Remarketing - Loyalty's "Groundhog Day"

On February 2nd 2013, famous groundhog Punxsutawney Phil didn't see his shadow in Pennsylvania.

This apparently meant that spring would come early this year - although i'm not sure anyone actually told spring about that as we had a long, drawn out winter - but then I guess it's asking too much of Phil to predict the weather in the UK as well.

Regardless of how accurate this phenomenon is, it was immortalised in the popular film Groundhog day whereby the main character is forced to relive the same day over and over again until he learns to become a better person.  Recently though, you'd be forgiven for thinking the same phenomenon was happening to you.  

Here's the scenario - you're busy surfing the web looking at different products/brands and then all of a sudden wherever you go you keep seeing the same brand that you visited just a little while ago.  Maybe you'd never noticed them before, but now they seem to be popping up everywhere - and days later you're still seeing them all over the web.

Wow, you think to yourself - these guys are everywhere, they must be _____ (fill in the blank accordingly with... amazing, spending a fortune, just right for me, desperate).

You could be forgiven for confusing this with with another effect you see in real-life called the Observation Selection Bias.  When you buy a new car you suddenly see your car everywhere and assume - wrongly - that the frequency has increased; that everyone is now buying that car.  This is not however the case here.

It's actually no coincidence that you now can't fail to miss the brand - they're using remarketing.

Remarketing is a process by which you see personalised advertisements across almost any website that shows ads based on your previous surfing habits.  Google describe it as:-

Remarketing is a powerful way to stay engaged with your target audience. Presenting them with highly relevant ads and offers across the Web -- and making sure your brand is top of mind when they’re ready to buy

Remarketing (or retargetting as it's also known) helps by:-

• Targetting users who visit but don't purchase (up to 97%)
• Helping with brand recall - especially as they're possibly visiting competitors
• Combining branding and direct response techniques to target users across different stages of the buying funnel

Using remarketing, companies have seen a 600% lift in response rates versus standard banner display campaigns.  This is not really surprising given these ads are now targeted at "soft" targets - customers who have already expressed an interest in the brand by visiting the website initially.  It doesn't do away with the initial acquisition marketing to drive traffic, it simply ensures you make the best use of this by having a second bite of the cherry.

At it's heart though, remarketing relies on the the familiarity principle or mere-exporsure effect.  This is the psychological phenomenon by which people tend to develop a preference for something merely because they are familiar with it - it's what advertising is based on!  By using remarketing you continue to remind people of your brand and provide compelling reasons to come back and consider you.  If you're trying to acquire new customers, this alone becomes very powerful.  Research has shown for example that remarketing using personalised ads is 6x more effective than standard banner ads.

While remarketing is now firmly established in online acquisition marketing, I think there is also huge opportunity here for retention marketing.

At it's heart, remarketing is a one-to-one messaging solution based on customer behaviours and it's this that really makes it powerful for loyalty marketing.  Consumers now actively interact with brands via their online websites, making purchases, researching products, writing reviews.  From a loyalty context, they are also checking points balances, reviewing reward options and making redemptions.

Every one of these activities can provide a trigger point for remarketing.  While the messages (displayed as ads) maybe be relatively fixed, the timing of them is highly personalised.

Recognising when someone has checked their balance, has enough to redeem but has not looked at a reward gives you an opportunity to highlight relevant rewards and pull them back.  Members looking at rewards, but not redeeming provides the opportunity to pull them back in to redeem.  However, the opportunity is wider than this.  

It's not just about the single next best action, it's about the journey.  

Using a well designed remarketing campaign, it's possible to track the behaviours of both prospects and members and to tailor the right messaging based on this to deliver the next best action as part of an overall journey.

It's a misnomer to think that 1-2-1 marketing means a single, personalised message for every customer.  Instead, it's about the right message to the right customer at the right time.  You may only have 7 key steps within the overall customer journey, but knowing which step a customer is at and which is the next right step is the key.  We do need to be careful however when myopically driving customers along a predetermined journey.

Knowing the customers journey, not your journey is more important

In a recent (2013) research study by Lambrecht and Tucker entitled "When Does Retargeting Work? Information Specificity in Online Advertising", it was shown that dynamically remarketing to customers based on their browsing habits only worked well if you understand where the customer is in their own journey.  

Based on an example with a travel provider, the study suggests that making the remarketing message highly personalised  - down to the product or product category level - can be less effective than more generic remarketing.   In the study they found that ads which feature hotels that a customer had previously browsed or were similar only prove more effective when the customer is known to be looking for something specific (narrowly construed preferences) and that this was best demonstrated by understanding their wider browsing behaviour with both review websites and/or competitor sites.

This isn't to say remarketing as a whole wasn't working, but that the message used within the remarketing, whether generic or highly personalised needed to be aligned to where the customer was within the buying process - something which may not be apparent from just the behaviours the customer has shown with that brand/site.

Given the wealth of data contained with a loyalty programme and the increasing requirement for loyalty programmes to bring together wider customer interactions, this provides a real and tangible opportunity to increase programme effectiveness.  Whether this is to directly target brand customers for repeat purchase or to more subtly drive up loyalty programme adoption and engagement, both approaches are like to provide compelling returns.

If Punxsutawney Phil comes out next year and sees your loyalty programme using remarketing as part of it's overall marketing strategy, I think he'll be predicting both a very early spring and a bountiful summer.

Do loyalty points kill the relationship?

A recent blog article on Harvard Business Review discussing the concept of the "gift economy" provided a great example that stopped me dead in my tracks.  It said:-

"To understand a gift economy, consider the example of moving into a new apartment.  When friends help you move, you express your appreciation by providing pizza and beer — really good pizza and beer. When you hire professional movers, you pay with money. Offer your friends money instead of pizza and beer, and they are likely to be offended. Offer to pay the movers in pizza and beer, and they won't unload the truck. Your friends are operating in a gift economy; the movers in a market economy."

Take a moment to think about that example and then think about some of your favourite loyalty programmes.

Would your loyalty programme be operating in the gift economy or the market economy?

In the HBR article, author Mark Bonchek goes on to point out how in the market economy the focus is on transactions.  You receive a service or product and hand over money in exchange.  Market economies are normally between strangers and the trust lies within the currency. This is reinforced by the the latin term for money which is "specie", literally meaning "payment in kind".  

Gift economies in contrast are much more focused on relationships and are typically between friends or close communities.  It's not about the value of the gift or the expectation of return, as Mark points out the purpose is "not to execute a transaction, but to express a relationship".

Loyalty programmes  normally look to operate in this space, creating an emotional connection with members and typically stating that the desire is to develop a relationship which transcends the basic transaction.  Tesco for example state on their website that the Clubcard loyalty programme is "our way of saying thank you for shopping with us"

Yet despite this, many loyalty programmes simply reward a purchase with a set number of corresponding points; it's a transaction - a payment in kind.

While this works well and the customer understands the principle, it is essentially an exchange between strangers.

Using the example listed at the start, imagine if every time you called a friend it was to ask for something and you then responded to their help with a payment in money.  It's not difficult to see that this relationship would very quickly end or turn into a supplier/customer one; and this is exactly what we do within a basic loyalty programme.

This doesn't mean however that we throw away traditional points recognition - it serves a purpose in both helping to establish the initial relationship and keeping a focus between the member and the brand on the "value" of the relationship.  We do however need to recognise its limitations in that it is a transactional relationship and like all transactions, customers will be free to make the next one with your competitor.  Loyalty points help to simplify decision making (all things being equal, I'll use the store with invested points value), create goal directed behaviour and form part of the price comparison - but they don't build relationships.

To develop a relationship in part requires the programme to operate within the gift economy.  The programme needs to be able to express the relationship and demonstrate a different kind of value, a different kind of currency.  The gift economy operates on a Social Currency and can be expressed simply as:-

• Things that help me belong
• Things that help me feel significant

If when designing a loyalty programme, we build in components which align to these requirements, the programme will start to operate in both the market and the gift economies and move from being purely transactional to being emotional.  Whether it's providing benefits, surprise and delight, badges and achievements, access to information or membership of clubs, there are many ways to augment the basic loyalty design to create a social currency that is not directly linked to monetary value.

There is nothing wrong with points and indeed these form a crucial part of recognition.  We simply need to make sure that if the aim is to create a loyalty programme and not simply an incentive programme then moving the interaction from being transactional to being emotional is important.

Pinterest taps into the active lurker

Another week, another social network explodes onto the scene. Barely 2 years old and picture collecting social network Pinterest is growing rapidly and making headlines.

Despite being a simple concept - you essentially pin or bookmark pictures onto one or more boards - it is strangely satisfying. I'm by no means an avid user but there is something slightly voyeuristic about browsing image after image to see what takes your fancy. Whether its architecture, fashion, food, travel or technology, there is something for everyone.

I also think it taps into some basic needs in this current financial climate. While there is less money to go round and less desire to be seen flaunting it, people still like beautiful things. Pinterest taps into this, letting you like it, collect it and show it. Friends can still marvel at your good taste and ability to find something unique - just without the need to actually buy it. You're also able to "own" a collection of things that form part of your wish-list, even if most of those wishes have no chance of coming true.

What's makes Pinterest really appealing though is how it engages the active lurker.

Within social marketing we're aware of the 90-9-1 principle which states that typically 1% of people actually create new content, 9% of people curate this content (adding value/re-posting) and 90% simply read/consume it. A recent blog post however from enterprise social network provider Yammer commented on how this 90% might not be quite so passive. Discussing a research study from MIT Sloan, the blog pointed out how upto 50% of these lurkers may actually be active. This may not be directly within the community in terms of posting, but instead are active in terms of how they use and pass on the information.

Within Pinterest though, they seem to use a number of techniques to lower the hurdle for engaging these lurkers directly within the community.

Firstly they have an invite only acquisition process which is something I wrote about in a previous blog. This is becoming increasingly common for these start-ups and social networks as not only does it help them control acquisition (and the associated traffic), but it also helps build up demand and create social currency. As existing members can invite friends, this invite only mechanism helps bestow value on the membership and members are then more likely to recommend it to friends and/or brag about being part of it.

The second interesting feature within Pinterest that looks to create more engagement is how they use "endowed progress". Giving people value up front in the form of a welcome bonus is nothing new within loyalty programmes, however Pinterest takes a different angle on this endowed progress. Rather than a points currency, their currency is measured in friends and so on joining, they automatically link you to people you might want to follow. You're obviously free to unlink from them at any time, but this "instant network" based on your stated interests ensures you see content immediately and don't start with an empty profile. It's a simple idea that really helps you to feel engaged and a part of something straight away - it also helps to power with the final feature, re-sharing.

Pinterest makes the process of collecting very easy, lowering the hurdle to taking part.

You don't have to be the 10% of curators/creators who go out seeking new content to pin from across the web. Instead you can simply browse what others are posting and just pin whatever takes your fancy. This is something that is really interesting and not dissimilar to the Facebook "Like" activity. The difference however with Pinterest re-sharing is the curation part of it - your likes are essentially built up into a collection which you maintain and continue to share with friends. Amazon does something similar with it's Listmania service - but you'd be hard-pressed to find it given it's buried at the bottom of the page.

Pinterest have shown however how to bring this functionality front and centre and really engage members around it. They are obviously doing something right given they are the fastest growing social media site in history and have already got a presence on almost 10% of the top 300 online retailers.

With an increased desire to both share and consume information, the opportunity here for brands is how to engage this 90% of lurkers in an active way - and Pinterest certainly provides some interesting ideas.

Halifax Bank gambles on loyalty?

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".

Facebook credits - a lesson for retail

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.

Starwood build non-customer relationships

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]

Dangerous Marketing (you should do)

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.

The Myth of Loyalty?

The above headline grabbed my attention in the latest Marketing Week (30/04/09). It was the title of a letter from Hamish Pringle, Director General of the IPA in which he stated that contrary to popular opinion, it is far more profitable to have a new customer acquisition strategy than it is to have a “loyalty” one.

This basis of this as he describes it is “There are really only two ways in which marketing might affect volume sales: more consumers might buy the brand (penetration growth), or the existing buyers might buy the brand more often (loyalty growth)”. Referring to research from the 70’s and 80’s by Professor Andrew Ehrenberg around FMCG brands that indicated that category consumption is pretty much fixed, Hamish reasons that attempts to increase consumption are futile and hence a loyalty strategy which focuses are trying to get customers to buy more is also futile.

Hamish’s comments were made in response to a previous letter (MW 23/04/09) that stated that within the current climate brands should not be spending money on acquiring new customers and instead should be investing only in existing customers.

Both of these views are poles apart but it’s not lost on me that the Director General of the Institute of Practitioners in Advertising is stressing that going after new customers - which is typically ATL - is a better strategy than loyalty – which is typically below the line; and the phrase that comes to mind is “If the only tool you have is a hammer, you tend to see every problem as a nail”.

I have to say though that I don’t actually disagree with Hamish on the point about increasing consumption being futile – but only for certain customer segments, and the beauty of a customer loyalty programme is actually knowing WHICH customer segments to target.

Whether its clothing retail, online gambling or credit card spend, every programme I’ve ever looked at has between 70-80% of revenue tracked to just 20-30% of people – and these are the ones where increasing consumption is hardest and as Hamish says, potentially futile. However, within a loyalty programme the strategy for these customers is “protect and retain” - it’s not about getting more from them, it’s all about keeping them longer.

Within a restaurant loyalty programme we operate, we have divided customers into 3 groups based on frequency of visit. The “high loyal” customers were visiting once a week or more, sometimes daily, and so increasing usage for this group would be hard. However the next segment, the “medium loyal” were visiting on average 4 times per year and so this group showed a high affinity to the brand and could be encouraged to make 1 or 2 extra visits per year. The scheme was designed around this with the reward threshold set to trigger at visit number 4 based on average purchase value, with the reward encouraging an extra visit.

Even outside of retention marketing, the now famous “Got Milk?®” campaign for the California milk marketing board managed the stem the 2-3% annual decline in milk sales – technically not increasing consumption, but certainly maintaining it. This is not unusual, I’ve seen this same behaviour within other FMCG brands, with on-pack loyalty schemes actively increasing sales or maintaining sales in the face of a category decline – and this isn’t based on subjective data, this is based on comparing actual baskets from real customers.

I’m not however trying to say that marketing spend is better on customer retention than it is on customer acquisition – this is too simplistic. You actually need to spend on both, adjusting the mix a little as required.

A sole focus on customer retention misses the point that customer lifetime value doesn’t mean the “three score and 10” and that customers will change, mature, move on – even in a highly loyal customer base, you may still lose 3-5% of customers per year and if these aren’t replaced through acquisition efforts then you’ll have an ever dwindling customer base.

Likewise, a sole focus on customer acquisition misses the point that it costs a lot of money to raise customer awareness, generate a sale, on-board customers and educate them on your products/services. Not focusing on retaining these customers just means you’ll have to spend even more money filling in the hole they left – running faster and faster simply to stand still.

You also can’t lose sight of the fact that customers are a finite resource, as pointed out in Return on Customerby Don Peppers and Martha Rogers. In highly concentrated markets, all brands will be fighting for customers and growth for one brand will typically be coming at the expense of another. In this scenario, focusing only on customer acquisition will simply mean that your existing customers will defect to your competitor who is providing a compelling acquisition offer – and is largely where we have been in the insurance and mobile industries.

In the essay by Chris Stephenson for the recent IPA Excellence Diploma he makes an interesting point saying "I believe brands should only invest in marketing communications through existing users of their brand". Arguing that providing the tools/knowledge to existing customers to advocate your brand whilst at the same time creating advertising which is seen to be targeting existing customers will creating a desire from prospects to ask and an ability for customers tell - essentially seeding word of mouth.

Whilst this is a great idea it is simply one way and combining acquisition and retenton marketing and in reality loyalty marketing is actually just this - a combination of both acquisition and retention marketing.

In order to retain customers you have to make sure you recruit the right kind to begin with.

Rather than a “holy war” between ATL and BTL line marketers, what would be more profitable for our clients all round is if we simply joined up these efforts.

We've been calling this approach “Acquisition for Retention” or “Loyalty” for short.

Air Miles is on the right track

It's certainly a sign of the times that when traditional brands are cutting back on their above the line activity it's the loyalty schemes which are bucking the trend and spending on it.

The new Air Miles TV advert is exactly the right thing for a loyalty scheme to be doing at this time when customers are looking for ways to make their money go further.

Air Miles as a brand has been around for over 20 years and although it has a loyal following, in reality it's been resting on its laurels for quite some time. Now it's back and it's recruiting!



Obviously the strap line "Make your money fly" fits in nicely with the current climate, but it's the other messages in the advert which interest me. The advert has 3 main themes which are:-

• Reassurance - Everybody is doing it / you don't need to do anything different
• Everyday Spend - Earning miles on your grocery and fuel spend (encouraging frequency usage)
• No Hidden Extras - All flight taxes/fees included (previously an issue for many collectors)

The Air Miles member base is ageing and it needs to inject some new blood and this advertisement is designed to do just that by using messages you would typically see when on-boarding or looking to recruit new members to a loyalty scheme. The focus shouldn't be on the rewards but on how you get to the rewards and re-assurance that you're making the right decision.

Focusing on rewards day 1 works well in terms of attracting interest in a scheme, but very quickly consumers want to know how to get that reward today - working out the effort it will take (and the amount they need to spend) - and then thinking that this will be unachievable. Instead, hinting at rewards but focusing on earning allows members to begin to build up a balance initially and they can then see how far they have progressed - allowing rewards to be introduced later.

The no hidden extras message is also about re-activation - anyone who has been part of Air Miles previously will have experienced the extra charges that used to be levied - this is saying "we've changed - come try us again".

This can be contrasted with the Air Miles scheme in Canada which although a younger scheme (started in 1992) it is a much more mature scheme in membership terms. In Canada 2/3 of all households are active collectors and the scheme has 97% awareness - making it one of the top 3 coalition schemes worldwide.

Due to the popularity of the scheme, people who want it are already in it and they all understand how it works. The focus for this scheme then is not reassurance and education, but is instead aspirational, focusing on the rewards and benefits the scheme brings and more importantly, reminding people to carry the card.



However, that said, I have no explanation for the Yummiest Mummy promotion by Air Miles Canada... there are obviously still some cultural differences between us but one look at the "related" videos on YouTube tells it's own story.

Christmas is a time for giving

As the saying goes it is better to give than it is to receive. At this time of year when we're buying gifts for others, thoughts also tend to turn to charitable giving and the trend in recent years has been to give charitable gifts, with more and more charities packaging up their services as items which can be bought and given.

This year though has seen a marked change. Charitable donations have been heavily hit as people start to reign in their budgets by dispensing with any non-essential expenditure. Charitable donations are reportedly down 20%, but for many charities this is much higher; both Shelter and Oxfam are said to be laying off staff and the NSPCC has said it's making 150 of its 2,500 employees redundant. This is not unexpected but it obviously comes at a bad time with more and more people requiring the services of these charities. So desperate is the situation for many charities that the UK government is even considering some form of emergency loan to help charities ride out the crisis.

Charities are essentially like any other business in that they are looking to maximise income and minimise costs, and like any other business they are probably going to have to change how they go to market in the next year or so to become more nimble and proactive. Even in the largest corporate, marketing budgets are being reviewed and people want to make sure they get the best return on investment. There has been an increased focus recently on targeted marketing, sending communications to the right people at the right time to maximise responses and minimise costs. This is not a recent innovation, many programmes have been doing it for years and it's the main theme behind 1-2-1 marketing; however it has always been easier to do mass communications – they take less planning and less thought and provide "known" results.

With tighter budgets and tougher targets though, companies are looking for their loyalty programmes to work harder, using the detailed information they contain to target the customer segments with the most potential. I've no doubt many of the larger charities also have very sophisticated CRM solutions but they too are going to have to become smarter with how they utilise them. The balance from acquisition with blanket mailings may have to shift towards more retention mailings; these retention mailings may also have to change to ensure that they are sent to maximise responses. This may mean having to gather additional information to understand when donors want to be spoken to and what kind of information they want to receive – essentially tailoring the charitable experience and making it more personal and relevant.

In one example of where a small local charity changed its approach to a more targeted campaign to existing donors they saw an ROI of over 900%. After asking donors when they wanted to be communicated to and how often the charity ended up with a loyal customer database with over 50% indicating they wanted to be communicated to just once at Christmas. This saved a significant amount of money on sending mailings that were not wanted and when they did then send mailings, these were personalised to specific donor segments and communication preferences and saw a response rate of over 35%.

All of us, whether charities, businesses or individuals are going to have to think about how to get more value for our money in the near future – increasing income may not always be possible but reducing costs certainly is.

In the short term however what charities really need is our money…

Have a great Christmas and if you feel the need and don't have a preference, try Shelter or Salvation Army to make someone else's Christmas.

T'ain't What You Do (It's the Way That You Do It)

I know I've spoken about this before but I'm intrigued by how many FMCG brands count success based simply on the number of baskets their product is in within a 52 week period. It's even more surprising when you consider that for many brands, increasing this penetration is accomplished through free product such as buy one get one free – essentially paying customers to purchase the product. I wasn't expecting however a brand to actually pay customers to buy their product but this is exactly what General Mills are doing in the US with its latest campaign, providing gift cards in denominations of $5, $10 and $25 for 1 in 20 purchases.

Now this is pure play sales promotion and although the prize is instant win cash it could easily be any kind of prize draw item. Sales promotion by its very nature is there to promote sales and the brand will know exactly what will happen – there will be a spike in purchases as new consumers are attracted to the offer, existing consumers bring forward purchases and competitor consumers switch – all for the chance of winning something. The hope – and it's normally a slim one – is that a small percentage of the customers who purchase the product because of the offer will enjoy the product and stay with the brand.

The American poet and physician Oliver Wendell Holmes once said "The main part of intellectual education is not the acquisition of facts but learning how to make facts live" – essentially not acquiring something simply for the sake of it without due consideration as to how it can be "brought to life". This is however what many marketers do today with their acquisition campaigns – looking to acquire as many sales as possible without thinking about how the customers behind these can then be retained.

As a loyalty marketer it's easy to point the finger and say you'd be better off spending the money on your existing customers and retaining them – going on to then spout some facts and figures about how much cheaper it is to retain a customer than to acquire one. However, a dogged focus on just retention is almost as dangerous as a single focus on acquisition. All customers will churn at some point – whether this is because of the tactics of another brand, a maturing/changing of tastes or just because the reaper has "come a knockin" – you can't keep a customer forever.

An alternative approach though is what we term "Acquisition for Retention" – this is a focus on acquiring customers which you are looking to retain. This doesn't change the techniques used to acquire customers - sales promotion is still an important tool in supporting this – but what it does is ensure that the type of customers you acquire are the ones which are likely to want to continue buying your brand.

For example, if you have a large promotion with a prize such as "win a holiday to the Caribbean", the type of customer you will attract is someone who wants to go to the Caribbean. If the offer is rich enough and compelling enough they may not actually want your product at all – just the chance to win the prize. The General Mills promotion will fit into this type of offer – customers attracted to it will simply like the idea of winning cash.

In order to create promotions that attract the right kind of customers you need to keep in mind three golden rules:-

• Desirability – Understand your customers and what motivates them – select rewards which resonate well with your core customer segments and are a little less ordinary
  
• Achievability – Ensure rewards are achievable for different customer segments – whether this is an on-pack collection programme or a sales promotion prize draw, customers will tune out quickly if they feel the effort doesn't justify the reward
  
• Brandability – Ensure any rewards reflect and deliver upon the brand promise – the rewards are an extension of your brand so choose carefully who and what you want to be associated with
  

Walkers Crisps in the UK ran a campaign recently called "Brit Trips" that fits these rules perfectly. The campaign allowed consumers to collect on-packs codes from promotional packs and to enter these within a website to build up a points balance. These points could then be exchanged for a range of UK based activities including ½ price entry to attractions like Sea Life or theme parks as well as hotels and holiday parks. The campaign aligned well to the three golden rules with:-

• Desirability - The promotion worked well with its core customer base of families – providing family orientated rewards

• Achievability- The promotion fitted the economic climate well – allowing families to save money during school holidays with just 2-3 purchases providing a reward

• Brandability - Walkers has picked up on the recent trends for locally sourced food and has played to the fact that it uses 100% British sourced potatoes. The "Brit Trips" campaign helped to re-enforce this brand positioning by focusing on rewards which are local and British - helping to drive this point home with its consumers.

The success of this campaign can be easily seen from its online usage - visitors to the Walker Crisps brand sites peaked at 575,000 in April 2008 (source: Nielsen NetRatings April 2008) and year on year grew from 17,000 in June 2007 to 444,000 in June 2008 – an increase of 2,575%! Although Walkers spent a lot on media to promote the campaign, reportedly over £5m, what really worked well was a promotion that was targeted to their core audience with a selection of rewards that resonated well.

So that's the acquisition part of "Acquisition for Retention" sorted, what about the retention part?

Stay tuned for a subsequent post when I'll discuss what to do with the customers once you have them…

(Post title: "T'ain't What You Do (It's the Way That You Do It)" is a song written by jazz musicians Melvin "Sy" Oliver and James "Trummy" Young. It was first recorded in 1939 by both Jimmie Lunceford and Ella Fitzgerald)