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

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

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

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

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

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

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

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

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

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

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

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

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

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

(images copyright Disney)

The problem with foursquare...

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

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

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

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

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

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

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

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

This isn't just limited to loyalty.

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

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

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

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

Behaviour isn't simply changed, it is maintained.

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

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

Gamification expands the loyalty toolbox

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

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

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

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

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

Interaction loyalty vs 1 0

View more presentations from Mark Sage

Soap.com washes away points based loyalty

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

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

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

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

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

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

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

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

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

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

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

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

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

After 25 years - Amex games card loyalty

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• Things that help me belong
• Things that make me significant

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

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

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

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

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

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]

Without losers where would the winners be?

We certainly do live in interesting times – interest rates at the lowest since 1951 and if they go down much more then the lowest rate since the formation of the Bank of England. As ever there are winners and losers – mainly borrowers and savers respectively.

What's also been interesting is how the banks have so far responded – some such as the Halifax are only passing on part of the rate cut, others such as LTSB and HSBC will be passing the rate cut on in full.

The news grabbing the headlines though is the so called "collar" which many tracking mortgages include within the small print and which prevent the tracker rate from dropping below a given level. Financial institutions such as the Nationwide Building Society which have decided to keep the collar in place, thus not passing on all of the rate cut have received the full blast from the media.

All businesses though at some time have to make decisions on what is considered profitable behaviour and have to take tough choices which may adversely affect one customer segment so as to benefit another. Whilst it would be great for a financial institution to pass on the rate cut in full, if this is done at the expense of savers who normally represent a much larger segment of customers or indeed at the expense of the overall stability of the bank then this may not be "fair" overall.

Even before the current financial crisis financial institutions have had to make unpopular decisions. Card issuer Egg was derided in the press when it decided to remove a segment of 161k customers from its card book back in February due to a "higher than acceptable risk profile" – probably a prudent move now in hindsight.

These are exceptional times however and this causes many businesses to have to make difficult decisions within challenging timescales. Looking slightly more long term though every business has customer segments which provide very little return or worse still cost more to service than they return in profits. Normally termed "BZs" or Below Zero customers, they are an obvious target to reduce or remove so as to lift overall profits and benefit other, more sustainable customer segments.

There tends to be two approaches "managing" this type of customer segment - carrot or stick.

You can either create losers by penalising the customers in some way - charging them a fee or reducing customer service channels - or you can create winners by rewarding and recognising profitable behaviour in the hope of encouraging these customers to change behaviour.

First Direct made the headlines in 2007 when it introduced a £10 fee to customers holding a single bank account and not paying in a given amount. This "stick" approach probably looked great on paper by reducing the number of these unprofitable customers, increasing revenues through fee collections or increasing individual product holding – however it caused a storm of bad PR with many customers considering moving their bank accounts despite not being in the segment affected. Fees can be an effective means of creating customer engagement, but these typically work better at the top end where customers pay them in order to access additional benefits rather than at the bottom end where customers are being penalised for "bad behaviour".

A different approach to the same problem was put in place by ADBC Bank in the UAE. Rather than penalise customers for not holding enough products, ADBC rewards customers for holding more products. Their "carrot" approach called TouchPoints provides recognition and rewards across a customers whole financial relationship, allowing a customer to earn more value as they increase their product holding or usage. At a recent conference I attended where they presented the results of their programme so far, they demonstrated an uplift across all products, with some seeing as much as a 600% increase in acquisitions!

Sometimes timescales force a business to make decisions tactically – having to reduce costs quickly through punitive measures – however where time allows it can be much better for overall customer engagement to provide positive measures that reward and recognise profitable behaviours, encouraging all customers to make decisions which reward both them and you – creating a real win-win.

(Title: Quote from Casey Stengel - American Baseball Player and Manager, 1891-1975)