Feast or Famine: The next move for Netflix?

Something interesting happened recently in entertainment; there was a slight shift in the balance of power.

Netflix, traditionally a channel for reaching the content of other networks  became a producer in their own right.

Their new production, "House of Cards" was a shot across the bow for the likes of HBO and more traditional networks and at the moment it seems their $100m gamble is paying off with generally positive reviews.

A Netflix spokesman is quoted as saying:-

"We’re not releasing any data, but we are happy with the reception the show has gotten in the media, on social media and from our members in reviews"

This is a big deal for Netflix and they know it.  Ted Sarandos, Chief Content Officer is quoted as saying:-

"The goal is to become HBO faster than HBO can become us."

While this is interesting for the entertainment market, what's more interesting for me is the potential impact this series will have on both customer acquisition and retention for Netflix.

Clearly, unique, exclusive content is a major acquisition tool for Netflix, helping them draw in both new and lapsed customers.  This is a tried and tested model used by the likes of BSkyB who would in many cases pay over the odds for subsequent series of shows like 24, Heros or more recently Mad Men that had previously aired on free-to-air channels, hoping to bring those hooked customers across in the process.

Indeed, customers such as respected blogger Dave Winer who had previously (and publicly) turned off his Netflix account then made an about turn and switched it back on specifically because of this new content.

So there is no question that exclusive content can be a big draw for new customers.  However with "House of Cards" Netflix is also chalking up another first.

They have launched the whole of the House of Cards series in one go.  Original programming made available like a box set from the get-go.

This is really significant as traditionally broadcasters would utilise a high profile series to draw in audiences regularly at an appointed time; keeping viewers restricted and waiting with baited breath for the next episode.  For commercial broadcasters these episodes would be timed to maximise the audience and hence the revenues from advertisers.  It would also provide the opportunity to gain from the halo effect of viewers staying tuned into the channel for longer pre/post airing.

For Netflix however, this doesn't matter;  their revenue comes from subscriptions, not advertisers.  Without this restriction they have provided a veritable feast of television, allowing subscribers to binge on the whole series in one sitting if they like.  Whilst figures aren't available from Netflix directly, it has been reported that a "significant portion of fans binged on the entire series in the first weekend".

It's worth contrasting this with another form of entertainment, that of social games.

I'm currently hooked on the popular social game "Clash of Clans" which uses all of the best gaming mechanics to keep me playing, progressing and in the flow.  The more I play the more I unlock.  If I had access to everything all at once - if I could feast on all it offered - then I'd tune out pretty quickly.  It would be fun, but there would be no challenge.  Instead, they try to balance the game play, including the strength of foes I have to battle based on my current experience and level achieved.

In discussing the winning formula of the game design, the blog Deconstructor of Fun highlights how the game supports different types of play, saying:-

"Not all of the parts of the core loop are equally important as the importance of each part is influenced by [the] player's ongoing goal in the game, which creates different style[s] [of] game play [,] from resource gathering and building, [to] heavy [and] active battling"

Creating this "flow" within social gaming that ensures players are hooked with a fun and entertaining experience takes data.  They need to constantly monitor usage of the game and adjust the mechanics as users progress or they see usage drop at certain points.

Now Netflix are not short of data but i'd argue they're not really getting the maximum value from it as game designers do.

They are well known for their detailed data analysis of their customers viewing habits in order to serve up better and more targeted content.  Currently, around 75% of Netflix customers select content to watch based on their recommendations and Netflix aim for this to be higher.  Mohammad Sabah, Netflix Senior Data Scientist is quoted as saying:-

"The ultimate goal is to show Netflix customers content they’ll view to completion and then recommend the next thing they’ll view to completion"

The problem Netflix have though is the classic situation all retailers face; the consumer has choice.

There is an increasing plethora of streaming services and so whilst recommendations are important and so is exclusive content, the real key is that consumers "value" Netflix.   The stickyness from content only lasts for as long as the content is "exclusive".  Letting customers essentially burn through that exclusive currency too quickly may in fact reduce the time period its effective for but also the extent to which customers actually value the content.

PSYBLOG recently reported on an interesting study that looked at how consumers valued chocolate based on how they consumed it.

In the study, the consumers were split into 3 groups with one told to give it up completely for 1 week, the next given a big bag and told to gorge and the final group, acting as a control, given no chocolate related instructions at all.  At the end of the study, the groups were given more chocolate and asked to rate the experience.

Those who abstained reported getting more pleasure from the chocolate than either the gorging group or the control group.  Not only that, but they also savoured it more - in essence they valued it much more because they'd been restricted.

Getting the balance between feast and famine is key to keeping customers involved and ensuring they continue to value your product/service.  

It's early days for the Netflix experiment but it will be interesting to see if they start to introduce some of these restrictions on consumption to gain additional loyalty; managing the flow of their customers.  You could easily see top rated Netflix consumers - those who watch more shows, over more hours and engage more with other viewers via social media - being given the ability to watch new exclusive content more quickly than others.  This would then provide social currency into the mix, ensuring those customers stay loyal longer and encouraging others to strive to level up.

If you want to stop your brand falling down like a House of Cards, it's worth looking at how game mechanics can strengthen those bonds.

Game mechanics are not just for games.

Blockbuster should have traded time before it ran out of it

There was an interesting film I saw recently called In Time that was based on the premise that the currency of the future wasn't money but instead was time.

In the future, having solved the problem of people dying naturally, there was a new solution needed to help "balance" the population and so people had been genetically engineered with a built in timer that kicked in when you were 25 and from then on you had to work to get more time added and if your time ran out - well, your time had run out, literally.

As with money today, there were those that were born a little more privileged - and had literally thousands of years to live - and those that didn't and would perish quite quickly.  In this fictional world, time was traded as a currency for goods and services and so wasn't something to be wasted.

What's interesting about this is that essentially, it's already happening today.

We don't have the timer genetically linked into us and people still pursue money in preference to time.  However, in an attention economy where people are being bombarded with a multitude of activities which will take up time, getting them to waste time with your brand or product rather than someone else's or something else in increasingly hard.

I was reading a short book by Dr Wu from Lithium entitled "The Science of Social" that discussed the topic "Cultivating Superfans & Influence" and highlighted this issue facing brands saying:-

One of the biggest challenges of attracting attention from fans willing to spend time interacting in brand communities, time thinking and talking about their products, and time taking action that's helpful to the brand is the fact that time... is scarce.

The answer apparently is about fostering and strengthening relationships between individuals so that you're more likely to be of relevance and more likely to get a share of that attention and the trust that it brings.

This is probably right to some degree, but I actually think it's simpler than that - it's about being useful.

I don't ask my friends for product recommendations in conversation because i trust them - it's because I don't have the time to do the research myself.  It's not even because I have "strong ties" with them as frankly, I don't care if I've just met the person in the pub - if they own a product and are speaking positively about it then I'm going to be much more likely to put it to the top of the list.

Researching products takes time.  It takes time to find the products that are available.  It takes time to understand and decipher all of their features.  It takes time to compare and evaluate them.  My time then is probably better spent asking someone who has already solved the problem what they have and if they're happy with it.

This is where I think the difference is.  Yes, trust is important.  I need to trust a brand will have the product I want.  I need to trust a brand will deliver the product I want in a timely manner.  I need to trust that they will take it back, no questions asked if it doesn't work.  I need to trust that the brand will look after my details.

But I expect that of all brands I deal with.

Brands that get my attention; brands that I will spend time with are those that recognise my time is precious and help me get the best from it.

Blockbuster failed not because it didn't stock products customers wanted - people still want to watch films.  They didn't fail because people didn't trust them - ironically their brand is still strong.  They failed because they didn't recognise my time is precious.  I don't want to go back to the store and I don't want to be on their timeline for returns.  More recently, I don't want to have to wait (and make a journey) to get my film.  Customers found alternative ways of getting the same thing in less time.

The high street is failing in some sectors because of time.  The brands on the high-street aren't trusted any less, they are simply not as convenient.  I can shop online at a time that suits me.  It's also quicker, saving me time.  Better still though, winning brands like Amazon also save time through relevant search and product recommendations, giving the whole purchase process less friction and with that, less time required.

Brands doing well on the high-street though like Costa Coffee in the UK are also about time.  They are creating opportunities to spend time in a more pleasurable, relaxed way.  Given time is a precious resource, we'd rather spend it with friends and family than doing chores like weekly shopping.

Time is a currency today and it is something that's traded.  Customers will give you their time if you treat it like the precious commodity it is and give them value for it.

If you waste a customers time with complex in-store procedures, difficult to find products, slow purchase processes, difficult returns processes, long-winded loyalty enrolment forms, overly engineered rewards processes - then customers will spend their time elsewhere; and in the process, your time may simply run out too.

Whats next for loyalty in 2013

What's my prediction for the big thing in loyalty in 2013? Two words...

User Experience

Increasingly the way we do things has changed.  Smartphones have enabled us to find "an app for that" and those apps are getting better and more easy to use with every release.

This is not just about design or how it looks - it's truly about the overall interaction.

Yahoo get this.  When recently hiring ex-Google team member Marissa Mayer, Yahoo! co-founder David Filo said

"Marissa is a well-known, visionary leader in user experience and product design and one of Silicon Valley's most exciting strategists in technology development" going on to say "[the appointment] signals a renewed focus on product innovation to drive user experience and advertising revenue for one of the world's largest consumer Internet brands"

Microsoft also get this with the recent release of their Metro interface across platforms for Windows 8 showing how user experience is now front and centre of their operating systems.

Although Apple is lauded for it's hardware design, any user of it's software knows that this design doesn't always flow through everything they do.  Indeed, Bill Flora, one of the designers on the early prototypes for the Microsoft Metro interface is quoted as saying:-

"I have found their hardware to be amazing and sophisticated, and I have found their software to be kind of old school"

Apple know this and with the recent shake-up, Jony Ive, the man behind the iMac, iPhone and IPad hardware will now also be looking after human interface design and you can bet that's going to give a real shake-up to the overall iOS user experience.

A designer working at apple is quoted as saying:-

"You can be sure that the next generation of iOS and OS X will have Jony’s industrial design aesthetic all over them"

User experience is important in all interactions, it's not just about online or digital experiences.  Take a look at the humble POS receipt below and how this has been reimagined both visually and for the enhancements it makes to the overall user experience:-

 

Created by design consultancy BERG, this is a great example of how an everyday customer interaction can be completely transformed.

Earlier in 2012, Kickstarter project Mail Pilot successfully secured their funding from over 1,600 backers for their redesign of email claiming "Email is in need of a fresh start.  A redesign from the ground up.. [Mail Pilot] intuitively works the way you've always wanted to use email"

This is the real essence of user experience design, creating interactions and user experiences based on what users and customers want to do and making that easier for them.

Within loyalty, when we talk about terms like gamification and how these are changing the face of loyalty, most commentary is about the mechanics.  However what gamification is really doing is improving the user experience.  It's making loyalty programmes more responsive, giving users feedback on what they've done, what other users like them have done and providing easy to interpret pointers about what to do next.

We increasingly rely on real-time feedback to understand when something has happened,  whether thats a button depressing when clicked or a screen moving when dragged.  If we didn't see things change in real-time with our actions and gestures we'd be unsure as to whether the application had interpreted our request and may try again.  Either way, if we didn't get feedback we'd eventually just give up.

The same is true within our marketing programmes.  Increasingly the user experience is what sets us apart from competitors.  Making things easy, engaging, responsive, fun and useful is critical.  

This is something i'd previously spoken about back in September when looking at how Pinterest was creating loyalty and longer engagement through immersive discovery and basically, a great user experience.  It's also something that we're increasingly seeing creep into B2B interactions as evidenced by CBA with their Pi payments solution.

One of the clear leaders in this area last year however has to be PayPal and their re-imagining of how customers interact with money and the development of a solution for the PayPal Digital Wallet that works the way customers think, not the way banks do. 

I think 2013 is when we'll see the real battle lines being drawn based on user experience and how this sets the leaders apart from the laggards.

Curiosity = Loyalty3

cu·ri·os·i·ty - noun
1. A strong desire to know or learn something.
2. A strange or unusual object or fact
3. An app that has hooked over 500k people

That last point is strongly linked to points 1 & 2 and also provides some interesting lessons for loyalty programme design.

In case you missed it, Curiosity is a new iOS and Android app in which people slowly destroy layers of a huge cube with the mission to reveal what's inside.  It's like a multi-player pass the parcel in which there can only be one winner.


The cube is apparently made up of 64 billion tiny blocks which users have to destroy one block at a time until a single layer is completely removed and then they begin on the next layer.

Thats it - In terms of gameplay, it could be argued that it's a little lacking.

However, if thats all you got from it - a Zen like feeling from destroying blocks and making patterns in them - then I can't imagine it would be anywhere near as popular as it is.  Instead, the game locks onto some powerful gaming mechanics employed by more complex ecosystems like Farmville to provide a rewarding and addictive experience.

These can be summarised as:-

• Social - Everyone taking part - like a shared experience.  Connect it with your Facebook account and you can see how your friends are doing.
• Reward - There is something to aim for even though no one knows what that something is.
• Gamified - There is skill involved and you can "level up" to get a perceived advantage.  Destroying more blocks earns coins and these in turn can be traded for tools to destroy even more blocks.

It's these 3 points combined that make Curiosity both an interesting take of gameplay as well as a great model for Social Loyalty.

People will download and play with the app for different reasons, either because they've heard about it and are curious (social element) or are intrigued by the possibility of the final prize (reward).

Whichever path brings them into the app, both then play a part in retaining them.

The "gamified" element though is also very important in keeping people playing - essentially keeping them loyal.  Users will very quickly tire of simply destroying blocks one at a time.  Instead, by recognising their activity and rewarding this with coins that in turn can be used to purchase tools to increase their activity, Curiosity is looking to maintain "flow" in the gameplay.  Keeping users somewhere between boredom and anxiety.

This is enhanced further, as these additional tools give users an advantage over others, something expressed within the social element by being able to compare your stats to friends.  Solo gameplay is rarely as rewarding as that played against others.

Just using these 3 simple mechanics, Curiosity shows us in a stripped back, minimalist way how to engage and harness peoples attention.  There's no fields to plough, crops to plant or farms to build - it's as basic as it gets, and yet it still works.

The lesson for us in loyalty is that it's not about how complex your programme is or how many rewards it has - it's all about the design and how this too can engage and harness the customers attention.

Many loyalty programmes today are one dimensional - simply using rewards as the mechanic to drive people forward.  Increasingly though Social Loyalty programmes look to harness the power of social currency as expressed and magnified through a gamified experience to add depth to the programme and turn into into a more rounded, 3-dimensional experience.

It's Loyalty³.

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.

Loyalty design - Treat it "lean" keep them keen

I was on a training course the other week learning about Agile Scrum which is a "lean" software development methodology that looks to develop software people actually want and need.

The traditional approach to software development (known as waterfall) requires users to provide their input up front. This is then used develop requirements that are passed to developers who write the software. The written software is then passed to testers to make sure it works.  The completed, tested software is then installed and unveiled to users - possibly 12-18 months later... who then say "that's not what I wanted".

Using Scrum changes this in a number of ways.

Firstly, it mandates that the business (as represented by the Product Owner) and developers work closely together (daily) on the development of the product.  Next, it stipulates that software is developed in chunks or sprints (no more than 4 weeks long).  This short time frame allows for a small number of important features to be developed, but ensures that if anything is going in the wrong direction it is caught early.

After the sprint is finished, there is a review which allows the team to show off what they have built so far as a releasable product to the wider business/users.  This then allows for comments and feedback so that subsequent sprints/releases can incorporate this.

Using this methodology allows us to ensure that what we build is always based on something useful and allows us to fail fast - and learn from this.  Most importantly though, it allows us to build something the users actually want and need in shorter timescales.

This approach though shouldn't just be limited to software development.

Within loyalty programme development the approach can be the same.  We speak with users initially; carrying out research studies and focus groups to understand what they want (or think they want).  Programmes are then designed, developed, implemented and launched - at which point we involve the users again, hoping they might actually participate.

The problem with this approach is the same as with waterfall software development - the potential for an incorrect perception of what consumers actually want and an inability to separate out what they say from what they do.

For example, a recent WorldPay Report entitled Perfect Passenger Payments highlighted the misalignment between what factors airlines think are important to consumers and what consumers feel are important.

Within the report, airlines stated that the #1 factor for customers was the "Overall speed of the online booking process" (96%), closely followed by the "Website functionality" (80%).

Customer however sited "Ease of finding flights" (89%), "Clear, upfront pricing" (88%) and "Confirmation/After-Sales support" (85%).  Overall, "Speed" ranked 7th and "Website Design" was down at 12th position.  Worryingly, while 85% of customers said after-sales support was important, only 18% of airlines felt this was important to customers.

This disparity between what customers want and what airlines think they want is reflected in how customers are consulted.  Within the research, less than 40% of the airlines spoken to said they consulted customers on the booking experience - and even then, only "periodically".

Sometimes we think we know what's best for our customers when really, we're simply thinking about what's best for our business.  Using "lean" methods is one way to join these two requirements together.  Building and launching a small number of features and functions, quickly and cheaply provides a way to test and learn with customers.

In a recent article on Tech Crunch called "How to create a minimum viable product", Emre Sokullu, founder and Chief Architect of GROUP.PS said:-

"Perhaps the biggest mistake I’ve made at GROU.PS at its initial phase was to add way too many features onto it. [..] The result? An unstable product which was trying to do too much and poor user experiences due to an overwhelming set of functionalities."

Whether you have an mature loyalty programme or are just starting out, using "lean" methods to develop, deploy and decide on features and functions will help your programme become innovative and forward thinking; letting you learn quickly, fail fast and keep customers keen.

Keeping your loyalty star rising

"If the stars should appear but one night every thousand years how man would marvel and stare" - Emerson

This is an interesting observation from the eminent US poet, lecturer and essayist Ralph Waldo Emerson and was written back in 1836 in his essay Nature.

It is though still as relevant an observation nearly 200 years later.

When we first see something it gets more pleasing and likeable the more we see it.  Known as the familiarity principle, it is something advertisers leverage when they constantly expose us to their advertisements across ever increasing channels.

These adverts leverage the mere-expore effect that essentially states that repeated exposure to something increases perceptual fluency which is the ease with which each subsequent stimulus can be processed.  This then follows with the branded goods we go on to purchase and is the reason we simply pickup the same brand repeatedly - perceptual fluency makes it easy -  we don't have to think about it.

However, this only works to a point. In the research paper "What's in a name? Reputation Building and Corporate Strategy", they showed that "the higher a firms visibility per unit of sales [...], the worse it's reputation. ", even when the exposure is mostly positive.

As the saying goes, familiarity really does tend to breed contempt.


This is obviously interesting (and has implications) for above the line marketing, but how does it impact below the line marketing?

• If every one is doing daily deals, does anyone really care anymore?
• If every store has a sale, are we excited anymore?
• If every day we receive another offer, do we read them anymore?
• If every activity has points attached, do we collect them anymore?

Groupon was is a great example.  It was new, engaging and different and it took customers, merchants and the market by storm.

Google offered to buy them for $6bn and recent "valuations" suggested $30bn.  But then competitors jumped in - lots - including retail behemoth Amazon.  With reports suggesting though that Amazon is only selling a handful of deals, 80% of subscribers to deal sites never buy a deal and merchants running away in droves, this would appear to be a sector who's star has already peaked.

Over exposure of both the offers and the approach has meant customers are starting to tune out.


In a similar way with loyalty, if every activity is "sprinkled" with points, there is a danger of points fatigue and ultimately ambivalence towards the points.  Using points on all activities, especially those not related to any monetary exchange can devalue the points and make them appear worthless.

Brent Houlden, leader of Deloitte's Retail Practice in Canada highlights this when he says:-

"...Point collecting is losing its lustre... Loyalty programs tend to go stale over time. If you want to continue engaging customers, you need to continuously reinvent your program"

In a recent McKinsey iConsumer survey where consumers were asked why they had posted online comments / reviews - something loyalty programmes are keen to encourage - only 6% said it was to gain points.  On the other hand, almost 40% did it because they liked it or liked helping others.

This is something a well designed loyalty programme can also foster and encourage.  In a blog entitled "Loyalty: More than Just Points" it discussed how Starwood Hotels’ emphasis on guest service interactions are the key to producing loyalty saying:-

"It is telling that Starwood, so tightly branded by its loyalty points program, places such emphasis on service interactions as the first component of guest loyalty.  And it is that passionate loyalty, Starwood’s “Loyalty Beyond Reason” that inspires guests to share their experiences, recommend properties to their friends, and rebook."

This is not to say points programmes in themselves have a problem, it's just that in a competitive market where almost every retailer, branded product or hotel chain has a loyalty programme  customers will simply become ambivalent to them.  The programmes and their mechanics have become familiar and the danger is that this ultimately leads to contempt and thus consumers tuning out.

In order to attract, engage and retain customers you need to do more to make programmes standout and continue to stand out so as to make people "marvel and stare".

What we can learn from PayPal's shunning of skeuomorphic design

Skeuomorph is an interesting word.

It's from the Greek for vessel/tool (skeuos) and shape (morphe) and is basically used to describe something which retains the design cues from an original product, even when these aren't necessary anymore. Examples would include digital music players which have the look and feel of a real-world device like a car radio or online calendars that present information in the style of a paper, month by month calendar.

In many ways, a Skeuomorph is positive as it allows us to transition from the old to the new; letting people understand how something works as it replicates the look and feel of the original. The example below shows how the iphone calculator look and feel is based heavily on the extremely popular 1977 Braun ET44 calculator, even down to the button colouring.

However, skeuomorphs can also hold our thinking back. Rather than trying to re-think a problem with newly available technology, it is sometimes easier to try and transfer the existing solution into a new medium.

Digital advertising for example simply tried to transfer the understanding and heritage of the physical world into the digital. The direct mail campaign morphed into the email campaign and the outdoor poster into the banner ad. It took a different kind of thinking from a young upstart called Google to approach it in another way back in 2000. Google did away with the visual aspects and instead focused on the relevancy, linking text based adverts to search terms. Combined with their innovation around ranking/click-thrus, this helped propel Google to the number 1 position.

Google hasn't done too well in another domain however - namely digital wallets. When people talk about digital wallets, they discuss taking your existing payment cards, loyalty cards and paper coupons and essentially digitising these into a smart phone application. Indeed, the Google Wallet even shows a representation of a credit card so you can choose how to pay.

The problem with this though is it's trying to solve a problem people don't have and doing it by simply moving what people have and do today into another medium. In reality, you are simply exchanging a leather folder for a smart phone - it's skeuomorphic design. What it's not really doing is challenging how people pay.

Of course, I'm not a payments expert, so I'll leave it to someone who is, namely Jack Stephenson, Director of Mobile, E-Commerce and Payments at JP Morgan Chase who said:-

"Consumers don't really have a mobile payment problem. Ninety-five percent of the time, paying with cash and credit cards actually works pretty well. Consumers have a mobile shopping problem. There's a difference."

While I agree with the first part of Jack's observation, I don't really agree with the latter. Consumers don't have a mobile shopping problem either, they have a money management problem - and many of them don't even realise it.

As I've discussed in a previous blog, if we're going to change how consumers pay, we should take the opportunity to change how consumer think about payments. Instead of being bounded by a skeuomorphic requirement to replicate the old, we should look to invent the new.

And that's just what PayPal have done.

Paypal are looking to reinvent our relationship with money. Not just our physical money or payment cards, but all of our liquid assests, from loyalty points to gift cards. If it can be converted into cash, PayPal will let you use it.

To support this they have separated the decision to purchase from the method of purchase. After buying through PayPal you then have 7 days to indicate how you'd like to pay for the item and this could be from a combination of:-

• Money you've saved for it such as a travel savings
• Money you have on a retailers gift card
• Money you have in loyalty points from a frequent flyer
• Money you have in your checking/current account
• Money you have access to from your credit card
• Money you don't have access to yet - so it lets you spread the cost over 3 equal payments

Any and all of these types of funds can be used to pay for the transaction. Now you can save for something and then literally pay for it from your savings.

It's worth watching the following videos from Finextra to see how really revolutionary this is.

Skeuomorphs can help us to transition people from the old to the new, but holding onto the old can also limit our ability to truly transform how we do business.

For loyalty, the collecting of points hasn't really changed fundamentally since the original paper stamps back in the 1930'. Even Google startup Punchd is simply transferring the paper punchcard to a smart phone medium.

Maybe it's time to rethink loyalty recognition for a new era. #gamification

Loyalty flows better with design

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

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

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

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

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

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

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

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

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

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

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

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

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

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".

Forget your competitors - focus on your customers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What is gamification?

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

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

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

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

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

For me though this confuses the whole topic.

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

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

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

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

Going on to say 

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

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

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

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

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

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

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

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

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

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

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

7 Principles of Loyalty

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Duke Nukem & Loyalty – Where less is more

There was an interesting article in Wired a few weeks back about why the anticipated sequel to the immensely popular Duke Nukem computer game never quite made it to the stores.

In the article it pointed out that normally videogames take two to four years to build, however the team worked on the sequel to Duke Nukem, entitled Duke Nukem Forever for 12 years straight – before winding down the operation and closing the doors.

One of the main reasons for the game never getting delivered is that as with most industries, the longer you wait the more things move on. 

The original Duke Nukem game had helped to define a new genre in computer gaming – creating a 3D first person shoot-em-up game where the character could interact with other objects – going on to sell 3.5m copies. 

Aiming for the sequel to be as unique and cutting edge as the first game, they were constantly pushing forward, only to find another new title being released that they wanted to exceed or another new gaming engine which provided more features. 

In the end this constant desire to release the most innovative game meant it never actually got released.

What’s really interesting in this whole story is that they seemed to forget that whilst game-play was important, it was the character and the storyline which people loved.  What gamers wanted was not a cutting edge game (although that’s always good), but actually another chance to play their favourite character.

This issue isn’t limited to game development however - I’ve seen the same issue within loyalty programme development – with some never getting off the ground or being severely delayed simply because people can’t agree on the features.

Whilst you need to make sure that a loyalty programme is right for you – it’s actually doing something which is more important than doing something perfect first time.

Don’t get me wrong, you need to make sure that the programme is well designed and right for your business as once it’s launched it can be very difficult to pull.  However a test and learn strategy can allow you to change a programme over time – doing more of what works well and cutting back on anything that doesn’t.

In the book All You Need is a Good Idea!: How to Create Marketing Messages that Actually Get Results, author Jay Heyman says, “Perfect is the enemy of good – if you keep prodding, tweaking and tampering with something good, trying to turn it into something perfect, you will not just miss a lot of important deadlines – it is possible you might never get there at all, in effect turning a good idea into no idea.”

Seth Godin made the same point in a blog post using his usual succinct style saying:-

Having good ideas meant also having bad ideas.  If you keep waiting for a good idea to be a great idea then you’ll never risk it being a bad idea and so do nothing.

It’s increasingly difficult to have an idea which no one has tried or can’t easily be copied.  However most people won’t be expecting you to have the most innovative and unique loyalty programme – they simply want more from your brand – more from the relationship.

Your brand itself is unique and as long as what you do fits with and builds upon your unique brand proposition then this itself will make it stand apart from competitors.  Doing nothing however is simply a missed opportunity.

As Duke Nukem would say:-

It's time to kick ass and chew bubble gum. And I'm all out of gum.

Too good to be true

A phrase i’ve heard a few times this week is “it’s too good to be true” – and I’ve not just heard it, I’ve said it.

When speaking with a potential supplier of kiosks we we’re discussing the business model. Basically, the model was defined as “you pay a monthly rental and we pay you a guaranteed monthly ad income which is more than the rental”. My first reaction was “why isn’t the UK plastered in these kiosks if they are essentially free” and secondly “it sounds too good to be true”.

Another occasion where this phrase raised it’s head was at some consumer focus groups we were doing. In the groups the proposition was presented and there was an obvious positive reaction, even a “wow” from one or two and then the dreaded phrase - “its too good to be true”.

Why is it that when presented with a fantastic offer we sometimes actually push it away. Well to answer this question it may be good to look at it from the other way – why do people fall for offers that are too good to be true – or scams. The Office of Fair Trading in the UK published a report recently looking at this.

In the report they point out a number of techniques that scammers use.

Scarcity Cues - whereby scammers make the offer seem in some way personalised to the consumer – making them feel as if they have done something special (or need to do something) to obtain it.

Induction of behavioural commitment - which uses small types of compliance to draw the consumer in - thereby causing victims to feel committed.

Visceral triggers – focusing on basic human desires and needs - using triggers that make potential victims focus on the huge prizes or benefits on offer.

Whilst I’m not suggesting we should be acting as scammers, it interesting that the report states “A successful scam involves all the standard elements of the 'marketing mix' and the building of a relationship between marketer and customer – that is, between scammer and victim.”

Unlike scammers, loyalty marketing does actually have a genuine offer and benefit – however it still needs to break through to consumers who may be wary of anything that looks like something for nothing.

When designing a loyalty proposition it’s important to balance innovation and generosity with what is perceived as realistic and appropriate. There are ways however to “soften” the programme.

Get people involved with small steps that introduce a “commitment”

Nunes and Dreze showed in their now famous loyalty marketing research on “Endowed Progress” that giving people a points bonus upfront – even where these points didn’t take them any closer to a reward in real terms – made consumers more motivated.

Essentially the consumer feels they have already committed to the programme and have invested value and so are more likely to want to complete the process. A small step that makes the “too good to be true” offer suddenly seem achievable.

It’s because of you…

What the Endowed Progress report also showed was that, at least for initial programme participation, people were more motivated when they we given a reason for any initial points bonus.

Even where this reason was “seemingly arbitrary” (i.e. “because you came to the store today"), it made them feel they had in some way earned it; that it was in a sense “because of them”.

Allow people to feel they are “gaming” the scheme

People like to feel like that are out-smarting “the system” – this illusion of control was found within Casinos when people were playing craps and it was shown that people tended to throw harder for high numbers and softer for low numbers - feeling they could in some way outsmart the randomness of the dice.

Letting people feel they have control over acheiving the rewards, whether this is reality or not can help turn it from something that is “too good to be true” into something which can be earned or acheived.

Avoid visual clues which might cause people to think something is too good to be true

Blogger Rowan Wilde discusses the issue of using an asterix when marketing a product or service saying “nothing else quite says ’serious strings attached’ like an asterisk…Instantly your offer is too good to be true”.

Obviously when an offer is presented it may have restrictions attached, either due to legislation or simply to balance supply and demand.

Consumers aren’t however fools - they understand that if the promotion seems to offer more value than the product itself can support, then a restriction like “1 per household” is “fair”. However as Rowans points out, it is better to be open and honest about these restrictions rather than trying to hide them away in the small print, going on to say:-

Loyalty only comes through trust > trust is only gained by honesty > honesty can only be built by being as open as possible. Being as open as possible means that sometimes you need to display things the way the consumer really wants them.

To ensure that your marketing programme is not dismissed out of hand as being “too good to be true” you need to consider how consumers will position it and provide perceived hurdles and positive validation to ensure they see it as accessible and deserved.

In psychology there is a term known as “confirmation bias” which is essentially the tendency to interpret new information based on preconceptions and to avoid conclusions which contradict prior understanding.

In essence, if consumers already have an understanding of what a loyalty programme is, how it operates and what the value exchange is, they will look at any new proposition through this lens. This means that if you have a significantly new approach, you need to consider how this is communicated in the context of existing programmes otherwise it is likely to be written off as too good to be true. In the words of Tolstoy:-

The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.

Do you agree? ;o)