Loyalty 2.0LSM Conseil Club

Tuesday 5th of November 2013

Agenda

1. Introduction The House of Marketing

2. What is customer loyalty?

3. Loyalty program set-up & examples

4. Trends & challenges

5. Loyalty 2.0: alternatives to loyalty programs

6. Case study

2

3

The House of Marketing

The 3 main services of The House of Marketing

4

To bridge capacity & competence

gaps

To tackle strategic marketing challenges

To develop, coach & train marketers

on the job

Temporary Marketing Support

Marketing ConsultancyMarketing Talent

Development

5

What are your expectations of today?

Question

Agenda

1. Introduction The House of Marketing

2. What is customer loyalty?

3. Loyalty program set-up & examples

4. Trends & challenges

5. Loyalty 2.0: alternatives to loyalty programs

6. Case study

6

7

To which brands are you loyal & why?

Source: PR Loyalty Solutions

Customer loyalty is a behavioral and attitudinal tendency to favor one brand over all others

8

“Customer loyalty is both a behavioral and attitudinal tendency to favor one brand over all others, whether

due to satisfaction with the product or service, its convenience or performance, or simply familiarity and

comfort with the brand. 

Customer loyalty encourages consumers to shop more consistently, spend a greater share of wallet, and feel positive about a shopping experience, helping attract consumers to familiar brands in the face of a

competitive environment.”

9

Behavioral loyalty

Attitudinal loyalty

A customer who stays (repeat purchase, renew contract,…) is often seen as a loyal customer

Commitment to continue using a product or service, despite situational influences and marketing efforts of competitors, is true loyalty.

Be careful: This does not mean that these customers are loyal because they might leave once the situation changes…

Source: Klantenloyaliteit, Marnix Bügel

To define customer loyalty a distinction has to be made between behavioral and attitudinal loyalty

Loyalty is driven by two dimensions: switching barriers & involvement

10

Objective axis: Perceived effort, cost, time to switch / frequency of transaction

DELIBERATIVE CONFIRMERS

Consciously reconfirming their brand choice upon

purchase

CONVINCED LOYALISTS

Identifying with the brand

INERT RESIDENTS

Locked in or switching is not worth the effort

low high

Switching barriers

low

hig

h

Involv

em

en

t

HABITUAL USERS

Making the same choice out of habit

Subje

ctiv

e a

xis

: Pe

rceiv

ed e

moti

onal, s

oci

al, f

un

ctio

nal ri

sk o

f sw

itch

ing

Switching barriers drive behavioral

loyalty

Involvement drives behavioral &

attitudinal loyalty

Source: THoM analysis of McKinsey Quarterly & Marketing NPV

Keep the switching barrier high to prevent the customer from changing brands

11

• Nespresso’s coffee machine could only be

filled by Nespresso capsules, which were

only available online and in exclusive

shops

• Consumers didn’t have the choice and

were attached to the brand

BUT:

• Douwe Egberts duplicated the capsules,

which can also be used in the Nespresso

machines and are available in the

supermarkets• Nespresso’s switching barriers decreased:

consumers can now easily switch between Nespresso and Douwe Egberts

• Nespresso will need to continue working on involvement

Illustration

Despite changes in regulation to lower the switching barrier, find a way to keep the customer

12

Become Telenet iKing and receive an iPhone 5 for only €199 (€29 for iKong)

If you leave iKing within a period of 24 months, you need to pay the remaining value of the iPhone to Telenet

Illustration

But... be aware of negative reactions from unsatisfied customers

13

Illustration

Exercise: Put the following brand logos on the right place in the loyalty matrix and explain your positioning

14

Objective axis: Perceived effort, cost, time to switch / frequency of transaction

DELIBERATIVE CONFIRMERS

CONVINCED LOYALISTS

INERT RESIDENTS

low high

Switching barriers

low

hig

h

Involv

em

en

t

HABITUAL USERS

Sub

ject

ive a

xis

: Pe

rceiv

ed e

moti

onal, s

oci

al, f

unct

ional ri

sk o

f sw

itch

ing

Be aware, brands can move throughout the frameworkdue to changing circumstances or consumers’ perception

15

DELIBERATIVE CONFIRMERS

CONVINCED LOYALISTS

HABITUAL USERS

INERT RESIDENTS

low high

Switching barriers

low

hig

h

Involv

em

en

t

True loyalty is the only sustainable, long-term competitive advantage for business in today’s

multi-channeling world.

16

17

What should Q8 do to increase involvement & switching barriers?

Question

Loyalty is often confused with retention in terms of objectives, tactics and target

18

Loyalty management

• Increasing involvement by understanding loyalty drivers> Increasing behavioral

and attitudinal loyalty• Long term• Focus on customers with high

potential (customer lifetime value)• Aims at retaining and increasing

customer value through building sustainable relationships

Retention management

• Primary increasing switching barriers, secondary increasing involvement> Increasing behavioral

loyalty• Short term fix for churn reduction• Long term plan for retention• Focus on high and medium value

customers with high churn risk• Aims at reducing and preventing

churn through fixing the basics

KEEP

GROW

GET

Source: THoM analysis

Time

Margin

Get! Grow! Keep! Get (again)!

Acquisition Development Win-backRetention

Loyalty

Agenda

1. Introduction The House of Marketing

2. What is Customer Loyalty?

3. Loyalty program set-up & examples

4. Trends & challenges

5. Loyalty 2.0: alternatives to loyalty programs

6. Case study

19

Savings Program

No initiative

Immediate Postponed

Transaction based

Not transaction based

Initiative

Direct Adv Program

Contest Program

Relationship Program

Event Program

Customer Adv Program

Reward-moment

Counteraction

Customerinitiative

Saving points for gifts via

transaction

Direct discount Service related & other advantages

Advantage won through contest

1

Event invitation Saving points for gifts via initiative

Traditional loyalty programs can be ranked on 3 axes: the reward-moment, required counteraction & customer initiative

Source: Klantenloyaliteit, Marnix Bügel20

2 3

4 5 6

21

Direct advantage program

22

Relationship program

23

Savings program

Contest program

Event program

Customer advantage program

Agenda

1. Introduction The House of Marketing

2. What is Customer Loyalty?

3. Loyalty program set-up & examples

4. Trends & challenges

5. Loyalty 2.0: alternatives to loyalty programs

6. Case study

27

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Is building loyalty an utopia? How to build loyalty?

#YMS2013

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

0%

10%

20%

30%

40%

50%

60%

Invest in employees

Involve customers in marketing projects

Review pricing strategy

Create dialogue

Reward with incentive

More relevant products/services

Improve customer experience

Personalize Communication

Focus on CLV

Analyze customer needs

Refine segmentation

Usage

Ne

t S

ucc

ess

29

100% loyalty is out. Divided loyalty is in.

• Loyalty programs have become a commodity

“Your consumers are just somebody else’s

consumers who occasionally buy

you” Martin Hammer

Loyalty programs have become a commodityMarketers should rethink the loyalty concept

30

Source: The power of points: Strategies for making loyalty programs workCustomer Strategist, Peppers&RogersGroup

Being enrolled in a loyalty program is a habit rather than influential in purchase decisions

Three-quarters of households are enrolled in at least one frequent

customer account.

31

The average

household has

signed up for no

less than 18

memberships.

American households

are active in less

than 50% of the

programs they have

signed up for.

Fewer than 20% of loyalty

members say their

memberships are influential in

purchasing decisions and only

33% of loyalty customers feel

that those programs are

addressing their needs.But ...

Famous loyalty programs don’t work anymore

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• Loyalty scheme:

redeem points for rewards and prize draws

• Unique experience:

redeem points for Coca-Cola merchandising,

magazines, cosmetics, speakers,…

“We are making some changes to Coke Zone following a review of which parts of the site are of most interest to people. What this review tells us is the vast majority of people visit Coke Zone for news, competitions and the chance to win great prizes and experiences, rather than to collect and redeem points in

exchange for gifts like T-shirts and headphones.” Statement Company Coca- Cola

Illustration

Frequent flyer programs are also under pressure

33

Situation

Limited increase of loyalty as business travellers have cards of all airlines

Rewards based on wrong metric: airmiles flown instead of amount spent

Only reward when it’s convenient for the airline (e.g. upgrading) Slow reward redemption Frustrated non-frequent flyers: lack of engagement Lost status can destroy relationships

Illustration

34

100% loyalty is out. Divided loyalty is in.

• Loyalty programs have become a commodity

• The savvy shopper wants more, and he wants it now

Changing behavior of consumers “the savvy shopper”

35

Far more discriminating in choosing to which brands to give their loyalty

Want instant gratification, value & relevance in every transaction

Expect to be rewarded & recognized for their loyalty

Better informed thanks to internet

Increased switching behavior

Research & plan more deliberately

36

100% loyalty is out. Divided loyalty is in.

• Loyalty programs have become a commodity

• The savvy shopper wants more, and he wants it now

• Digital channels reshape the loyalty landscape

Social media like Facebook have become mainstreamSocial media reach in Belgium

Source: B.L.V.G Blog, June 2012* Estimation end 2011

5.5 mio users

1.178.723 profiles

167.679 profiles*

46.243 profiles

37

Virtual queue for new Samsung smartphone: loyal people are rewarded, market share has increased

38

Illustration

Pepsi Cola “refresh the world” community: interact with your loyal customers

39

Illustration

United airlines “Optathlon” gives passengers the chance to instantly win upgrades

40

• The app includes five games: Legroom Legend , Linejump Hero, Mileage Ace, Suitcase Skyway & Airport Oasis.

• Playing the games just before a flight gives you a chance for instantly winning access to the airlines Red Carpet Club, Premier Line, Economy Plus or a 10% e-certificate. There’s also a chance to win one million Mileage Plus miles during game play at any time.

• All the games are dealing with the realities and frustrations of airline travel

Illustration

Converse All Stars: co-creation used as loyalty tool

41

Converse:

• December 2011

• Facebook application

• Design own Converse

shoes and sell them

through friends on

social network and

virtual store

• Free pair of shoes

when enough pairs are

sold

Illustration

Mobile technology provides an answer to the changing behavior of consumersConsumers expect immediacy, relevance & convenience

42

Immediacy

NectarUsing location-based services to provide discount codes directly

Relevance

HiltonLoyalty apps which give customers immediate access to booking info, let them order room service, check-in/out, etc

Convenience

DelhaizeMobile shoppingTargeted & personalized offersShop & collect, find stores, …

Source: THoM analysis

“My Starbucks rewards” steps away from real currencies Special features & in-store utilities

43

Mobile Card

Location-based

E-Gifts

Rewards overview

Card Balance

Illustration

Qustomer: ‘the digital loyalty card of the future’

44

Illustration

Getting ready for new and emerging technologies

45

Mobile Payments

Near Field Communication

Radio Frequency Identification

Also referred to as mobile money, mobile money transfer, and mobile wallet generally refer to payment services operated under financial regulation and performed from or via a mobile device.Ex.: Paying at Starbuck’s and with QR-codes without using credit card

A set of standards for Smartphone's and similar devices to establish radio communication with each other by touching them together or bringing them into close proximity

Ex.: Entering a concert with the digital pass on your Smartphone and it immediately shares this on your Facebook.

Wireless non-contact use of radio-frequency electromagnetic fields to transfer data, for the purposes of automatically identifying and tracking tags attached to objects

Ex.: Send promotions when clients pass by a shop.

46

100% loyalty is out. Divided loyalty is in.

• Loyalty programs have become a commodity

• The savvy shopper wants more, and he wants it now

• Digital channels reshape the loyalty landscape

• Forget “old school rules”: focus on light users and

penetration

#YMS2013

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“It costs five times more to acquire a customer than to retain one”. What do you think?

Question

48

Advertising & promotional

expenses

Diversity of customer base in terms of acquire and retain costs

- Not only for inducing first time purchases, also for brand image and awareness among current customers

- Promotions are often enjoyed by both new and current customers

- Customer profitability is not evenly distributed. - Often the most expensive customers to retain =

those who generate most profits- desirable to competitors and receive attractive

offers - customers know this and expect a higher level of

service

Answer: The statement is a myth

Source: www.ipsosloyalty.com

BUT

- Best customers outspent others by:- 16 to 1 in retailing- 13 to 1 in restaurants- 12 to 1 in airlines- 5 to 1 in hotels

- Satisfied customers spread more WOM

The combination of a penetration and a loyalty strategy is necessary and asks for a dual marketing approach

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Combined strategy and approach

Penetration growth

Loyalty growth

New customers might buy the brand

Existing customers might buy the brand more often

Most effective campaigns aim at new AND existing customers.A company is successful when it targets light users AND heavy users.

Mass Marketing Target Marketing

Reach all the buyers, including the occasional, light buyers and non-buyers

Reach all the heavy users

&

&

Positioning

Vision & Business objectives

Sales strategy

Retention & loyalty strategy

Penetration growth

Loyalty growth

New customers Existing customers

Mass Marketing Target Marketing

Reach all potential targets Reach valuable clients

&

&

Retention and loyalty initiatives will only boost business if there is alignment with the business strategy and the marketing strategy

51

100% loyalty is out. Divided loyalty is in.

• Loyalty programs have become a commodity

• The savvy shopper wants more, and he wants it now

• Digital channels reshape the loyalty landscape

• Forget “old school rules”: focus on light users and

penetration

#YMS2013

Loyalty 2.0: working on

tailored customer experiences

Of course, tailored customer experience is more than a creative campaign

52

Keep in mind that obtaining 100% loyalty is difficult today. Make sure your brand is at least part of the customer’s basket of brands

Creativity works but it doesn’t mean the

customer won’t buy the competitor’s product

Illustration

Agenda

1. Introduction The House of Marketing

2. What is Customer Loyalty?

3. Loyalty program set-up & examples

4. Trends & challenges

5. Loyalty 2.0: alternatives to loyalty programs

6. Case study

53

To next generation loyaltyFrom today’s loyalty…

▪ Loyalty extends beyond purchasing, and rewards behavior across the customer decision journey: focus on interaction

▪ Diversify away from currency: increasing focus on customer experience

▪ Programs reach customers through traditional channels: a program website, call centers, email or mail

▪ Channel ubiquity – loyalty is conveniently present wherever and across multiple vehicles

▪ Social media & mobile as powerful loyalty generators : engage customers through new media

These trends have changed the loyalty space

Programs only focused on in-program transaction data to reward target customers (purchase/earn/redeem)

▪ Customized: personalized offers, differentiated experiences & relevant rewards

One size fits all

Relentless focus on the consumer, fueled by data and powered by a remarkable customer experience will enable true attitudinal loyalty

Source: THoM analysis

What do we mean by customer experience?

55

The total set of elements, from product to price/value perception to channel interactions…

… from promises to execution to messaging

…that determine a customer’s satisfaction

…and therefore drive value

CE =

What I get

What I expect

= How I feel

Source: THoM analysis

Different stages of the consumer decision journey have impact on customer experience & loyalty behavior

56

Awareness Research

Evaluate

Loyalty

Post-purchase

Pre-purchase

BuyUse

(service)

Purchase

Capture data at all touchpoints

Datamining & analysis

Use insights to learn &

adapt

Advocacy

Source: THoM analysis

Ikea’s sleep like a princess contestEngaging loyalty members and raising awareness

57

• Ikea ran a Facebook competition which was only open to loyalty card holders

• Users had to upload a photo of a friend who was having a nap

• Then Facebook users voted for the best picture

• Prize = a bed worth up to £1,500

Results:• 44,000 YouTube views• 13,650 Facebook visitors • Almost 4,000 new fans

DESCRIPTION

Pre-purchase

Source: Six awesome examples of Facebook campaigns by Ikea

Illustration

Booking.com reminds review writers of previous holidays

58

Booking.com sends a mail one year after writing a review to remind the customer of a previous holiday and to advertize new accommodations

DESCRIPTION

Post-Purchase

Pre-purchase

Source: www.booking.com

Illustration

At The Ritz-Carlton Hotel, Ladies and Gentlemen are serving Ladies and Gentlemen

59

PurchasePost-

purchase

DESCRIPTION

• Employees are empowered to create unique, memorable and personal experiences for our guests

• Employees note all the preferences of the guests and fulfill these, even if the guest doesn’t ask it explicitly

• Each employee has a budget to serve the customer in any way he likes

• Employees are also treated like ladies and gentlemen

Source: www.corporate.ritzcarlton.com

Illustration

Telenet ‘Verwenbrigade’Creating advocates with surprise & delight

60

Post-purchase

Telenet looked on Twitter for customers who were having a bad day and surprised them with a nice gift, a voucher to rent a movie with Telenet Digital TV.

DESCRIPTION

Source: https://twitter.com/Verwenbrigade.com

Illustration

Spanair “Unexpected Luggage”Increase WOM & Customer Satisfaction

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• Spanair gave Christmas Gifts to all the passengers of the last flight that arrived at midnight before Christmas.

Results:• 100.000 views in 48 hours• 7.000 people shared it on Facebook &

Twitter• 600.000 viewings in 12 days &

Presence in the international media• +13 Mio people received our

greetings

DESCRIPTION

Post-purchase

Source: http://www.youtube.com/watch?v=F-Fk2hpdrdU

Illustration

Agenda

1. Introduction The House of Marketing

2. What is Customer Loyalty?

3. Loyalty program set-up & examples

4. Trends & challenges

5. Loyalty 2.0: alternatives to loyalty programs

6. Case study

62

The approach for developing a top customer loyalty program at Brussels Airport consists out of 4 steps

63

II.Program strategy

III.Program design

IV.Program roll-

out & execution

I.Data analysis &

insights

• Collect internal & external insights about the market, customers, competition etc.

• Set objectives & determine scope

• Determine high level loyalty vision & scenario’s

• Structure main components of the program & strategy

• Provide high level implementation plan

• Build IT capabilities,

shape internal capabilities, train employees

• Set up launch campaign & marketing plan

Analysis of traditional loyalty programs enabled us to detect pitfalls, key success factors and other learnings

64

Benchmark based on THoM framework

European airports

Relevant airlines for BAC

Other sectors: hotels, car rental, finance, FMCG, …

Secto

r

1. Gather insights

Program objectives

Increase share of travel

Increase spent/pax

Improved communication

Improved awareness

Fit with business objectives

Direct advantag

e

Relationship

Savings Contest EventCustomer advantag

e

Fit with positioning

We have matched traditional loyalty programs with the TBAC program objectives

65

2. Program strategy

We analysed the entire passenger journey & customer experience to detect uncultivated areas

66

Transport

DEPARTURE

Parking Check-in Customs

SecurityShop, eat, relax

GateBoardin

g

Flight ArrivalTranspor

t

Stay/Home

...

ARRIVAL Arrival @ TBAC

CustomsBag

claim

Bag complai

nt

Waiting pick-up

Transport

Stay/Home

Post-evaluate

To declare

Pre-purchas

e of flight

Actual purchas

e

Post-purchas

e

2. Program strategy

Determining the right loyalty vision was critical to reach TBAC’s objectives

67

Positioning

Is it relevant?

Is it unique?

Is it sustainable?

Fit with equity of today?

To ___________________________________________

BAC is the ___________________________________

That _________________________________________

Because _____________________________________

Loyalty vision

(Target group)

(Frame of reference)

(Rational/emotional benefits)

(Reasons to believe)

2. Program strategy

Best Practices Definition

Target customers based on activity and profitability

1

▪ Move away from a “one size fits all” program to strengthen the company’s relationship with its best customers by giving them the best rewards

▪ Recognize customers through differentiated rewards (e.g. tiers, and status) to drive increased customer engagement with the brand

Deliver unpublishedbenefits

2

▪ Use unpublished benefits to maintain competitive advantage and avoid raising the customer experience “bar” for everyone

▪ In many cases, unpublished benefits are highly valued by customers and cost companies little to deliver (e.g. personal concierge, exclusive access)Form partnerships

with both industry and non-industry companies

3

▪ Share program costs with partners to reduce individual company reward expenses

▪ Redemption flexibility increases perceived reward value to the consumer

Diversify away fromcurrency

4

▪ With currency programs becoming more ubiquitous, there is an increasing focus on non-currency rewards (e.g. experiences)

▪ Non-currency rewards are typically harder for competitors to replicate and can change more often to keep rewards fresh and relevant to consumers

Engage customers through new media

5

▪ Social media & mobile can be powerful loyalty generators – and can often yield behavioral lift without expensive benefits (e.g., use of virtual badges at foursquare, …)

Make earning rewards fun and engaging

6

▪ Use “Gamification” in loyalty programs to make real world activities more engaging, and maintain customer contact outside of transactions

We build a program that combines a focus on targeting, delivering high perceived value at limited cost, and creating a memorable customer experience

3. Program design

69

Any questions?

Question

Loyalty 2.0LSM Consulting Club

Tuesday, 5th of November 2013

• How loyal do customers feel?• What is driving their loyalty? • Would they recommend us to others?

• What is the ROMI of the loyalty initiative?

• To what extent did it help reach retention and development?

• How did the CLTV evolve?

• NPS • Customer Effort Score• Qualitative research on drivers• Quantitative tracking of performance

on these drivers

• CLTV• Changes in frequency, monetary

value,…• Price sensitivity• Contract renewal rates, profitability

• Defining direction for loyalty instruments: Branding, product, service, loyalty actions, loyalty programs,…

• Business case• ROMI

Loyalty needs to be measured in different ways and for different objectives

71

Effects of attitudinal loyalty= customer equity

Effects of behavioral loyalty= marketing value

Key questions

Measures

Use

Measure behavioral loyalty - Customer Lifetime Value

72

Definition

Impact of loyalty

initiative on CLTV

Net actual value of expected profit during customers’ lifetime

Value yr 1 + Value yr 2 + … + Value yr n (1 + r) (1 + r)n-1

Start – before initiative:

• Current customer base

• Current profitability

• Current retention %

• Current referral %

After initiative:

• # extra customers

• Profitability

• Retention %

• Referral %

Change in CLTVInvestment loyalty initiative

Measure attitudinal loyalty - Net Promotor Score

73

Question

Responses

Calculation

• Have you or would you ever recommend … to others?

• 10 point scale

1 2 3 4 5 6 7 8 9 10

# Promoters - # Detractors# Respondents

Detractors Neutral Promoters

Measure attitudinal behavior - Customer Effort Score

74

Question

Result

• How much effort did you personally have to put in to get

your problem fixed?

• 5 point scale

• Single metric

• Indicates improved areas for separated customer processes

to increase experiences

• Predictor of loyalty

Source: Geert Teunkens, May 2012