect the FourSquare Last Degree Badge by checking in at the North Pole.

What I'm talking about is those more normal people who just feel compelled to make that next purchase or seek out that next item.

Given that collecting is such as powerful force within frequency marketing programmes - whether its people collecting points or the sales promotions at the local petrol station where you collect glasses - understanding how people start collecting is important to get a loyalty programme up and running.

At a simple level the act of collecting is essentially one behaviour that is linked to a previous one - to be a collector you must by definition have started.

In the famous article on The Endowed Progress Effect by Nunes & Drèze, they showed how you can kick start people into collecting by simply making them feel they have already started. By awarding people with points upfront, the members were more likely to continue collecting and would actually collect faster - showing increased engagement or desire to collect. They described the reasons for this saying:-

[Previous research] demonstrated that interrupted or uncompleted actions engender a strong motivation to complete the action and psychologists agree that once a person accepts a task, for whatever reason, he or she tends to stay on that course until the goal is achieved

So part of getting people to collect is to get them to feel their collection is both incomplete - so there is more to do - and that they have already started collecting and so feel compelled to continue.

It's one thing to get people started however, but how do you keep the behaviour going. How do you get them from one behaviour to the next, and more importantly, how do you get them making increasingly larger commitments - giving you a greater share of wallet or opening up a new category they haven't purchased in before.

In the book Yes! 50 Secrets from the Science of Persuasionthey discussed ways of getting one large behaviour change by essentially "softening" people up in the first instance. Linking one action to another by starting with something small and seemingly insignificant to then get them to do something bigger which they wouldn't ordinarily have accepted.

The example given was an experiment that asked home owners in a posh neighbourhood to display a large sign on their lawn (6' x 3') saying "DRIVE CAREFULLLY". When asked first off for this, only 17% complied. However when they were asked two weeks before to display a small sign in their window saying "BE A CAREFUL DRIVER", the compliance rate shot up to 76% for the larger sign.

The book goes on to explain why this happened saying:-

"The evidence suggests that after agreeing to the request, the residents came to see themselves as committed to worthy causes such as safe driving. When [..] approached a couple of weeks later, they were motivated to act consistently with this perception of themselves."

This softening or "Priming" as it's described in the book Nudge: Improving Decisions About Health, Wealth and Happinessworks by aligning peoples thinking - for example, simply asking people who they might vote for makes them more likely to actually go out and vote.

This becomes key within loyalty through ongoing communications. We know for example that communications sent across multiple channels increase overall response rates within a campaign and this is probably in part because the first communication "primes" for the subsequent one. Combining this with some form of low risk call to action suggests that subsequent messages for a larger commitment would get a far greater response rate.

Members of a loyalty programme have traditionally been called collectors. To get the best out of a programme though it is probably also worth treating them as collectors and building in specific mechanisms which encourage both the initial behaviour to get them started in their collection as well as helping to direct them ongoing to maximise it.

Social CRM - evolution or revolution?

2010-04-11T12:47:00.001-07:00

CRM is going Social. But isn't Social CRM just CRM done across social networks?

[pause] [wait for the flames]

The answer if you listen to the promoters of S-CRM is (quite vehemently) no, Social CRM is not a channel. It is not about using social networks to execute standard CRM practices.

In fact, in an interesting blog post by Wim Rampen, he makes some really excellent points about why Social CRM is simply not a channel extension of CRM - another way to speak customers - and instead has many unique properties that make it a more interactive, two way dialogue.

Whilst I get all of that - and largely agree, I guess my problem isn't with the Social aspect of S-CRM, it's with the CRM aspect.

If marketing started out as a way of focusing on the benefit the product provided, rather than on the product itself (so called Marketing Myopia) then CRM was a step forward again, focusing instead on the customer that was receiving the benefit and not just on the benefit itself. All customers weren't equal and so knowing which product to sell, what benefits to highlight, at what quantity and at what price became the mantra.

The buzz words were all about personalisation or 1 to 1 marketing - delivering the right message, to the right person, at the right time.

If only we could anticipate what you wanted to buy and nip in there quickly enough on a channel you were likely to read then we'd make a sale. You'd be happy as you got something you wanted and we'd be happy as we had sold it to you.

I think times are moving on though and if the focus on the product rather than the benefit was essentially Marketing Myopia - a blinkered view of the business a company was in - then focusing on the customer is potentially another blinkered view - almost a Social Myopia - in that it assumes that customers fit into a single neat box. There may be many different boxes, but each customer fits into each box.

This however is just not true and Will makes a very good point in his blog when he says:-

If there is one thing we (should) learn from emergent on-line communities it is that people join these communities to perform a certain job. This can be a social job, functional job or emotional jobs, mostly formed around a shared interest. It is these jobs & interests that bond the people in a community.

What this suggests (and it seems obvious really) is that it is not just about a customer segment, but almost customer personalities - or customer communities as Will defines them.

The problem with this thinking though is that if you begin to segment customers not just by social-demographic measures or exhibited behaviours but instead by community, a customer no longer fits into a neat box. I may be part of many communities - whether they're based around a passion like football, an interest like gardening or a function like my job. Even more complicated, these communities or personalities may vary by time.

My needs when doing the weekly shopping with a large shopping trolley are very different to when I'm walking the aisles on a Saturday evening with a basket - browsing DVDs, wine and ready cooked meals. I'm the same customer, reading the same newspaper, watching the same TV programmes - but I have different needs, desires and approach.

This is obviously difficult to have a view of in the physical world - but in the online world it is much easier to have a view of a persons different personalities or communities, and to interact with these at the appropriate time.

Will makes another interesting observation in a related blog when he says:-

Social Customer Relationship Management is not about managing the relationships with your Customers, it is (increasingly) about managing the knowledge-flows through the relationships of your Customers. And yes, you as a company maybe part of this eco-system of your Customers’ relationships. But please, don’t put yourself at the center of it.

I agree with this and it is why I think Social CRM is not really the right phrase - it isn't really Customer Relationship Marketing - in the traditional sense of trying to build a direct, single relationship with the customer and may be better phrased Customer Context Marketing - building numerous relationships centred around the relevant communities or personalities for a customer and being part of the conversation, not trying to own the conversation.

Whatever it's called however, it's clear that you can't simply apply existing CRM techniques in a social context. This would be similar to brands which simply "mobilised" their websites to create a mobile site - only to find it wasn't relevant to customers in the mobile context.

In the social space, context is king - it's not just the right message at the right time, but more the right message in the right context. Interestingly, a Forrester report designated 2010 as the era of Social Context based on the evolution of the Social Web with the author of the report quoted as saying:-

"The community will take charge and that's going to happen whether or not marketers or brands participate."

I think it's fair to say this also applies to the evolution of CRM - and communities and social context need to be at the heart of it. As the quote suggests, the community will take charge and if the interaction is not relevant and in context, it will be ignored.

How to train your dragon (or customers)

2010-04-04T13:56:00.001-07:00

Hiccup is a teenager who's a little different - he doesn't really fit in with the rest of his Viking village who are dragon slayers - and have been for centuries. Instead of slaying dragons, he ends up befriending one and in the process changing the perceptions of the whole village.

The dragon he befriends is the most powerful and feared Night Fury dragon, but due to an injury, he cannot fly without assistance from Hiccup. Becoming friends the two of them go on to work together - Hiccup the rider providing direction and the newly named Toothless the dragon providing power and support.

As the official blurb puts it for new film "How to train your dragon":-

Hiccups world is turned upside down when he encounters a dragon that challenges he and his fellow Vikings to see the world from an entirely different point of view.

Whether it changing from slaying dragons or changing your diet - change itself can be hard.

It is normally easier to do what you've always done. Sometimes you may think about change, dwell on it, work out the alternatives - but ultimately do nothing.

This is also the topic of a new booked called Switch: How to Change Things When Change is Hardby authors Chip and Dan Heath which discusses why change is difficult for us and techniques that help.

Unlike the film however where Hiccup is the rider of a dragon, the book describes how decision making for us is similar to a rider and an elephant, saying:-

Our emotional side is an Elephant and our rational side it's Rider. Perched atop the Elephant, the Rider holds the reins and seems to be the leader. But the Riders control is precarious because the Rider is so small relative to the Elephant. Anytime the six-ton Elephant and the Rider disagree about which direction to go, the Rider is going to lose. He's completely overmatched.

Whilst this is a great book for looking at how to manage personal change - and I highly recommend reading it - it does raise some interesting thoughts about how to make change easier for other people, providing three simple rules:-

Direct the Rider - Resistance to change is more often lack of clarity about what needs to be done

Motivate the Elephant - The Rider can't get his way by force for long - it's critical to engage peoples emotional side

Shape the Path - Normally a people problem is actually a situation problem - you may need to make changes to make change easier (think Nudge)

For example, they describe a case study in the book about a campaign to encourage healthy eating. Rather than use a standard message of "eat a healthier diet" or provide a long list of good and bad foods the campaign had a simple message - drink low fat milk.

Knowing that milk is the largest source of saturated fat in a typical Americans diet, it was felt that if they could change this to low-fat it could make a big difference.

To support this the campaign had two messages.

The first, directed to the Rider was simple and provided crystal clear direction - "Next time you're in the dairy aisle of the grocery store, reach for a jug of 1% milk instead of whole milk"

The second message was to the Elephant - looking to appeal to the emotional side by visualising the problem saying for example that a single glass of milk had the same fat as five strips of bacon.

The campaign worked in changing behaviour - resulting in a shift in market share for low fat milk from 18% before the campaign to 41% after it.

These same techniques apply in a commercial sense when looking to change consumers behaviour. For example, a credit card issuer is always looking to increase card usage - to make their card front of wallet and to increase it's usage across a customers share of wallet.

Whilst you could send a communication pointing out how using the card more will provide greater rewards - this is just too generic. The Rider - the rational side - will be contemplating various options - but not taking any action.

If instead to drive card usage you provide crystal clear direction - use your card in this category - then it suggests you are more likely to get people actually doing it.

A typical example of this would be to suggest using the card within supermarkets as for a card issuer, this represents both a large and regular transaction - something which is more likely to drive increased usage across other categories.

This can be seen in the example below from the new Amex Express Rewards card which highlights increased points earning in supermarkets:-

Amex have then combined this with simple messsages about the reward that can be obtained for the points earned - providing something to appeal to the Elephant - the emotional side.

However, this is nothing new and there are many campaigns of this nature across reward credit cards.

One thing that is missing from these types of campaigns though is the shaping of the path - in essence removing barriers which may still confuse the Rider or make them operate on autopilot.

For example, the problem with getting people to use their credit card in supermarkets may not be as simple as just asking.

There may be concerns about what people think - Does using a credit card mean I can't afford to buy food?

There may be concerns about managing personal finances - If I use my card for everyday spend, will I remember to pay it off; will I overspend?

In order to ask people to use their credit card in supermarkets, we may need to first address the reasons why they aren't, helping to alleviate concerns and Shaping the Path.

One thing is clear though, simply asking people to spend more on their card is probably never going to work in the same way that simply asking people to eat healthier rarely works.

If you want change - if you want to train your customers - then this new book suggests that you'll need to think about how you speak to the Rider, engage the Elephant and ultimately make it easier to do business with you by Shaping the Path.

Is the going good for Barclaycard Freedom?

2010-03-28T09:51:00.001-07:00

The TV advertising has launched. The programme collateral has been dispatched. The biggest new loyalty programme launch in the UK for the last few years is out of the gates.

However, what are the chances of it making it over the first few hurdles and more importantly actually crossing the finishing line. This is most definitely not a one horse race and the verdict is still out on whether Freedom may be a good bet - and that's with the punters - the card holders.

Hurdle 1 - Earning Options

Within a loyalty scheme, the ability for engaging customers in the programme is a balance between the perceived value of the reward and the effort required to achieve this.

For Freedom it ticks one of these boxes well - it gives 1% back to card holders, positioning it at the high-end of standard card loyalty programmes (with most giving more like 0.5% back). However in order to get that 1%, you have to spend at Freedom merchants, and this can be hard given the current selection of partners.

For me personally, the majority of my high, regular spend is business expenses. This means I need hotel companies, train companies and airlines signed up to Freedom to make it worthwhile. Until then my current reward credit card gets the spend - and that all important front slot in the wallet.

Hurdle 2 - Coalition vs Card Loyalty

Freedom is a little schizophrenic. It's not quite a traditional card loyalty scheme - offering rewards on all spend on the card, regardless of merchant - and not quite a coalition scheme - offering rewards on all spend with the merchant, regardless of payment card.

In reality Freedom is trying to be both a coalition and card loyalty programme - building loyalty to the retailer as a coalition scheme would and loyalty to the card at the same time.

This is a tough call for consumers as it means not only do I have to think about retailer choice, but also payment choice. Most loyalty junkies have a favourite payment card (for me it's my Tesco Clubcard Credit Card) which they use everywhere to maximise points earning, and will then have other, secondary loyalty cards such as Nectar or Boots Advantage to collect points across retailers where applicable.

By limiting earning to only Barclays merchants who have signed up, they are limiting potential ongoing usage of the card across all merchants - this may naturally make it a secondary card for many people - a position Barclaycard can't afford it to take.

Hurdle 3 - Programme Sign-posting

With Freedom being basically a coalition programme, it requires the consumer to make a choice - ideally changing their regular merchant to one who takes part in Freedom.

Getting the consumer to change retailer is all well and good if you're the Freedom merchant - but how does the customer know about you?

The issue here is that on a programme like Nectar, it's easy to remember the relatively small number of big brands taking part. Sainsburys, BP, Homebase - these are all big brands who are nationwide. Freedom on the other hand has some big brands - but none who really fit into those habit forming categories. Also, whilst it's both ingenious and laudable to provide a loyalty scheme that works across smaller, grassroots merchants, this makes it harder to get cut through to the consumer.

For Freedom to work, small merchants are going to have to shout about it from the roof-tops - almost literally.

As an example, look at how PayPoint - a provider which enables bill payment at merchants - publicise themselves. They have signs physically displayed on the outside of the merchant and clearly displayed window decals.

This may be overkill for Barclaycard Freedom, but with 30,000 merchants invited to take part, the card holder is going to need some form of sign-posting to be able to identify them on the high-street. It's too late if I have to wait until I get to the payment terminal to see the Barclaycard logo.

This I think is the crux of the problem though - and possibly the genius - the removal of reliance on big brands.

For decades now we've been sold on brands - from branded retailers to branded goods, we use easily recognisable logos to help simplify an increasingly competitive and complex commercial environment.

The Freedom programme though would seem to be trying to get us to think differently - to ignore the brands and instead focus on the service.

For example, whilst they may not have a large supermarket brand in the programme - looking at "Grocery and General Goods" retailers in the programme local to me brings up a number of small, privately owned grocery retailers such as "Meadow Farm Shop & Tea Room" in the village of Flore - not Tesco I grant you, but then they aren't trying to be, they offer something completely different.

For me this is the point - Freedom itself is actually offering something completely different.

It's not trying to be Nectar - it actually turns the traditional coalition programme on its head with no category exclusivity.

It's not trying to be Tesco Clubcard - with one retailer trying to take an ever larger share of our purchases in ever larger stores.

Instead, it is offering choice - freedom you might say - as long as that choice is paid for on a Barclaycard.

Starwood build non-customer relationships

2010-03-20T14:55:00.001-07:00

People love a mystery. Authors like Ian Rankin or Lisa Gardner are masters at it - keeping the reader guessing till the end about who did it or how.

In the business world, Apple are undoubtably leaders at the guessing game - managing to build up a huge amount of buzz and pent up interest in it's products simply by not telling anyone about them (or at least controlling exactly what is told and when). Witness the recent hype around the iPad - with speculation months ahead of time and possible names being banded around like the iSlate or iTablet.

It was interesting then to see Starwood Hotels creating a bit of a stir with it's new secret loyalty programme. In a recent article in USA Today, there was a "scoop" discussing a new loyalty initiative they are trialling which appears to be identifying and interacting with customers in a different way.

Mark Vondrasek, Starwood's senior vice president of interactive and loyalty marketing is quoted as saying:-

"We looked at factors beyond just frequency, which is the key measure in traditional hotel loyalty programs. For instance, we evaluated factors including guest's profitability, their lifetime growth potential and their ability to influence travel by others. We even targeted some travelers who were loyal not to Starwood, but to our competitors."

Details are slowly emerging - see Hotel Chatter for latest - but what interests me most here are the last two points - their ability to influence travel by others and the targeting of those not loyal to Starwood.

This is different as it's essentially looking to create a loyalty programme which attracts and retain non-customers.

The obvious issue here is that identifying these customers is notoriously difficult - by their very nature Starwood won't have any internal data for these (potential) customers.

So how are Starwood finding, contacting and attracting these highly valuable - non-customers?

Well we don't know the details of how the Starwood programme is being managed (that's the problem with secrets), but my guess is that a large part of it involves social media.

People give away a wealth of information across their online social networks - whether it's their opinion or general musings on twitter, their job (and likely business travel potential) in LinkedIn or their location in Flickr tags or FourSquare postings.

Increasingly these are being aggregated by services allowing people - and more importantly brands - to track these and pull them together into possible prospect lists. As an example, just search twitter for "Marriott" to see a list of people tweeting that they are staying there right now.

Now imagine tracking and scoring these people over time - building a picture of their activity - de-duping against the ones you know and you have some sense of the power in these random tweets.

There was an interesting article in the blog "Edge of Brooklyn" recently discussing how this opportunity is often missed by many brands.

The article was discussing how the Chicago Cubs were rewarding loyal customers - but how this reward basically just focused on season ticket holders - essentially the audience they knew about and could address. However it failed to address the wider and more difficult to track national fan base, with blog author Dana saying:-

"The Cubs are a national team. For all the season ticket holders every season, there are hundreds of thousands throughout the country who are rabid, loyal Chicago Cubs fans who will never be able to get season tickets - [and] there’s something other than cold, hard cash that many of us fans spend each and every day on the Cubs – social capital."

Going on to say:-

"We generate our love for the #Cubs one tweet at a time – and we even get non-Cubs fans to root for the Cubs sometimes! - Social capital builds more passion, excitement, community and loyalty, which turns into ticket and merchandise sales, even if the team is performing below expectations"

Like I said earlier, we don't know how Starwood are actually building this programme - but I'm betting Social Media is playing a large part.

In a traditional loyalty programme, it is not unusual for 20% of customers to represent 80% of revenue. However you can't know who these 20% are without in some way tracking the larger base. This is what a loyalty programme allows you to do - you track the behaviour of all and then focus benefits and offers increasingly on the more valuable, smaller segment of loyalists.

Social media may however change this model.

What if through a blend of data from social networks, overlaid with other third party data such as card payment data or online ad-tracking data you could begin to build a profile of your "ideal" customer - your "20 percenter".

How much marketing spend would you focus on acquiring and retaining each of these?

We're probably not there yet as the accuracy and available data still makes the view a little blurry - but expect this to become more focussed in the next few years - and if Starwood are playing in this space, expect them to be leading the pack.

Knowing your best customer before they even have a chance to know you has to be the ultimate loyalty programme.

[Image generated using twitter mosaic based on Starwood followers]

Is it the end for traditional retail (or the beginning)

2010-03-14T03:22:00.001-07:00

Ever since the first e-commerce site was launched there has been a perceived battle of online and offline retail.

Online retail with it's apparent advantages of economies of scale, the ability to focus on the niche and the low start-up costs. Offline retail with it's higher costs to serve, reduced range (compare a high street book store with Amazon) and limited catchment areas.

But offline retail has one real advantage - it's physical.

I can see, and touch what i'd like to buy. I can compare products next to each other. I can assess size and appearance. This physical connection is not required across all product categories - which is why traditional music shops have struggled - but for many types of product, seeing it in person can be a necessity.

However, the lines are blurring and its less about offline or online shopping and more about convergence (or multi-channel retailing in retail lingo) - and the mobile device in your pocket is enabling this.

In a recent article in the Wall Street Journal, Forrester's e-commerce analyst Sucharita Mulpuru asked the question

"If somebody buys from a mobile device in your store, is that a Web sale or a store sale?"

This is interesting as for many people, one of the issues of buying in a store is actually the costly sales assistant. Yes I need someone to help sort out the actual purchasing of an item, but I'm less inclined to believe they can help me to select the right product - do they have the knowledge - and that they have my best interests at heart - how are they compensated.

The great thing about the integration of online and offline through the mobile device is that I can stand in front of a product in store and access reviews and pricing information instantly. I don't need a sales assistant to tell me why it's a great product, I have access to hundreds of reviews from real people to tell me if its a great product.

One retailer who gets this is Best Buy.

In a recent video they did for the National Retail Federation's 2010 Retail Innovation & Marketing Conference, they demonstrated their view of mobile integration within offline retail.

One thing I particularly liked in this thought piece from Best Buy is the linking of the physical product to online information. This was something I discussed on this blog back in 2008 and it's great to see a retailer with this on their radar.

Another interesting retailer is Starbucks. They have recently partnered with "new kid on the block", social network FourSquare, which they describe as:-

People use foursquare to "check-in", which is a way of telling us your whereabouts. When you check-in someplace, we'll tell your friends where they can find you and recommend places to go & things to do nearby. People check-in at all kind of places - cafes, bars, restaurants, parks, homes, offices.

So basically I can let FourSquare know where I am at any time, and they will let me know if my friends are there as well, plus it will automatically update my other social networks like Twitter and Facebook with my location. However, FourSquare aren't doing this just for fun as their website goes on to say:-

We all have our local hangouts and foursquare keeps tabs on who's the most loyal of all the regulars. If you've been to a place more than anyone else, you'll become "the mayor"... until someone else comes along and steals your title. It may sound a little silly until you see the list of places that are offering freebies to our mayors - free coffees, free ice-cream, free hotel stays - it pays to be a foursquare loyalist and check-in whenever you go!

And there's the magic.

FourSquare get to know where you go and how often - and this is what Starbucks is buying into.

They have partnered with FourSquare to develop a reward programme which recognises people for frequent visits. The rewards at this time are simply a "Barista Badge" (badges are a big thing on FourSquare), but this is just the beginning. Speaking in the New York times Bits blog, Chris Bruzzo, Vice President for Brand, Content and Online at Starbucks says:-

“It’s where the intersection between digital and physical starts to get interesting. Starbucks loves that, because we’re always looking for that intersection, which we think is the evolution of social networks.”

I think this is a very interesting development - whilst it may be the evolution of social networks I think it's actually the evolution of retail.

This "intersection between digital and physical" is all about enabling and tracking customer interactions. Regular readers of this blog will know I've spoken about recognising and rewarding this interaction before - and this is what Starbucks are doing.

In some senses the interaction is more important than the transaction as the interaction is further back in the buying process - if you can get someone to interact with you more often you have a better chance of converting this into a transaction - a sale.

The forward thinking retailers are recognising this and also recognising that traditional retail loyalty solutions are in the most part reactive - rewarding a decision that has already been made.

Of course there is a hope that the loyalty programme influenced this decision, but retailers like Starbucks and Best Buy are also ensuring that their loyalty initiatives are working harder and smarter - engaging customers before the purchase - and this is the traditional space for more mass above the line marketing; another area which is seeing a convergence - this time between above the line and below the line.

To me this is the real future of retail and retail loyalty.

Not only the convergence of channels but also the convergence of marketing. Engaging, recognising and rewarding customers across channels - before they purchase - before they are even a customer.

This isn't the end of traditional retail - it looks to me like it's just moved up a gear.

[Image credit Physorg]

Pay peanuts, get monkeys. Pay too much and create them.

2010-03-06T12:43:00.000-08:00

The old adage about "pay peanuts, get monkeys" suggests that the quality of work - and in fact products / services - is directly related to the amount we pay. If we pay more for something then logic would say we are getting better materials, more expertise (who can command a higher day rate) and more time - all of which combine to provide a superior result.

But where does this end - when is more money too much money.

Well it would seem there can be a limit. In research carried out by Dan Ariely - professor of behavioural economics at Duke and author of Predictably Irrational: The Hidden Forces That Shape Our Decisions - it was found that offering more money to individuals to complete a task can actually decrease performance.

In a number of tests which were designed to replicate everyday work - requiring attention, memory, concentration and creativity - those offered a large financial incentive for completion fared consistently worse than those with medium or low incentives.

This research has been reported upon in conjunction with discussions around the benefits (or not) that large bonuses provide for bankers - suggesting that the size of the bonus may have little effect on their delivery and in fact may ultimately be detrimental. Counter arguments have put forth that these astronomical bonuses are less about performance and more about recruitment and retention of top talent.

Whatever the reason for the bonuses and their impact on actual performance, what interested me is that we see this type of effect within loyalty programmes as well - but possibly for different reasons.

It is well known and documented in the book Scoring Points: How Tesco Continues to Win Customer Loyalty that Tesco originally trialled 1% and 2% back in value and found no real difference in the loyalty effect - so opted for 1%. This suggests that at these relatively low values, consumers aren't additionally motivated. However, when they were researching Club Card deals, which effectively gives 4 times the reward value at partners, a lot of time was spent getting the wording right as consumers initially felt this was too good to be true.

This "too good to be true" effect is also visible in other programmes. In recent tests we carried out offering varying bonus point values for the same behaviours we actually saw a drop off in responses with a larger bonus point value. It would appear that customers felt the reward value was too much - maybe thinking that there was a hidden agenda and so was too good to be true.

All programmes need to be tuned to ensure the best value is being achieved, both in terms of how much value is given back and what behaviour change is exhibited. Too little and the value is simply wasted on little or no change - however too much and you'll see the same effect. This is mirrored in rewards with rewards which are too low in value - too easy to reach - risking a decrease in ongoing participation.

Whilst it may be right to say pay peanuts and get monkeys - and there is actually research to prove this - it would appear that this can equally apply if you pay too much, with the recent banking crisis seeming to back this up.

Whether it is money or points however, the same rules would appear to apply - under rewarding may simply recruit monkeys, but over rewarding could actually be helping to create them.

By focusing on the reward they're not confused.com

2010-03-03T01:43:00.000-08:00

Confused.com has had some interesting advertising over the last few years - and this despite (or possibly because of) a past trend of making their own adverts internally.

Their campaign in 2009 featured apparently real users who reviewed the site commenting on it's usability. Whilst many considered the adverts annoying, there is no denying that they tapped into the trend on user generated content - looking like they'd been made for youtube and so came across as possibly more authentic than competitors.

In the comparison site space however the show has been stolen recently by the Meerkat.

Apparently dreamt up as a way to reduce the reliance on expensive google keywords such as "compare" and "market" (rated at £12 and £5 per click respectively), it was a real coup to get people looking for "meerkat" instead (at just 5p per click). In the process however it has also created a real character which itself attracts over 700k Facebook fans and was made into a sell out toy at Harrods.

Not to be outdone, Go Compare created it's own character, the really annoying tenor - however I suspect this won't attract anywhere near the same kind of following or fan base.

So if you're a brand like Confused.com, what do you do to fight back?

Well what they have done is refocus the discussion back onto the task in hand - namely saving money by comparing products. However this is nothing knew, many comparison sites highlight the typical savings you can make.

What Confused.com have done which is clever though is to make these savings tangible. Rather than simply saying you can save £150, they have highlighted a product/purchase which you could have achieved with the saving - such as a new guitar or a pair of jeans.

The strategy works because people have less emotional attachment to cash. We see this in reward programmes all the time - cash based incentives and rewards are less motivating and under perform in comparison to tangible products.

By utilising products such as a new pair of designer jeans or a new guitar, Confused.com are hoping to get deeper emotional engagement from the audience - letting them focus on something they want (which they will change behaviour for) rather than something they save.

Carlton Hood, Confused.com's chief executive highlighted this when he said:-

"What we have decided to do is to focus on bringing customers back to the site." going on to say "[This campaign] plays on this moment of regret, a character missing out on something – we have put in an emotion that we felt was very real and put humour in."

There is a real battle going on with comparison sites. In an industry which has grown quickly, the focus will now increasingly be on attracting back previous customers or taking them from competitors.

This can be fought to some degree by shouting the loudest - spending more on above the line - however increasingly it will require more retention marketing techniques and I think Confused.com have done well to start this process.

Still not getting the logo though...

Dangerous Marketing (you should do)

2010-02-20T14:27:00.001-08:00

I remember as a child someone once telling me that you could flatten a coin under a train wheel. Being the ever curious sort, me and my friend tried it out - running down the platform to place the coins on the rail, watching as the train passed over, grabbing our newly squashed coins with glee and then running back up to get on the train.

In hindsight it probably wasn't the wisest thing to do - we could have missed the train trying to retrieve them!

However kids of today are increasingly insulated - being ferried from place to place, never just exploring and finding out how the world works, and a new book has just been released that is looking to challenge this. Entitled Fifty Dangerous Things (You Should Let Your Children Do), it apparently covers my coin flattening experience as well as other things like licking a 9V battery or throwing a stone.

I'm not planning to discuss the rights or wrongs of this, however what is interesting is the reaction to it. Many "commentators" have derided the book asking questions such as "Have they never raised children?" Yet after self-publishing the book due to initial rejections from publishers they sold 5,000 copies in the first month.

What I like about this book - and I have a copy on order - is precisely the fact that it isn't "safe" - the book itself would seem to be about taking calculated risks.

It's too easy to try and please all of the people all of the time, however most of the time this creates safe, predictable, less engaging solutions. Sometimes we need to do things which are controversial, which push the boundaries and which may ultimately offend the few but will then really engage the many.

Seth Godin made an interesting point in one of his latest blogs when he talked about a small number of customers being ungrateful, abusing your service and complaining saying "Firing the customers you can't possibly please gives you the bandwidth and resources to coddle the ones that truly deserve your attention and repay you with referrals, applause and loyalty."

Ultimately it is probably easier to not recruit certain customers than fire them later - either way sometimes taking some calculated risks rather than a safe strategy of pleasing all could allow you to focus attention - and resources - on those most likely to reciprocate.

Could Tesco be challenged by Alice?

2010-02-14T11:24:00.001-08:00

Alice? Who the [heck] is Alice? More on Alice later, however as the song suggests, what seems established - living next door to her for 24 years - can change - as she leaves in a limo.

It's interesting how on a day to day basis things never seem to change and yet when you look back over a few decades you see huge changes in the way we live that just aren't apparent in the small increments of daily life or come as a sudden and unexpected shock.

This came home when I saw a news item about some footage that had recently been found and digitised that documented life for Cornish miners from 1920 and 1960. This was footage from the film unit of Holmans of Camborne - once the biggest employer in the area with over 3000 employees at it's height.

They had been around for over 100 years at that point and looking at the footage of thousands of people spilling onto the streets after a hard days work they probably never thought things would change so much. Yet now in Camborne, in place of one of the factories is that icon of retail, a Tesco store.

The only thing we can really be sure of is that nothing will stay the same.

Companies are started by entrepreneurial people who see an opportunity to challenge the status quo - they grow, become established, dominate the industry and eventually become the status quo. The challenge is that there will always be someone else who comes to it fresh, spots a new way of doing something and ultimate changes the face of the industry.

Grocery retail is one such industry which has seen big changes as they have changed from many smaller, independent retailers where the manufacturers had the balance of power to the current situation with a small number of very large retailers who now seem to hold all the power - and the customer relationships.

The manufacturers continue to look for ways to rebalance this situation - building relationships directly with consumers through a variety of means including on-pack loyalty schemes such as the latest offering from Tropicana with Juicy Rewards, but ultimately they don't have a direct purchase relationship with the consumer like the retailer has.

This is a situation that many can't see will change any time soon - and one which the retailers are increasingly maximising.

However, for someone from the early 1900's where brands were stocked behind the counter and the retailer picked and packed the goods for you, our modern day self service supermarkets would appear alien - yet they disrupted the status quo and become dominant.

In the same way, there is a new upstart on the block that could possibly challenge this hold the retailers have - they are called Alice.com.

Alice is a site which allows you to purchase FMCG goods online - nothing new there, many supermarkets offer online shopping - but which fundamentally changes the balance of power by providing a more direct relationship between manufacturer and consumer. They describe their approach saying:-

You order from Alice just like you would a retailer, but behind the scenes we work like a marketplace, allowing participating manufacturers to sell directly to you...This direct platform eliminates the retail middleman and saves lots of costs that can be passed directly on to you. And in addition to saving you money, the Alice marketplace allows participating brands to have a direct relationship with you—to reward you, personalize things for you, and work smarter for you.

What makes this service even more interesting is guaranteed free shipping on everything and the fact that it's accessible from your iPhone - so when you actually run out of something you can simply re-order it there and then - no lists. As they say on their website "Need toilet paper? There's an app for that."

The truth is no one really wants to spend their valuable spare time walking round a supermarket looking for toothpaste and toilet roll, but while we also have to purchase food for the week ahead it makes sense to do it together. However, if the increasing number of "delivered meals" services such as Dining made easy or established player Wiltshire Farm Foods start to gain ground whereby the consumer can simply order their menu for the week and have it delivered fully prepared - no waste and no hassle - then a service like Alice.com could fill the non-food gap.

I don't know if this kind of offering will ultimately break the grip of the large retailers, but it's also unclear if these retailers can continue to expand, increasing the lines they offer and the corresponding monopoly on consumers wallets.

What I am sure of though is that there will always be someone ready to challenge the status quo and even better where this provides more choice for the consumer.

Is the Poken mightier than the pen?

2010-02-07T09:46:00.001-08:00

Social networks may have made the online world a much more connected experience – allowing us to connect with someone we know (or would like to know) or become a fan of a brand that we want to hear more from - but what about the real world.

How does someone connect with a brand in store, or connect with each other.

Okay, I know it’s a stupid question - we’ve been doing this “offline” for millennia – we talk, we exchange details. However this typically involves a pen and something the Chinese invented over 2000 years ago – some paper. If we do this a lot then the paper may be pre-printed in the form of a business card.

Meet someone you like and want to chat again, you’ll need to note down their contact details (or swap business cards). Like the retailer and want to hear more from them, you’ll need to fill in an application form.

But that could be all changing.

New technologies are allowing people to exchange details when they meet, seamlessly between devices such as a mobile phone. There is still a requirement to make that first move and start the conversation, technology hasn’t managed to help with that yet unless of course you count the opening line “Do you Poken?" as both an ice breaker and a request to connect.

You google, you text, you chat, do you poken?

The Poken is a cute little device that comes in various form factors such as a key ring and which allows you to connect with another person simply by tapping your Pokens together.

When you then plug the Poken into your PC and go online you’re able to see all the people you connected with in a timeline and crucially with all their contact details, social networks etc. that they have chosen to share.

A different route is via the mobile with one of the most popular applications being, as you would expect, on the iPhone.

Called BUMP from Bump Technologies this application allows you to exchange details by simply bumping two iPhones together.

Using some clever latitudinal thinking, the phones themselves don’t actually exchange anything and instead the solution recognises the unique properties of the bump itself from each phone, matching these up centrally on their servers and then sharing details where a match is found.

It’s not just contact details which can be exchanged but also content like photos - “bumping” them from phone to phone.

Whilst these technologies have been around for a little while and the Poken made a few headlines and blogs at the SXSW about a year ago, they’ve yet to really mature and gain mass penetration and usage.

However I think they have so much more to give.

As facebook matured from being solely about connecting people to also connecting with brands, groups and causes, these technologies could enable the same thing in the physical world.

Walk into a store and tap/bump to get immediate offers to your mobile
See an item you like… tap to get it added to your wish list
Want to join the loyalty programme, tap at POS

These solutions essentially allow you to be be you – not having to carry multiple cards or fill in multiple forms but instead, simply to tap a device to indicate your identity.

There are many arguments that these solution do nothing more than what could be achieved with Bluetooth today or NFC as it begins to roll out across mobiles.

However that’s not the point – Poken for example is essentially nothing more than a proprietary RFID solution - it’s not about the technology, it’s about a simple, branded solution which people understand and feel in control of.

I think these types of solutions which allow identity to be easily captured in the physical world, whether it’s between people, brands or products will bring the same kind of advantages that we get in the online world – allowing interactions and relationships to be tracked and measured.

For marketers the online interaction has become an important measure – in some ways more important than the transaction - with the interaction being almost a “precognition” of the transaction itself.

Can technology like BUMP or Poken enable the same thing in the physical world? It’s going to be fun finding out.

Is Barclaycard Freedom for merchants?

2010-01-30T16:11:00.001-08:00

It’s been discussed and talked about in the industry for months – whispers and rumours about how it will work and a recruitment programme no one could have failed to have missed – and finally it has launched.

Welcome to Barclaycard Freedom. A game changing credit card loyalty programme that is sure to shake up the industry.

Maybe.

On the surface this programme is different for a couple of reasons.

Firstly, it is one of the only programmes in the UK to unite all stakeholders in the card value chain – the holy trinity of cards including the merchant, the acquirer and the issuer. Utilising the Welcome Real-Time solution, this loyalty programme will execute at POS via Barclays Merchant Services, providing Barclaycard via the merchant the ability to communicate directly and in real-time with consumers.

The consumer will be able to see value earned, represented in cash during each purchase and will be given the option to utilise this cash to offset any future purchase . Essentially providing earn and burn all at POS – in real time.

This inclusion of acquiring within the loyalty scheme is a real coup – allowing Barclaycard to not only promote the scheme to consumers but also to prospective merchants – providing an acquisition and retention solution in the highly competitive acquiring market.

The second differentiator for this programme is the fact that it is engaging smaller merchants. Many card programmes include merchant partners or offers in one way or another, but these are normally large high street names and are increasingly for many programmes the same brands.

In contrast Barclaycard have apparently invited over 30,000 smaller merchants to take part and have stated that any card holder will have over 200 merchants participating within a 5 mile radius. Although not explicitly stated in the press releases, it is understood that merchants will be able to run and fund their own promotions and campaigns, providing additional earning opportunities for card holders.

In this way it is for all intents and purposes a coalition programme. For these smaller merchants this brings one of the main benefits of a shared earning model which is that the scheme can still be attractive to consumers and merchants even if no single merchant can provide enough value to be motivating on its own.

This wide reach of merchants may however also be its Achilles heel.

With so many potential merchants on board, it may not be behaviour changing enough and simply reward customers for existing purchases. There is no doubt that Barclaycard will still benefit from an increased share of wallet as customers centre transactions onto that single card, but the retailer may not actually get any additional spend.

Worse still the retailer may also see an increased cost to taking part as consumers move payments from cash/debit to more costly credit cards – and for smaller merchants these fees will be higher in comparison to the larger national brands.

There are also question marks over how well it will work from a loyalty marketing point of view.

In theory it would be possible to make one purchase and then immediately use the reward value from this on the next, allowing for very quick, but small redemptions. There is research available however which indicates that where customers can earn and burn at relatively low levels that this can severely limit propensity to purchase ongoing – or essentially remain engaged in the programme.

Barclaycard will need to be very careful about how this scheme is “geared” to ensure there are relevant controls in place which encourage members to save and hence chase reward value. Only in this way will it also change behaviour.

The other issue is around the intangibility of the reward. Tesco Clubcard – recognised as a leading loyalty programme – issues paper vouchers via DM for a reason. They could easily integrate earn and burn at POS but choose to send the reward value out quarterly as this provides the highest engagement. Customers get to see an aggregated cash value almost as money in their hand – Tesco branded money – and there is no doubt in the customer’s mind that their activity with Tesco resulted in a tangible reward.

There is a risk with the Barclaycard programme however that a cash value which is earned and redeemed solely via POS will have lower engagement and be viewed more as a product right than a product benefit. Again, this perception may lower scheme engagement and impact the ability to change behaviour for both Barclaycard and the merchants taking part.

And this is where it all gets interesting…

This whole programme essentially hangs on merchant participation. If it doesn’t ultimately work for them then it doesn’t work at all.

These concerns can be easily mitigated however through loyalty communications. This scheme will need huge awareness and I've no doubt there is an equally huge ATL budget to support this. However it is more than this, the scheme will need ongoing communications, both in store with participating merchants as well as personalised and relevant communications for card holders.

With so many merchants on board, getting cut through to the merchants which are relevant for each card holder will be one of the big challenges.

I certainly think it's an interesting proposition and it will be one to watch in 2010, both to see how many merchants get engaged in the scheme but also how well it actually works for them.

Democratisation of Journey fills me with Glee

2010-01-23T14:32:00.001-08:00

Sometimes it feels like we’ve rewound time back to the 80’s. Whether it’s the Virgin Airlines advert with Frankie Goes to Hollywood theme tune and Our Price record store (remember those) in the background, girls wearing leg warmers or the fact that Journey are now in the Top 10 chart with “Don’t Stop Believing”.

Whilst I have to admit to already owning this particular Journey track (and handful of other 80’s soft rock tracks), it does show how different the music industry has become. With services like iTunes, providing access to millions of tracks, the charts are much more democratic – reflecting what people actually want to listen to rather than what they are told they should listen to.

Of course what people listen to is still influenced by media – whether this is Mass Media like the Cadburys advert which caused the Phil Collins track “In the Air Tonight” to reach number 9 in the download chart or Social Media which managed to get Rage Against the Machine to the Christmas number 1 and displace the “sure thing” X-Factor winner. In the case of Journey their leap to the top of the chart has been influenced by the new hit E4 show Glee – which interestingly has also released a version that is running neck and neck with the original.

However, it’s not only the music industry which is benefiting from this democratisation of choice. Waitrose opened up their CSR programme to customer choice about 18 months ago – and in the process have really engaged customers.

Most corporate CSR programmes feel like little more than an attempt to stem criticism of any perceived obscene profits or sky high executive packages and customers have typically little choice, knowledge or even buy in for the nominated charities or “good causes”.

What Waitrose did instead is throw open their programme to the customers through their Community Matters scheme. Each customer is given a token at the tills which they then place into one of three bins at the exit, with each bin representing a local charity which the customers have nominated that month.

I was in Waitrose the other day and stood watching customers as they placed tokens into the bins. Two things struck me. First, almost every customer placed a token into one of the bins so this scheme has very high participation(or a very successful nudge) even after 18 months. The second was that many customers actually considered their choice before placing the token into the relevant bin – demonstrating engagement.

In one newly opened store they reported that “In the two months since opening we've had more than 200 customer nominations for charities to support [and] had so much feedback I had to order another box of suggestion slips.”

Although never explicitly stated, CSR programmes are also meant to provide a positive customer feeling which leads to ongoing loyalty – and this is exactly what Waitrose see through this scheme saying “[We’ve] been able to help local causes through [Community Matters], and in return, customers are remaining loyal to Waitrose.”

It’s also driving advocacy with one store reporting that “One school sent a text message to all parents telling them to shop with us and put their token in the school's box, as did a vicar when he mentioned us in his parish sermon.”

All of this for a token which on it’s own is next to worthless. Each store gives £1,000 to the charities each month, based on the percentage of tokens received so an individual token would be worth less than a penny in real terms – and yet customers take part, interact, engage and advocate.

I’d struggle to be able to tell you what charity my regular supermarket supports or indeed if they support any – but after shopping at Waitrose I know that for that month at least, they’ll be donating some money to a local school playground.

Unlike me, you may not favour 80’s soft rock in the charts, but at least you can try and change it if you like by downloading what you want. What Waitrose have shown is that you can provide that same level of democracy for customers – distribute over £2m in charitable donations – and reap the rewards of increased engagement at the same time.