5 Lessons to learn from Woolworths loyalty meltdown

What a difference a month makes in the world of loyalty.

Back in October, Australian grocery retailer Woolworths announced the relaunch of their loyalty program and its transformation from the points based “Everyday Rewards” scheme to a new cash back scheme called “Woolworths Rewards”.

The press latched on the the headline grabbing earn rates with the Daily Telegraph reporting that "typical members spending $108 per week will earn $10 off their shopping in just over seven weeks” and citing Woolworths research that stated that "68 per cent of customers wanted money off their shopping compared with just nine per cent who preferred a traditional points-based scheme"

The Sydney Morning Herald was reporting that “a typical shopper will save about $1.25 for every they $100 spend under the new scheme"

Then came the program launch.

Within days, customers were providing their real thoughts about the scheme and they weren't quite as rosey.  Social media was buzzing with customers reportedly saying :-

“As a family we would spend roughly $500 a week with you, the frequent flyer points would cover a couple of trips to Brisbane a year to see family and specialists.  Please don’t tell me this new system is going to benefit me because it is not true” [Kate Rogers - Twitter]

“Well done Woolies, you are about to lose yet another loyal customer…… your new “rewards” program is rubbish!!!” [Anthea Kinsman - Twitter]

Facebook user Scott Mate posted his thoughts on the scheme and clearly struck a cord as the post went viral on Facebook, attracting over 58,000 likes and over 5,000 shares.  Scott described his experience saying:-

"I've had the new upgraded "REWARDS" for now a few weeks and have earned a whopping accumulation saving of $4.80 on an amount of shopping in excess of $1000.00.... ( previous returns of 80+ dollars.).  Sadly your little orange tag sales items ( That the new card now totally depends on .) just don't cut it, cause they're now less common than hens teeth, unicorn horns and rocking horse poop" 

Not only was this post shared by other Facebook users, but it was then picked up by the media with news.com.au reporting "Woolworths Rewards card rant goes viral” and the Sydney Morning Herald saying "Don't like: Woolworths Rewards card fails the social media test”.  Scott even got interviewed on the Today program about his feelings on the new Woolies loyalty scheme.

 

 

Keen to control the fallout from this, Woolworths are now reportedly looking to re-introduce Qantas frequent flyer points as a reward option and provide more stickered product to give customers a fighting chance of actually earning some value on their shop.  

This could be a very expensive mistake for Woolworths, not only because of the lost customer engagement but also because analysts are estimating that this new scheme could cost up to $500m per year to run compared to an estimated $60m-$80m for the previous scheme.

Despite the obvious challenges this is causing for Woolworths presently, there are actually some interesting lessons to learn from this for loyalty marketers. 

1. You need to deliver on the promise - The Woolworths program launch materials were very slick and they had a great customer proposition.  You can argue as to whether cash back and discounts are as motivating as points, but compared to other schemes in market, the Woolworths proposition was clean and simple with the strap line “Money off your shopping? How refreshingly simple.”.

The issue here though was in the delivery of the scheme and how what the marketers had designed on paper wasn’t being executed in practice operationally.  Customers could only earn cash back on products with an orange sticker but these stickers were hard to find with one article saying:-

A trip to a full-format Woolworths supermarket in Sydney on Sunday found fewer than 20 products marked with orange Woolworths Rewards tickets – well below the 500 products Woolworths claims are participating in the program

Quite literally like “hens teeth, unicorn horns and rocking horse poop” - the scheme failed to deliver on the promise.

2. You need to link customer actions -  I’ve previously written about how to build a better mousetrap when it comes to loyalty - about how a loyalty program needs to tap into reinforcement schedules to create sticky, repeat behaviours.  In this respect, the Woolworths loyalty program falls at the first hurdle.  The most basic reinforcement schedule is that of continuous reinforcement which is defined as the constant delivery of reinforcement for an action; every time a specific action is performed, the subject instantly and always receives a reinforcement.

Due to the nature of the Woolies program design, not every purchase counts and in many cases, not every visit counts.  Customers don’t get that constant reinforcement and so quickly become “extinct” in the scheme.  This is basic loyalty 101 in program design, that customers need to have one action linked to another and in this respect the Woolworths scheme really doesn’t deliver.

3. Good loyalty design is about reducing friction - The point of a loyalty program is to get to know your customers and the point of getting to know your customers is to help reduce friction in the relationship - to make it easier for the customer to do business with you than with your competitors.  For the Woolworths scheme, they’ve actually managed to dial up the friction and make it harder for customers to do business with them.  

By creating a scheme relying on stickered product, Woolworths are making customers search out the deals in-store; they are making the customer work hard to get a reward.  Worse still, the orange loyalty stickers are not the only game in town - Woolworths have a number of product shelf stickers which makes the whole experience even more visually challenging.

4. Rewards need to be emotional, not transactional - Many of the comments from disgruntled Woolies customers talk about the “value” of the reward they had previously such as how the program enabled a "couple of trips to Brisbane a year to see family…”.  This link between their mundane shopping - something that has to be done - and the more emotional and aspirational aspects of visiting family in far flung corners cannot so easily be quantified.

As a recent article from pre-paid card specialist Blackhawk entitled “Want More Customer Loyalty? Let Them Savor Your Rewards”  points out, “as a general rule, cash costs more and does less to motivate consumer behavior than non-cash rewards”.

Wharton marketing professor Xavier Druze, having researched different types of loyalty rewards concludes “You would think that if people were offered money and miles, they would always take the money, but a lot of people want the miles instead. [..] Their feeling is, ‘Money is only money, and if I take money instead of miles, I’ll just use the money to pay a bill.’ There’s nothing special about paying a bill. But when they take frequent-filer miles as a reward instead of cash, they will use them to take trips, and that gives them memories. That makes the miles special."

Within a loyalty program, we’re not looking for the logical choice, we’re looking for the emotional one - the one that connects with the customer.  A reward program needs to feel like a reward and not a discount and needs to tap into the emotional and not the transactional.

5. Need to put the customer at the heart -  The Woolworths scheme is clearly personalised around Woolworths needs and not the customers.  

As there is no "always on” earn mechanic - no continuous reinforcement - the customer must find the products that Woolworths wants them to buy.  These products are personalised to Woolworths needs such as products they want to shift or where the manufacturer is funding the offer and so this means the offer has little to no resonance with the customer.  Sure Woolworths can send individualised offers to a member for specific bonus earn on products they may actually want to buy, but these offers will only work if the customer is bought into the currency in the beginning.

By not putting the customer at the heart of the core scheme, Woolworths have simply lost the customer engagement and worse still, have triggered their ire.

 

I’m quite sure Woolworths will ride out this storm and the program will evolve into something a little more engaging and a little more rewarding.  However the price Woolworths have paid for poor loyalty design could have a lasting impact on both their brand and customer engagement.

 

Enhancing digital coupon recall and usage

If asked, could you draw the Apple logo unaided?  

Can you remember all it’s simple features?  Is there a leaf or not?  Is there a bite out of it?  Which side?

Given the ubiquity of the logo on our devices and in the media, many of us would be fairly confident we could create a reasonable facsimile of the logo.

Researchers however put this to the test - or more accurately, put their participants memory to the test - and as expected, most participants were confident of their ability before starting out.  However the research showed that despite this confidence, only 1 in 85 actually got all aspects of the logo correct and less than 50% managed to correctly identify the logo when presented with a number of alternatives.

So, despite seeing it every day, we don’t really “see it” - we haven’t really committed it to memory sufficiently that we can recall its detail.  Remembering a logo is one thing, but what if we need to remember something more important.

From a marketing perspective, one of the most important things we need is for consumers to “remember to remember”.  

We’ve created the perfect conditions for the consumer to form an intent, we just now need them to carry that intent out at some future date.  We’re essentially relying on the consumers memory to prompt them at the right time; whether that’s to further research the purchase or to actually go on to buy it.

This ability to remember to remember is termed prospective memory and is basically defined as where an individual intends to perform an action at a later time.  This could be an event based prospective memory such as "give a message to a friend at the next meeting” or could be time based such as "remember to go to the dentist at 10am on Friday”.

As marketers, we rely on a consumers prospective memory for the call to action to be executed and unfortunately we're relying on something that is extremely fallible.  

Despite our reliance on this prospective memory, there has been little understanding of how it works or how it could be improved.  This is changing though and in recent years there has been a real surge in research studies around prospective memory - and this couldn’t come at a better time.

With the ever increasing transition of marketing from paper based coupons to digital, we are potentially removing an important aide to memory recall.

One of the key parts of prospective memory recall has been found to be a target cue.  Using the example of a grocery coupon, where the consumer has seen the offer and made a decision to take up the offer they would traditionally have taken the paper coupon and put it somewhere to act as a cue when at some point later they went shopping.  This may have been within their wallet or purse or next to their shopping list.  The point is, the physical coupon would have acted as a target cue to trigger the intention at the point it was required.

As coupons move digital however, it’s very easy to browse offers in an email or via an app and select which ones you intend to take up, but then the offer is gone; the email disappears or the app remains unopened. For these digital offers, we’re relying on the prospective memory of the consumer to help them remember they signed up to the offer and to then go on to purchase the product at some point in the near future.

There could still be a target cue -  the event of shopping - but even then, if they have signed up to a number of offers, how likely is it that each offer will be remembered.  At this point we’re then relying on the target cue of the product itself - when (if) they see it and that they remember it’s on offer.

We’re putting a lot of pressure on someones prospective memory - to recall they have signed up to offers and to then recall what offers they have signed up to.

So how can we counter this to ensure we more fully link the intent to take up the offer with the activity of shopping.

Well this is potentially a two step process:-

• First - We need to get the consumer to remember to check for offers so that they can be reminded of which products to look for.  
• Second - We need to get consumers to do this every time the shop - we need it to become habitual.

It makes sense to start with the second step first as this is the end state we want.  Essentially, we want the process of checking for offers to become habitual for the customer.  When an activity is habitual we don’t think about it directly, it’s just linked into a wider script we have for the parent task.

As an example, when we drive a car, we don’t have to remember to put the key into the ignition or make sure the gear is in neutral, we just do this automatically.  This task is not being held in prospective memory; we don’t have to remember it.  Getting the use of offers routine then and linked into the wider task can help it to become habitual and move it from something that needs to be specifically remembered to something that simply gets done.  Checking the offers available/opted into then allows individual product offers to provide a reminder - a target cue - which can help to prompt the consumer to find and select the product.

Before this can become an habitual activity however, we need the consumer to start doing it and remember to continue to do it. This essentially relies on prospective memory, with the consumer forming an intent to check the offers when they go shopping and to then actually carry this out.

Anything we can do to help strengthen activation of a prospective memory will be key to helping to turn the task into something that becomes habitual.

One approach that researches have showed works well is when people form implementation intentions.  This involves identifying when and where they will execute the intention and what cues will be present - basically visualising themselves carrying out the task.

The research also shows that people better remember to perform a delayed task when the target cue (the trigger) is encountered in the context of an ongoing task associated with the delayed intention than when the cue is encountered in a different context.  To put it another way, someone trying to remember to use a grocery product coupon will be more likely to recall the offer when in the supermarket - if this was the implementation intention - than when they see the product in their cupboard at home.  

The real trick here is what is termed the encoding - ensuring that the thing to remember (the offer) was specifically linked to the right target cue (being in the supermarket) and to the time (when you plan to shop).  

Encoding implementation intentions has been shown to improve prospective memory performance substantially - between 2-4x - so this works.

This linking of prospective memory intentions into a wider task can also help them to become habitual as it ties them to the bigger task such as grocery shopping which is much easier to remember due to more obvious target cues (i.e. empty cupboards!!)

Thinking about the issue with digital offers, it may well be good practice to not only allow someone to indicate their intention to take up the offers, but also to indicate when they will do it.  This could involve them flagging a likely location for the shop and a date when they may carry this out - forming an implementation intention for checking offers and linking it to a wider task of grocery shopping.

Doing this would also have the added advantage of allowing us to switch the prospective memory task from being an event based one (going shopping), for which we can’t influence the trigger cues, to a time based one which we can.  For example, knowing the intended date and time of the shop we could use an additional target cue such as adding a diary reminder to flag up at the agreed time as well as a location based notification when the customer is in the vicinity of the selected store at the appointed time.

Strong target cues which we can control also help to overcome another weakness within prospective remembering - which is that prospective memory is typically impaired when the current task is demanding.  

So if someone is busy doing something requiring a lot of memory based thinking, then it is less likely they will remember an intended action unless the target cue is highly salient.  Using the context of remembering a grocery offer, you could argue that the mere act of grocery shopping in a busy store with kids in tow is a taxing enough task on its own - trying to remember something that was on offer to you 5 days before will be less likely.  However, using time and location based notifications which are closely linked to the broader task of shopping makes it more likely that the intended task - using offers - will be remembered.

Retrieval of the intended task is also interesting as its not just triggered based on target cues - although these are shown to be very powerful.  

Interestingly, in one study by Kvavilashvili and Fisher (2007), they found that when participants were given a task of phoning the researchers back the following week, the participants typically recalled that task over the week around 8-11 times.  Many times this recall was found to be associated with trigger cues related to the task such as seeing a telephone.  However, more interestingly, around 40-50% of recollections were completely untriggered - they just popped into the participants head.

Knowing we recall an intention 8-10 times before its intended implementation could be a useful characteristic if directly catered for within a digital offers solution.

If consumers will randomly remember the need to check for offers a number times during the week, it may be possible to include functionality to reward this recall.  

For example, building in a “need” to review offers in the app - maybe to check for changes such as a better offer - could create a reason to check the offers regularly, helping to reinforce them and also ensuring that any date/time based implementation intention is still correct.

This whole area of prospective memory is still an emerging research area with differences of opinion as to exactly how we remember things and how this could be improved.  That said, given our increased reliance on the consumers memory as we remove physical target cues, combined with our ability to intelligently create new, highly relevant ones suggests this is an area we should pay more attention to as marketers.

Periscope and Meerkat lead the way on creating a new kind of shared experience

"What if you could see through the eyes of a protester in Ukraine? Or watch the sunrise from a hot-air balloon in Cappadocia? It may sound crazy, but we wanted to build the closest thing to teleportation."

Rather poetically (and much quoted), this is how new live video streaming app provider Periscope describe their service - one of two new high profile launches of live video streaming apps with the other being Meerkat.

This is not a new market, apps such as LiveStream and UStream have been around for a while.  However, with increasing 4G coverage and investment from the likes of Twitter (they recently purchased Periscope for just under $100m 2 weeks after it launched), this sector is hotting up as the next big thing.

Meerkat founder Ben Rubin describes the trend as "spontaneous togetherness” and this to me is the most interesting aspect of it.

In a media world where everything is available at the touch of a button; TV can be paused and rewound; films are available on demand (and sometimes before they're even in the cinema); the “magic” of TV has been lost.  That shared experience we used to have when a new TV show aired is increasingly becoming extinct.  With so much choice, technology and platforms, people are watching it at different times or even not watching it at all.

Indeed, if you’re in the Millennial Generation, there’s a good chance you never even tuned in.  

Something that hasn’t really made the headlines, is that in 2015 there has been a double digit decline in traditional TV viewing for millennials (18-34).  This has been happening since 2012 with a fall of around 4 percent year on year.  However at the end of 2014 this fell an amazing 10.6 percent.  Overall this has translated as almost 20% fewer young adults watching traditional TV than 4 years ago.

Alan Wurtzel, NBCUniversal’s audience research chief is quoted as saying:-

“The change in behavior is stunning. The use of streaming and smartphones just year-on-year is double-digit increases […] I’ve never seen that kind of change in behavior.”

This doesn’t mean of course that they’re not watching video content, it’s just not the content that the media industry wants them to watch.  Instead, they are reportedly watching 11.3 hours of “free” online video per week and interestingly the major ways young people are selecting online content to watch is based firstly on content that has been viewed/liked by a lot of people (59%) and secondly content that was sent by “someone I respect” (58%).  

So no surprise - peoples viewing habits are now more likely to be influenced by their personal social network.

This is where both Periscope of Meerkat have a distinct advantage.  They both tie into twitter as a means of making people aware of live broadcasts and given that tweets are heavily influenced by the people you’ve chosen to follow, these broadcasts are more likely to be relevant to the viewers.

But it goes further than this.  These are not static video feeds like you see on Youtube, instead the audience is positively encouraged to participate, to help direct the production.  

In an article on the Verge they reported that "In their early tests [of Meerkat], they found something delightful in the interactions between the broadcaster and their audience: the audience always wound up helping direct the broadcast with their comments, to the general enjoyment of everyone involved”… and this is where the “spontaneous togetherness” comes in.

There is something powerful about being in the moment; this ephemeral experience which can only happen at that time, which places you at the centre of the action, allows you to take part and which happens within your social network - this could be a truly compelling mix.

Having played with Periscope, it’s funny how much it differs from a traditional pre-recorded video stream.  Even when the vloggers have created tailored content for their audience and speak to them like a personal friend, its still not as compelling as actually being in the moment.

It’s like we’ve gone back to that shared experience, but at a hyper relevant level.

So whats the implications for loyalty marketing?  Well I’ve no doubt that marketers generally will find ways to create “brand engagement” and “brand experiences” through live videos - whether product launches, celebrity moments or just regular brand ambassadors creating content to watch and interact with.

What I think will be interesting though is if that personal connection - that in the moment experience - becomes as common place as the Facebook wall-post or the Tweet.  If that happens, people are going to have greater expectations of their interactions, whether personal or business.  Imagine what online banking looks like through live video streaming or being able to access customer service at your online retailer through video.

In fact, stop imagining it as that’s what Amazon has already done with it’s Mayday button on the Kindle Fire, launched in late 2013.

Described by CEO Jeff Bezos as “the greatest feature we’ve ever made”, they may truly have hit on something at the beginning of a new trend.  As consumers are conditioned by apps like Periscope and Meerkat to want “real” connections, you can imagine them increasingly seeking out brands that provide a similar experience.

Amazon is reportedly fielding 75% of questions from Kindle Fire customers through Mayday with questions ranging from how to beat a level on Angry Birds to singing Happy Birthday to a new Kindle Fire owner.

Loyalty is all about customer experience and it would seem that what Periscope, Meerkat (and Amazon) are showing is that a new kind of customer experience can be created.  One centred around real moments of truth in real time.

 

 

 

 

 

 

 

Loyalty - Building a better mousetrap

Ask someone how many loyalty programs they are a member of and they can probably name 3 or 4 big programs they use regularly. However, in the US, loyalty program membership is now over 23 per household and between 2008 and 2012 it grew by 10 percent per year. These are great numbers until you realise that only around 1/3 of these memberships are being actively used.

More worryingly, a study by McKinsey back in 2013 suggested that for many companies, those with loyalty programs actually underperformed vs the market with “loyalty-focused companies surveyed [growing] revenues at a weighted-average rate of 4.4 percent per year – compared to 5.5 percent for companies with lower loyalty focus.”

This doesn’t mean loyalty doesn’t work – it does and McKinsey acknowledge that. What it does mean though is that like anything, there is no quick fix; no silver bullet. A “me too” loyalty program is likely to add little long term value if it isn’t designed well and there are all too many of these in the market.

However, what is interesting is that when talking about what a good loyalty program looks like, the discussion frequently looks at program features like partnerships or reward value without really considering what actually makes a loyalty program work – and why they also fail.

If we can understand what makes someone use and continue to use a loyalty program - what’s going on in their brain - then we can truly design a program that works harder and is more rewarding.  As the famous quote says “Build a better mousetrap and the world will beat a path to your door"

A good place to start with this mousetrap is back in the month of May, 1938, in a cold Minnesota that had just experienced one of its heaviest snowfalls ever for that month with over 12 inches of snow falling in just one day. That same month, psychologist B F Skinner published his now famous book called The Behaviour of Organisms – and it’s that book, published almost 80 years ago which provides some answers as to both why loyalty programs work, and why they don’t.

Before discussing that though, it’s worth also considering something happening in the here and now.

Consider for a moment how often you check your phone for new email or to check your Facebook account. Whatever number you come up with, you’ll probably be way off the mark because half the time, we do it almost on auto-pilot. One article suggests we check our phones over 1500 times per week - thats more than once every 5 minutes during waking hours.

It’s not just the checking however, we are also at the beck and call of these devices.  

A research study by Loughborough University in the UK found that people, on average, take just 1 minute and 44 seconds to respond to a new email notification - with 70% of these alerts getting a reaction within 6 seconds and 85% within 2 minutes.

We talk about the mobile phone being the remote control of life… it could equally be said that the mobile phone is actually the remote control of us.

What this all means however is that we are essentially re-wiring our brains.  Our brains are wired to protect us from danger or to help us survive; when we see something in the corner of our eye we respond. This is known as our orientating responses and these are now constantly being triggered by the ping of a mobile or the flash of a notification meaning we’re becoming ever quicker at responding and anticipating a response.

There is more to this phenomenon however and this is where that cold May in Minnesota comes in.  

The book published by B F Skinner introduced the world to the concept of operant conditioning.  Simply put, operant conditioning describes any voluntary behaviour that is shaped by its consequences and it implies a creature (including you and I) will repeat an activity that produces positive rewards.  Underpinning this operant conditioning are a number of reinforcements which, when repeated, serve to further in-grain the behaviour.

Skinner based his research on observing animals such as rats and pigeons, which when placed into a specific environment (known as the Skinner Box), would carry out a repeated behaviour based on the rewards offered (i.e. press a lever to get food).  Using this environment, Skinner was able to vary how and when the reward was delivered in order to measure the ability to influence and maintain ongoing behaviour - called a positive reinforcer.

From this research, Skinner came up with three schedules of reinforcement, defined as continuous, interval and ratio based.

• Continuous - Defined as a constant delivery of reinforcement for an action; every time a specific action is performed, the subject instantly and always recieves a reinforcement.  With this type, the reinforced behaviour is prone to extinction and the behavior can become inconsequential (i.e., producing neither favorable nor unfavorable consequences) and so starts to occur less frequently
• Interval - Based on the time intervals between reinforcements.  These can be fixed time periods (FI) or variable (VI), with the variable being based on an average time that has passed since the last reinforcement.  Both of these are not directly linked to the persons actual behaviour and so typically produce slow, methodical responses.
• Ratio - Can be based on the behaviour of the person and be fixed or variable too.  The fixed ratio (FR) is based on a specific number of responses (e.g. Coffee Stamp Card), whereas the variable ratio (VR) is based on a particular average number of responses (e.g Slot machines - pays out 10% of the time on average, but there is no guarantee when).  

It’s these reinforcement schedules that are key to understanding why we’re so quick to react and respond to that email notification - and why some loyalty programs work and others do not.

Simplistically, where the reinforcement schedule is predictable, whether by being continuous or at set intervals, then the behaviour becomes in Skinners words “extinct” - so its passive and inconsequential and decreases or stops altogether over time.  On the other hand, where the reinforcement is on a variable ratio - where both the timing and the value can’t be predicted - then we get the highest rates of response and the the higher the ratio, the higher the response rate tends to be.

In the book The End of Absence: Reclaiming What We've Lost in a World of Constant Connection, author Michael Harris highlights this saying "Animals, including humans become obsessed with reward systems that only occasionally and randomly give up the goods.  We continue the conditioned behaviour for longer when the reward is taken away because surely the sugar lump is coming up next time."  This “variable interval reinforcement schedule” is really the critical factor in repeatable, ongoing behaviour.

This outcome can be seen in how we interact with email as discussed previously.  One behavioural psychology training course describes this effect with email saying:-

"Receiving a message serves as a reinforcer, or reward for, checking. You might check your email at 9:00 a.m. and have 5 new messages, at 11:00 a.m. and have none, and then at 3:00 p.m. and have 7. As long as you periodically continue to receive messages, your checking behavior will continue; however, this behavior can be influenced by the number of messages received. If you don't receive any messages for 5 days, you may check less often. On the contrary, if you receive several messages each time you check your email, you will probably check more often. In this case, your behavior is an effect of variable-interval schedules of reinforcement. You receive a reward (new messages) for a behavior (checking your email), and the reward is presented on a variable schedule (you can't predict when it is coming)."

This is also something that the gambling industry relies on to keep punters coming. Co-Author of the book Mind Hacks and lecturer at the University of Sheffield, Dr Tom Stafford discusses this saying:-

"Both slot machines and email follow something called a 'variable interval reinforcement schedule which has been established as the way to train in the strongest habits. This means that rather than reward an action every time it is performed, you reward it sometimes, but not in a predictable way. So with email, usually when I check it there is nothing interesting, but every so often there's something wonderful - an invite out, or maybe some juicy gossip - and I get a reward."

Another industry that uses Variable Ratio (VR) reinforcement schedules is video gaming.  In the research paper “Video game structural characterisitics - A new psychological taxonomy” it describes how powerful operant conditioning techniques can be for players saying:-

“Players respond rapidly and persistently to the reward features in video games, such as XP and points, rare items, and meta-game rewards. These features are core components of the variable reinforcement schedule, which is known to create a persistent pattern of responding to a stimulus over time that is resistant to behavioural extinction."

Video games build on this however using a number of different schedules - continuous, interval and ratio - in a combined way to create what is called a compound schedule which may superimpose two or more different and overlapping schedules to gain maximum effect. Just as a gamer is accomplishing one mission they have already started on another; in this way, using overlapping and compound schedules, game designers keep the players involved which leads to sticky and sometimes "addiction" like behaviours.

In the research study "Understanding and Assisting Excessive Players of Video Games”, authors King and Delfabbro (2009a) found that overlapping quests and objectives (i.e., concurrent schedules of reinforcement) in video games kept players playing for longer periods than games without these features.  The report also detailed how the use of VR schedules could also cause game players to carry out behaviours that are repetitive or boring, simply to chase the reward saying:- 

 “The variable-ratio reinforcement schedules in video games and participants’ need to complete goals often produced what was termed ‘grinding’ behaviour. Grinding refers to the repetition of an action or series of actions in a video game in order to obtain a reward."

Speaking about this behaviour, one player stated how he "played the same level 10 times to get the full set of armour. [It] gets frustrating but you have to do it if you want the items"

This is really interesting because it suggests that the power of the right mix of reinforcement schedules can actually mask the more mundane actions required to achieve it.

Whilst people obviously consider themselves unique and with their own individual decision making processes, the reality is that people tend to respond consistently to the same kinds of environment.  Keeping with the video game theme, it’s interesting that research has shown that it's more about the design of the game mechanics than the individual gamers characteristics that drives usage.  The research paper entitled “The role of Structural Characteristics in Problem Video Game Playing” pointed this out saying:-

"In particular, ‘structural characteristics’, defined as those features that facilitate the acquisition, development, and maintenance of playing behaviour irrespective of the individual’s psychological, physiological or socioeconomic status, have been shown to play an important role in explaining the appeal of gambling activities."

Further examining what makes video games “sticky”, the psychology book Mind at Play by Loftus and Loftus (1983) showed that the appeal of video games was a blend of variable-ratio and fixed-interval schedules which were intended by designers to be “addictive”.  They noted that key aspects of this are that players are:-

1. Often reinforced almost immediately for correct play
2. These rewards for good game play are of large [perceived] magnitude (i.e., the provision of 150 points appearing more significant than 15 points)
3. Rewarded on numerous concurrent reinforcement schedules

So, back to the question at hand - If we can understand what makes someone use and continue to use a loyalty program - like they do a video game - then we can truly design a program that works harder and is more rewarding.

Loyalty programs, in part, already rely on the principle of positive reinforcement whereby when an event or stimulus is presented (e.g. points) as a consequence of a behaviour then the behaviour goes on to increase.  It’s this behavioural psychology that underpins much of the change we see within customer loyalty.

However for the majority of loyalty programs, whether explicitly designed in or not, there is only one reinforcement schedule which is the continuous issuance of points in response to a purchase.  From the customer perspective, every time I buy I get points which is much the same as the animal in the Skinner box which gets food every time the lever is pressed.  

The problem for these loyalty programs is that we already know that this continuous reinforcement schedule is the least likely to result in long term ongoing behaviour - we’re essentially designing in program extinction from the get go.

The second issue is that as previously discussed, our brains are increasingly becoming used to managing constant distraction - honing our orientating responses.  In a world where there is always another notification to respond to, another Facebook post to view, another email to read, any loyalty program has got to be able to cut through to compete with this.  With so many things fighting for our attention, the larger the gap between the behaviour and the stimulus, the more likely our brain will not link these two activities and the more likely we won’t get the full benefit of this positive reinforcement.  

This starts to manifest itself within loyalty program behaviour - customers will typically continue to swipe their card at point of sale because this is a learned (or prompted) behaviour - but it’s done passively.  There is no stimulus driving this current behaviour and so its less likely we’re able to influence it at this point in time.  Trying to get customers to then change or uplift their actual behaviour doesn’t work because there is no linkage between the behaviour and the reward/stimulus - the behavior has become inconsequential.

To create a loyalty program that works for consumers and works for brands, we have to ensure that the ’structural characteristics’ of the program provide a number of different engagement mechanics  - reinforcement schedules - so that we create a persistent pattern of responding to a stimulus over time that is resistant to behavioural extinction

As the research shows, this behavioural design works in gambling and it works in video games - some would argue it works too well.  However there is already evidence that it works within loyalty programs.  Some programs that do work well have many of these characteristics with a good blend of compound schedules.

For example, in a classic frequent flyer program there can be a continuous reinforcement schedule around miles earned for flights, but these are overlapped with fixed ratio schedules such as collecting towards tiering and benefits like companion tickets.  Whilst these are not necessarily using the most powerful variable ratio (VR) reinforcement schedule, they still manage to engage members through compound reinforcement schedules.

This also brings into focus gamification - that new entrant into loyalty program design - and starts to explain why, when implemented well it can truly accelerate program engagement.  Whether expressed as access to time limited deals, unlocking of recognition or achievement of challenges, gamification allows the loyalty marketer to superimpose additional, overlapping reinforcement schedules including variable ratio to gain maximum impact and benefit.  This isn’t just theory either - we’ve seen examples of this whereby simply switching a recognition mechanic from a fixed ratio to a variable ratio has resulted in a 33% increase in ongoing usage.

Yet loyalty programs continue to be launched and continue to under perform.

As loyalty marketers its imperative that we understand why loyalty programs work, why consumers respond to them and how to make them work better for all.   In the words of B F Skinner “A failure is not always a mistake, it may simply be the best one can do under the circumstance.  The real mistake is to stop trying"

Digital - A Coming of Age

Within any generation there is always someone who is a link between the old order of things and the new.

We’ve just commemorated 100 years since the First World War started, and for me it feels remote, but real.  I didn’t know anyone who served, but my grandparents did who I knew, so I feel a connection.  With the Second World War, things are different.  When I was 10, I remember celebrating at school 40 years since the end of the war.  At 10 that seemed a long way past, but my grandparents served in it and could bring it to life with stories and artefacts.  For my kids though, all of this is a fading memory - stories we tell, but it may as well be like the Battle of Waterloo.

This connection between the old order and the new is explored in a book I’m currently reading called The End of Absence by Michael Harris.  In it, he discusses the time we’re in now and how anyone born after 1985 is essentially a digital native - someone who has never experienced a world without the internet; a world without always on connectivity.  For us others - those born before this time - we’re essentially digital immigrants.  Describing this group, Harris says:-

“For those of us who have lived both with and without the vast, crowded connectivity the Internet provides, these are the few days when we can still notice the difference between Before and After […] there’s a single difference that we feel most keenly; and it’s also the difference that future generations find hardest to grasp.  That is the end of absence - the loss of lack.  The day dreaming silences in our lives are filled; the burning solitudes are extinguished."

This is thought provoking stuff.  Realising that my kids (and a lot of those I now work with), just simply think differently.  They’ve never experienced a time when there was genuinely nothing there.  No kids telly on, nothing on demand, no chat, no connectedness.  When I tell my son to get off his computer, I turn around to see him on his phone.  Kick him off his phone and he’s flicked the telly on.  It takes real effort to switch everything off so he’ll actually consider walking out the door to call for friends… and then they sit around their house playing Xbox.  I tried.

So this got me thinking about the implication of this within the working environment.

For many of us, we work in companies established pre-1985 or staffed with management from before this time.  We have computers, tablets and smartphones; intranets, instant messaging and email.  We even have social networks for staff, with “friends” and wall posts and “status updates”. We’re thoroughly modern and fill every piece of time, every empty space within some activity.  Responding to a ping on the phone, an email arrived - we sit in meetings only half listening as we type on our laptops and then check our phones.  This is a state Harris references and one that writer Linda Stone referred to back in 1998 as “continuous partial attention”.

Yet despite this, we’re not as modern as we like to think.  

Many companies still have a Digital department of some kind or a Head of Digital role - as if all things digital is somehow separate to what we do.  It’s as if we’re in both the Before and the After - one part of the company in the pre-1985, pre-digital age and the other ring-fenced in the digital age.  This does some ludicrous and you can’t imagine a company such as Facebook or Google having a Head of Digital role - they are simply digital companies (although strangely they do).  The point is, the world has changed, people have changed, but the way we do business seems to still be a mismatch of old and new.

This point was brought to life in an article I was reading about airlines entitled Passengers Become Data Mines as Ryanair to Emirates Hone Offers.  In it, Ryanair CEO Michael O’Leary is quoted as saying:-

"I used to say that my ideal customer had a pulse and a credit card, but I’ve revised that view radically. […] In the next five years, with each of my 90 million customers, I’ll know when you’re traveling, where you’re traveling, and I can send you a direct offer.”

This shocked me.  

We’re in 2014, this is a relatively new airline (setup in the 1980’s) and yet it seemed a surprise to them that there may be value in the data they hold and process for 90m customers.  This is though also understandable because companies still aren’t digital natives - they still have their digital marketing and data analysis functions somehow separate to their older, more established traditional sales and marketing functions.  They’re an add on or an extension rather just being one single company.

If we go back to Marketing 101 and the 4Ps of the marketing mix we have Product, Place, Price and Promotion - this was something created in the 1960s by marketer Edmund Jerome McCarthy - a set of marketing tools based on the age but which is still taught today.  

A company like Ryanair has really focused on these 4P’s - it’s “Price” has been refined by pairing back its “Product".  By choosing carefully the airports it uses to get the best rate for a given destination even if it’s not quite the best airport in terms of distance, it has truly honed “Place”.  Promotion you could argue has been a mixed affair, but there probably isn’t a person alive in the UK who doesn’t know the airline, it’s CEO and the kind of message he had long stood for (such as removing toilets from planes).

But within this 4Ps mix, there is nothing about the customer.  It’s the old world order of making a product people want, at a price they are willing to pay - and then shouting about it loudly in the right places.  It’s all push.

Take a look at the new world however through a different lens.

Freemium models support many of the latests products/services, with apps (and some products) giving away their product in the knowledge that they can monetise customers either through targeted advertising or in-app purchases - and this is where data comes into play as a key part of the marketing mix.  Even airlines have a form of this with their ancillary services - the basic service is paired right back and then customers are encouraged to top this up with ancillary services as they need - a kind of pick and mix of products.  This is all pull.  

Speaking of this, CEO O’Leary is quoted as saying:-

"Ryanair’s data will let the carrier know how often travelers head to particular destinations, whether they travel alone or as a couple or group, if they routinely book insurance or car rental, and be able to customize its offers accordingly and target the passengers with special offers […] We know who you are [and] the clever airlines are going to make a fortune in the next 10 years”

This thing which will make a fortune is the missing piece - it’s the digital native addition to the marketing mix.  It’s the bit about the customer, about what they do and about what they want.  

It’s personalisation and it is truly the 5th “P” of the marketing mix.  I’m not the first to point this out, but it really is the difference between the Before and the After.  The increased connectivity and the computing power, scale and flexibility this has afforded, as well as the increased expectation of a customer base in “continuous partial attention” mode means that personalisation is critical to success.

As we transition from companies and people born of this pre-digital age to the next generation of digital natives, there will be change, there will be new ways of doing things.  We cannot stop it but for many of us, and for many of the companies we work for, we’ve yet to embrace it.  In the book End of Absence, Harris says of this:-

“Technology is neither good nor evil.  The most we can say about it is this: It has come. […] We can only judge, only really profit from judging, the decisions we each make in our interactions with those technologies.  How shall we live now?  How will you?"

The rise of the alternative (loyalty) currency

You can’t have failed in recent months to see the rise of alternative currencies like Bitcoin.

With SIBOS, one of the worlds premier financial services events dedicating a whole day to Bitcoin discussions and Paypal enabling Bitcoin support amongst it’s digital merchants, there is no doubt that this crypto-currency is heading mainstream.

Whilst there is a lot of focus on the fluctuating price of Bitcoin and the how the currency itself comes into existence, there really isn’t that much difference between it and a more traditional currency like Sterling.  In both cases, there is essentially a digital ledger that manages payments and deposits.  Within a traditional system, these ledgers are managed by a trusted 3rd party such as the users bank and these in turn are typically managed through some form of central bank such as the Bank of England.  The money itself is held as a digital record and we simply place trust in the centralised 3rd parties that this will be managed accurately.  With Bitcoin, this ledger is decentralised and essentially owned by all users (know as the block chain).  Trust is managed through sophisticated cryptography to ensure that changes are accurately represented and can be trusted.

As with any currency then, whether centralised or de-centralised, it really just comes down to whether the users of the currency place a value on it as a medium of exchange, a trust in it as a store of value over time and a unit of account that can be used to measure any particular transaction.

In this sense, you could argue that loyalty points are a currency.  They are a closed loop currency and you work to attain it by doing specific behaviours with the value issued directly in relation to your “effort”, be this purchase behaviour, frequency or other interactions such as social activity.  This makes it a medium of exchange which is normally measured based on the corresponding value to the issuer such as the retailer.  

The problem with this currency however is that in many cases, it's simply not that good.

It has relatively low liquidity - I can have lots of loyalty currency, points or miles from lots of programmes, but essentially they are all siloed.  I can’t move them, share them or aggregate them easily.  I can of course convert them to other assets such as rewards, gift vouchers or other loyalty program currencies, however the transaction costs for this can vary, making the exchange in many cases less attractive.

I’m also constrained by how much I can earn/attain based on other behaviours.  As these other behaviours are related to share of wallet activities like grocery shopping, it’s harder to increase my earning velocity past what I naturally need - so a change in pricing for example would not necessarily result in a significant change in demand and hence loyal behaviours recognised.  Sure I can centre my purchases with one retailer and possibly up-sell to higher value products - but there is essentially a ceiling to how much I can spend and hence earn.  Coalition programmes like Nectar help this to some degree by widening the opportunities to earn, but it’s still limited based on the amount I can actually spend.

It’s interesting however to look at a loyalty currency as an actually currency - a retailer issued, closed loop monetary supply.

As a retailer currency, why can’t I purchase currency upfront?  Why can’t I exchange the currency with friends?

Sure there are good reasons when you look at it as a reward mechanism.  

If it’s too portable, then does it lose it’s stickiness?  If I can simply give my points to someone else, am I less likely to try to build a balance?  If my points can be shared with others will this increase breakage and mean that high numbers of points will ultimately be redeemed?

The answer is likely yes to many of these questions.

However, if people can “pay” each other in loyalty points, will this increase the attractiveness of the currency (and hence the retailer)?  If customers could convert real money into a retailers closed currency upfront, how much is this “potential purchase value" worth? 1% discount? 5% discount?  If other, complementary retailers can issue the loyalty currency, does this increase the liquidity of the currency and create more customers and more purchases?

It has been reported that Starbucks now see 30% of their purchases being made with their loyalty currency, Starbucks Stars.  Of course, Starbucks could have just reduced their prices, but in doing this, the customer saving would have been in the most liquid asset - cash - and the chances of Starbucks seeing that cash being spent back with them would have been low.  However, with their loyalty currency, they’ve managed to both discount their product whilst keeping the value within their own closed loop currency.

Now at this point, that currency is no different to any other loyalty program we’ve been doing for the last 80 years, whether physical stamps or a digital record.

However, what if Starbucks allows the currency to be exchanged between people - what if they increased it’s liquidity?

Could I pay for a taxi ride with Stars?  Could I pay for a haircut with Stars?  Could the barber issue my change in Stars?

How much is a Star worth to me if I have all the coffee I need - would I trade it for less than it’s value at Starbucks to someone who values it more?

This may sound a little farfetched, but it’s happening today.  The Economist reported last year that in many markets in Africa, mobile airtime is becoming a defacto currency, with retailers issuing small amounts of change in mobile airtime rather than cash.  People are settling personal debts through the transfer of airtime and with the ability to move airtime credit globally, it’s not just a local phenomenon, it crosses borders and continents.

It’s even more interesting when you look at this through the lense of the new crypto-currencies like Bitcoin.

Rather than being “earned” based on behaviours, these crypto-currencies are typically mined - in a virtual sense.  Based on a complex algorithm which takes (ever increasing) computer power to work through, the algorithm rewards the computer user with coins every so often.  For a currency like Bitcoin, there is a finite number of coins to be found and as more are found, the remaining ones get even harder to find, taking longer and taking more processing power.  In this way, the Bitcoin market is essentially constrained, making a Bitcoin value flexible depending on what the market will pay.

Back in 2011, Stan Stalnaker, founding member of the Ven currency wrote an article entitled Bitcoin, Ven and the End of Currency built on this theme saying:-

“To be traded, [a digital currency] must be assigned a value.  And if it can be assigned a value, it can be interchanged with anything else of assigned value.  The Internet is enabling exchange of all types of value, and helps us to measure and publish these values. [..] How many Likes is a Facebook Credit worth? How many Credits make a Ven? How many Ven make a lasagna at the Olive Garden? How much do you have to Like the Olive Garden to get a lasagna? We’ll know soon."

As alternative currencies rise in popularity, we’re going to see more examples of people exchanging products, services, time, attention and share of voice for something other than the national currency.  I think loyalty currencies have a positive role to play in this new and emerging economy and it will be interesting to see how they change and are transformed to become more flexible and possibly decentralised.

 

Image credit http://williamstake.files.wordpress.com/2012/09/barter.jpg

Challenge for CPG: Focus on the basket, not the trolley

I have to admit I love Shreddies.

Little woven parcels of wholegrain goodness which, if you listen to the marketing blurb from Nestle, are lovingly hand knitted by a nana called Pearl and her friends.  They have their own Facebook page and Twitter account.  Part of British life since 1953, over 3m people in the UK seem to agree that its a tasty start to the day.

When we go shopping, I ask the kids to go grab a box of Shreddies and they quickly grab it and drop it into the trolley.

The problem is, they didn’t grab a box of Shreddies.

Instead, they grabbed a box of Harvest Morn Malted Wheaties because I’m shopping in Aldi, now just about the 6th largest grocery chain in the UK.  In fact, Alid and Lidl between them have attracted over 50% of households to shop with them - thats 13m people.  With sales for Aldi up 30 percent on the previous period and an aim to double UK stores by 2021, it’s a trend that doesn’t look like it’s set to stop any time soon.

You only need to look at Germany, the heartland of the so called hard discounters to see the effect this could have where they dominate with 44% of the market.

The reason is obvious - consumers are saving a tonne of cash!

For example, I get around 625g of Malted Wheaties for 1/3 the price of 500g of Shreddies.  The price today for 500g of Shreddies is £2.49 (49.8p/100g), for Aldi Malted Wheaties its 99p (15.8p/100g).  Overall, these types of savings have translated to pretty much a 50% cut in my household food bill.  Great for me, not so great for Tesco who used to have my loyalty and my purchases.

However, whilst we hear a lot about the woes of Tesco et al., we don’t hear too much in the press about the packaged goods brands and the impact it’s having on them.  I buy Malted Wheaties not just because they are cheap, but also because thats the only choice I have - almost everything in Aldi is own-label which means the more market share they get, the less market share the consumer brands will have.

This isn’t something that might happen in the future - it’s happening now.  

A recent report from IRi showed that the UK saw the biggest decline in grocery sales since the second world war.  Compared to the first half of 2013, there was a decline in sales of CPG products across all UK supermarkets by 1.2% in value and 3.2% in volume.  This at a time when brand promotions themselves are at an all time high.

A report by McKinsey back in 2010 entitled "Trends that will shape consumer goods industry" forewarned of this when it highlighted one of the top 5 trends to be that of “The shift to value”, with consumers looking for ways to save money and to trade down.  The report suggested that CPG brands were looking to address the issue head on with more competitive pricing through the use of scale, product sizing and finding ways to work with or displace private label products.

The problem with fighting on price alone though is that this simply erodes category value over the long-term.  

Speaking about this issue last year, P&G UK Managing Director Irwin Lee indicated that 5 years ago, brands excluding P&G sold about two-thirds of their volume at an average of 33% off - this had now risen to 80% of volume with an average deal size of over 40%.  To address this, Lee set out the P&G strategy, saying:-

“Our focus is on value creation to complement, if not offset, the over-reliance on unsustainable value give away. There is nothing proprietary in price promotions. We believe promotions win quarters, but true innovation wins decades.”

As Lee points out, consumers need more reasons to buy the product than price alone. Innovation is part of the equation, however all products can be copied as private label shows and with the emergence of the hard discounter “private label only” stores such as Aldi, this battle just got harder.  Brands are no longer fighting for premium shelf space but instead are fighting for customer head space.  

Consumers are now shopping in both hard discounters and traditional stores - buying the bulk of their weekly shop at a low price and the little extras at the one of the big 4.   Those little extras are also increasingly being done via an online trip from established e-commerce brands like Amazon or dedicated online grocers like Peapod or Ocado.  Some brands are even experimenting with their own dedicated online solutions such as P&G with its P&G e-store.

This is leading to the relationship between the brand and the consumer to become more fragmented.  No longer able to simply pay for in-store promotions and positioning to reach consumers, brands now need to look to build direct relationships with consumers.

The challenge for brands then is not how to get into the trolley - thats where the discounters win - but how to get into the basket; how to convince customers to make that extra trip just for them.  This is heart vs mind; emotion vs rational.

There are many tactics to achieve this such as advertising, digital couponing, receipt scanning or on-pack codes, but what is really needed is a co-ordinated and long-term customer relationship strategy.  Some might call this loyalty marketing - I’d call it the future of CPG marketing. 

Changing the choice context can change the game

I saw a number of presentations from various UK startups in the last few weeks and one really caught my attention.

Playmob is a startup focused on linking charitable giving to the purchase of game items/actions.  When CEO/Founder Jude Ower presented she described the positive effect that linking a charity donation to the purchase of a virtual item had.  In one example she detailed how 80% of people who purchased the virtual item had never purchased one before and of those, over 30% went on to purchase more virtual items.

I found these stats pretty amazing.

The 80% alone would be a good result - getting people who hadn’t previously purchased virtual goods to buy them.  You could argue that they weren’t really buying the goods and instead just used the opportunity to be charitable - however, with 30% going on to purchase again, this suggests a change of decision.  

The introduction of the charity element had somehow changed the decision context and caused them to purchase an item they had apparently previously ruled out.

Obviously, as marketers, influencing customer choice is something we do all the time - this is the basis of sales promotions and loyalty programmes.  What intrigued me though was the sheer number of people influenced who had never purchased virtual goods before.  It seems they simply need a little push to flip their decision.

In another charitable example, there was a study by Karlan and List called "Does Price Matter in Charitable Giving?” and they identified that match funding for charitable donations - whereby every $1 the donor gives is matched by another $1 - increases the amount given per donation (by 19%) as well as increasing the number of donations (up by 22%).  What’s really interesting here though is that the amount matched doesn’t actually impact these numbers - whether it’s 1:1 match of a 3:1 match (e.g. $3 matched to every $1 donated), the resulting uplift is the same.

This suggests that when it comes to decisions to do something, it is not just a black and white binary decision - there are lots more variables at play.  

Sure, there will be a segment who will always say yes and a segment that will always say no.  But in the middle, there is a floating segment who just need a little extra nudge to flip a no to a yes.  It also suggests that people don’t commit as much as they could - with the match funding lifting the actual amount donated it suggests that people had a little more headroom but that this only went so far.  The promise of even more match funding would not influence them to go past their personal headroom target.

The decisions people make  - such as whether to buy a virtual item or not - depends on them making a number of decisions that lead up to the final choice.  In doing this, people tend to make compromises and tradeoffs to compare the likely outcome.  Evaluating the cost vs the benefit and looking at the different options in terms of the value they add.  What’s interesting here though is that it’s possible to change the choices people make by introducing additional options, even if they don’t actually go for that option.

This seems to be what Playmob had tapped into.  The game producers already had a model for getting some players to purchase items (typical less than 3%), but they needed something to change the context to influence others.

The decisions people make however really depends on the context of the choices available.

Using the example of a circle, that same circle appears large when surrounded by small circles and small when surrounded by large ones.  In the same way, a purchase choice such as a virtual reward may appear to be unattractive in context of the value it adds to the game, but becomes more attractive when combined with another, real-world benefit such as a charitable gift.  Likewise, in charitable giving - whether to give and how much to give can be manipulated by the introduction of an additional variable or choice such as match funding or gift aid.

Placing more variables into the mix can ultimately change a persons choices in more complex ways.  A good example of this was published in the research report entitled “Choice in Context - Tradeoff Contrast and Extremeness Aversion” by Simonson and Tversky.  

It had a study which provided two groups with two different sets of choices for the purchase of a new microwave oven.  In the first group they had 2 product choices which varied by price and quality, but with the same discount.  The second group had the same choice but with one additional product added with better quality, better price but less discount.  See table below:-

 

Microwave Choice	Group 1	Group 2
Emerson (0.5cu. ft. / $109.99 / 35% off	57%	27%
Panasonic I (0.8cu. ft. / $179.99 / 35% off	43%	60%
Emerson (1.1cu. ft. / $199.99 / 10% off	n/a	13%

 

What’s intriguing here is that in the first group, the lowest quality product won out with 57% of purchases.  In the second group however, this same product only attracted 27% of purchases because a potentially better product was introduced into the mix.  Participants were forced to make choices using a different context and with different tradeoffs and so in this case, the 2nd product won out overall with 60% of purchases.

Simply by adding in another product - albeit one more expensive - the researchers were able to increase the overall sales revenues by encouraging a greater number to select the higher priced item.

This also worked in reverse.  In a similar study, they introduced a lower quality choice into the mix and demonstrated how this encouraged the participants to then increasingly select the higher value/cost option.

So choice is not a static context - just because your products and offers have influenced some customers doesn’t mean thats the best it can be.  Changing the choice context can shake things up a little and create an additional nudge for customers - whether that’s making their first purchase or increasing/uplifting their planned purchase.

This isn’t just a one-off benefit though as can be seen by the Playmob example.  Having given users a reason to purchase by changing the choice context, they then went on to continue purchasing as this initial choice had broken down the barriers to future purchases, possibly through the forming of a cognitive bias such as the commitment bias.

In the context of loyalty marketing, using the reward currency to provide additional options and to change the choice context can be an excellent way of encouraging consumer trial or repeat purchase - simply by sprinkling a small number of points on different product options.  Also, like the match-funding example, the value of the points given isn’t directly related to the change of behaviour.

Changing the choices changes the context and ultimately can allow you to change the rules of the game.

Tesco Bag-For-Life outlasts customer life time

What’s interesting about modern grocery shopping in the UK today is that the disposable plastic bag, so vilified by many, has been replaced with “lifetime” bags - thick plastic bags that last a long, long time.  

If you purchased one these bags you’d tend to be a regular customer because:-

• a) You bought enough to warrant a big bag
• b) You liked the brand enough to buy a “permanent” bag
• c) The bag is re-usable so it probably means you intended to come back

What’s interesting though is that these bags also tell another story and they tell me that Tesco has a problem.

I don’t need to read a newspaper or their annual report to see this problem.  I don’t need to run customer research to see this problem.  I simply need to shop at Aldi and look at the bags that customers are carrying.

These bags may not literally last for a customers lifetime, but they do seem to have lasted longer than the customers lifetime with the grocer that sold them.

Coming out of my local Aldi, every other customer was carrying a rival supermarket bag.  What was more interesting was that 9 out of 10 of these was for Tesco.

Now this over-indexing of Tesco is probably due more to rival supermarket proximity than anything else, but it is indicative of a wider problem - previously loyal customers are shifting their loyalty.

It’s also closer to home for me personally - I was up until recently a highly loyal Tesco customer.  I saw the value in their loyalty programme and I received significant value back every year from the programme.  I used their supermarket, their home shopping, their insurance products, their fuel and their credit card.

Yet I left them to shop at Aldi.

I’m also not the only one judging by the bags people use, and more scientifically, based on the results of the latest Kantar survey.  This shows Tesco’s market share has dropped nearly 1 percentage point in the last year (down from 29.6% to 28.7%) and is down 3 percentage points from its peak of 31.8%.  Given each percentage point is worth around £1.27bn, that’s a lot of sales value.

This isn’t due to lower sales overall - the market grew by 2.2%.  It’s also not due to customers trading down - both Sainsburys and Waitrose held onto their market share.  For me, this is more of a customer experience issue than a pricing one.

Obviously there is no denying that Aldi are significantly cheaper on many products than Tesco and it isn’t hard to see that these real savings today add up to more than loyalty rewards later.

However, that’s not the reason I continue to shop at Aldi - I actually like shopping there more than I like shopping at Tesco and the reason for this is fourfold:-

1. Store Format - At Tesco the stores are now just too big.  It’s great if I want something specific, but for a standard shop it just makes the trip take too long.  Walking down endless aisles past thousands of products I don’t want or need.  Aldi have smaller stores making the shop quick and simple.
2. Paradox of Choice - When selecting products, there is too much choice.  While this can be a good thing, when presented with 10 different types of sliced bread there is a tendency to pick something you recognise to help expedite the process.  The net result of this is that you pick brands you’ve used before or heard of and brands have a premium.  At Aldi there is limited choice, very few branded goods and typically one option for each.
3. Service - I’m not talking about customer service specifically, both brands have well trained, personable staff.  I’m talking about the way the tills work.  Aldi is specifically engineered for speed.  A whole shop is scanned at tremendous speed with packing done elsewhere at your leisure.  This means no real queues and no long waits.  Tesco checkout is just, well, slow.
4. Gamified - This is price related and is a personal aspect, but I like to compare purchases and keep the shop under a defined value.  Given the shop is typically 50% cheaper than my previous comparative Tesco shop, there is a pleasure - almost like a game - in seeing the final till receipt value.

I've given up a number of things to shift to Aldi.  I’ve given up a loyalty programme; I’ve given up home delivery; I’ve given up choice.  Ironically though, I feel like I’ve gained time (due to the quick shop), gained satisfaction (in making a smart choice) and gained money in my wallet.

The fact that I then blow that extra cash on eating out that weekend in simply a bonus - There’s no waiting for me to spend the value I’ve accrued.  I don’t need to wait for a quarterly statement, or redeem for a voucher.

So what would make me go back to Tesco?

• Better pricing/value exchange - that’s always a basic requirement.
• Better store layout - Make my basic shop quicker
• Better checkout experience - Speed up how the scanning/packing process

The number one thing though is to connect the satisfaction of shopping with the experience of shopping.  Tesco Clubcard doesn’t do that today for me - it’s not immediate enough, it’s not rich enough, it’s not connected enough.  Interestingly, Target Cartwheel which I’ve written about previously does seem to achieve many of these things.

Loyalty is still in the game and it still has a role to play - but at the moment for Tesco, it hasn’t kept pace with the market.  When your bags are lasting longer than your customers, you know there are issues to address. 

Airlines show how tablets create loyalty ESP

There’s a lot of talk within loyalty about the increasing volume of customer interactions and how these are being enabled through mobile devices, wearables and the Internet of things.

Indeed, Microsoft consider it so important that they’ve apparently setup a special task force to develop it further.  Whether it's Smart watches, fitness wristbands or intelligent eye-wear, there’s a whole host of new consumer channels, devices and ultimately data heading our way.

However the real benefit may not be in getting consumers to don these products, but getting the employees to instead.

Giving employees access to real-time information on a customer may be the thing that gives a brand the edge over it’s rivals.

As ever, the airlines are at the forefront of this revolution with many enabling access to customer information to front line staff through a variety of devices.  Delta for example recently announced that it’s equipping it’s flight attendants with tablets, highlighting the benefits by saying:-

"In addition to its functionality as an in-flight sales device and replacement for the on-board manual [it will] enable flight attendants to [..] provide information for personalized service, including customers' frequent flyer status and potential need for special services during flight."

British Airways was one of the first carriers to issue a mobile device to staff with the intention of improving customer service and interactions.  Called the Enhanced Service Platform or ESP for short, the naming of the device seems indicate their intention for staff to be empowered with what customers might perceive as an almost psychic capability. Their platform, developed in house,  is reported to allow staff to access details on key high spending customers including their previous travel arrangements, where they are seated, who they are travelling with and their loyalty status.  It can also be used to lodge customer complaints immediately.  

The service would seem to be valued by both the staff and customers with a flight attendant quoted as saying:-

“I’m ahead of myself in knowing where our corporate and high-value customers are sitting, and who needs help,” Kaur, a cabin-service director, BA’s highest rank of flight attendant, said in London following a flight from Istanbul. “They look at you and say ‘have you been on a special course?’”

It would also appear to get some great results with customer satisfaction for Gold members reportedly up 14% since the original rollout initiative.

Never happy to be a follower, Virgin Atlantic has gone one better by looking to equip it’s First Class concierge staff with wearables including the Sony SmartWatch and Google Glass to provide them with personalised information on the passenger they are interacting with.  One of the key aspects was the personal touch that the technology enabled, removing the barrier between the staff member and the customer.  Virgin reported that:-

“The trial helped reduce the number of times that a Virgin Atlantic agent had to go behind a desk to look something up for a passenger, which would break eye contact – apparently vital to ensuring a “VIP customer experience” [and] also negated the need for any radio communications between staff, as all the information needed for each passenger was available through the unit."

This is not just limited to airlines however.  

Retailers are also looking to equip staff with mobile technologies to enhance customer service.  In the UK for example, fashion retailer Monsoon has started equipping staff with an iPad that allows them access to the complete product range and stock, so they can help a customer locate an item wherever it may be.

AT&T in the US plans to go further and completely remove their traditional POS cash registers. Instead, AT&T store employees will be equipped with tablets and mobile POS systems to facilitate the purchase at the point of experience - when the customer is looking at and playing with the product.  AT&T Chief Marketing Officer David Christopher is quoted as saying:-

"It's a pretty radical departure from what we've done in the past, [..] We want people to try, play with and ultimately buy our products...If [shopping] was just transaction based, customers could do it on the web."

There does seem to be a difference however between how retailers and airlines are using tablets with staff.  

Whilst for the airline it is predominantly to improve the customer experience and to personalise the service, for retailers it seems to be to make the purchase process more streamlined and ensure they can get what the customer wants.  

For retailers however there doesn’t appear to be a desire to use previous customer purchase behaviour and preferences to actually personalise the shopping experience.  This would seem to be a missing piece of the puzzle as this is where loyalty data really comes into it’s own and would truly deliver on that retail loyalty promise of the “cornershop experience”.  A little of the BA ESP for retailers would probably go a long way.