Loyalty 2.0 lsm 05.11.2013

Loyalty 2.0
LSM 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

The 3 main services of The House of Marketing

Temporary Marketing
Support

Marketing Consultancy

Marketing Talent
Development

To bridge capacity &
competence gaps

To tackle strategic
marketing
challenges

To develop, coach &
train marketers on
the job

4

Question

What are your expectations of today?

5

Agenda
2. What is customer loyalty?
6. Case study

6

To which brands are you loyal & why?

7

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

“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.”

Source: PR Loyalty Solutions

8

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

Behavioral loyalty

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

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

Attitudinal loyalty

Source: Klantenloyaliteit, Marnix Bügel

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

9

DELIBERATIVE
CONFIRMERS

low

Consciously
reconfirming their
brand choice upon
purchase

Identifying with the
brand

INERT
RESIDENTS

Making the same
choice out of habit

Locked in or
switching is not
worth the effort

low

Involvement

CONVINCED
LOYALISTS

HABITUAL
USERS

high

Subjective axis: Perceived emotional, social, functional risk of
switching

Loyalty is driven by two dimensions: switching barriers &
involvement

high

Switching barriers

Objective axis: Perceived effort, cost, time to switch / frequency of
transaction
Source: THoM analysis of McKinsey Quarterly & Marketing NPV

10

Involvement drives
behavioral & attitudinal
loyalty

Switching barriers drive
behavioral loyalty

Illustration

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

11

Illustration

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

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

12

Illustration

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

13

DELIBERATIVE
CONFIRMERS

CONVINCED
LOYALISTS

HABITUAL
USERS

INERT
RESIDENTS

low

high

low

Involvement

high

Subjective axis: Perceived emotional, social, functional risk of
switching

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

Switching barriers

Objective axis: Perceived effort, cost, time to switch / frequency of
transaction
14

Be aware, brands can move throughout the framework
due to changing circumstances or consumers‟ perception
CONVINCED
LOYALISTS

Involvement

high

DELIBERATIVE
CONFIRMERS

INERT
RESIDENTS

low

high

low

HABITUAL
USERS

Switching barriers
15

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

Question

What should Q8 do to increase involvement & switching barriers?

17

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

Get!

Acquisition

Grow!

Keep!

Development

Get
(again)!

Retention

Win-back

Time

Loyalty
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

Source: THoM analysis

Loyalty management
•

GET
GROW

•
•

KEEP

•

18

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

Agenda
2. What is Customer Loyalty?
6. Case study

19

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

Counteraction
1

Customer
initiative

Direct Adv
Program

Postponed

Not transaction
based
2

Relationship
Program

3

Savings
Program

No initiative
Direct discount

4

Initiative

Contest
Program
Advantage won
through contest

Source: Klantenloyaliteit, Marnix Bügel

20

Saving points for
gifts via
transaction

Service related &
other advantages
5

Event
Program
Event invitation

6

Customer Adv
Program
Saving points for
gifts via initiative

Agenda
6. Case study

27

Is building loyalty an utopia?
How to build loyalty?
60%

Improve customer
More relevant experience
products/services

Analyze customer needs

50%

Focus on CLV
Personalize Communication

Net Success

40%

Refine segmentation
Invest in employees
Create dialogue

30%

20%

Review pricing strategy

Reward with incentive

10%

Involve customers in
marketing projects

0%

0%

#YMS2013

10%

20%

30%

40%

Usage

28

50%

60%

70%

80%

90%

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

29

Loyalty programs have become a commodity
Marketers should rethink the loyalty concept

30

Being enrolled in a loyalty program is a habit rather than
influential in purchase decisions
The average
Three-quarters of
households are enrolled
in at least one frequent
customer account.

Fewer than 20% of loyalty

household has

members say their memberships

signed up for no

are influential in purchasing

less than 18

decisions and only 33% of

memberships.

loyalty customers feel that
American households
are active in less than
50% of the programs

those programs are addressing

But ...

they have signed up
for.

Source: The power of points: Strategies for making loyalty programs work
31
Customer Strategist, Peppers&RogersGroup

their needs.

Illustration

Famous loyalty programs don‟t work anymore
• 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

32

Illustration

Frequent flyer programs are also under pressure

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

33

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

34

Changing behavior of consumers
“the savvy shopper”

Better informed thanks to internet

Research & plan more deliberately

Increased switching behavior
Far more discriminating in choosing to
which brands to give their loyalty
Expect to be rewarded & recognized for
their loyalty
Want instant gratification, value &
relevance in every transaction

35

• Digital channels reshape the loyalty landscape

36

Social media like Facebook have become mainstream
Social media reach in Belgium

5.5 mio users

1.178.723 profiles

167.679 profiles*

46.243 profiles

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

37

Illustration

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
• 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% ecertificate. 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

40

Illustration

Converse All Stars: co-creation used as loyalty tool

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

41

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

Relevance

Convenience

Nectar
Using location-based services
to provide discount codes
directly

Hilton
Loyalty apps which give
customers immediate access
to booking info, let them
order room service, checkin/out, etc

Delhaize
Mobile shopping
Targeted & personalized
offers
Shop & collect, find stores, …


42

Illustration

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

Mobile Card

Card
Balance

E-Gifts

Locationbased

Rewards
overview

43

Illustration

Qustomer: „the digital loyalty card of the future‟

44

Getting ready for new and emerging technologies

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.

45

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

#YMS2013

46

Question

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

47

Answer: The statement is a myth

Advertising &
promotional
expenses

- 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

Diversity of
customer base in
terms of acquire
and retain costs

- 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

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

Source: www.ipsosloyalty.com
48

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

Penetration growth

&

Existing customers might
buy the brand more often

New customers might
buy the brand
Mass Marketing

Loyalty growth

&

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

Target Marketing
Reach all the heavy
users

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

49

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

Positioning

Sales
strategy

Penetration growth

Retention &
loyalty
strategy

&

New customers

Mass Marketing
Reach all potential targets

Loyalty growth
Existing customers

&

Target Marketing
Reach valuable clients

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

Loyalty 2.0: working
on tailored customer
experiences

#YMS2013

51

Illustration

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

Creativity works but it doesn’t
mean the customer won’t buy
the competitor’s product

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

52

Agenda
6. Case study

53

These trends have changed the loyalty space
From today’s loyalty…

To next generation loyalty

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

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

▪ Diversify away from currency: increasing focus
on customer experience

 One size fits all

▪ Customized: personalized offers, differentiated

▪ Programs reach customers through

▪ Channel ubiquity – loyalty is conveniently

traditional channels: a program
website, call centers, email or mail

experiences & relevant rewards

present wherever and across multiple vehicles

▪ Social media & mobile as powerful loyalty

generators : engage customers through new
media

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

What do we mean by customer experience?

CE =

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

What I get

=

What I expect


55

How I feel

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

Research

Awareness

Evaluate
Advocacy

Loyalty
Use (service)
Post-purchase

Buy
Purchase

Capture data at all
touchpoints


56

Datamining &
analysis

Use insights to
learn & adapt

Pre-purchase

Illustration

Ikea‟s sleep like a princess contest

Engaging loyalty members and raising awareness

DESCRIPTION
• 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

Source: Six awesome examples of Facebook campaigns by Ikea

57

Pre-purchase

Post-Purchase

Illustration

Booking.com reminds review writers of previous holidays

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

Source: www.booking.com

58

Purchase

Post-purchase

Illustration

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

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

59

Post-purchase

Illustration

Telenet „Verwenbrigade‟

Creating advocates with surprise & delight

DESCRIPTION
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.

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

60

Post-purchase

Illustration

Spanair “Unexpected Luggage”

Increase WOM & Customer Satisfaction
DESCRIPTION
• 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

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

61

Agenda
6. Case study

62

The approach for developing a top customer loyalty
program at Brussels Airport consists out of 4 steps
IV.
Program roll-out &
execution
III.
Program design
• Structure main
components of the
program & strategy
• Provide high level
implementation plan

II.
Program strategy
I.
Data analysis &
insights

• Set objectives &
determine scope
• Determine high level
loyalty vision &
scenario’s

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

63

• Build IT capabilities,
shape internal
capabilities, train
employees
• Set up launch
campaign & marketing
plan

1. Gather insights

Analysis of traditional loyalty programs enabled us to
detect pitfalls, key success factors and other learnings
Benchmark based on THoM framework

Sector

European airports
Relevant airlines for BAC
Other sectors:
hotels, car rental, finance, FMCG, …
64

2. Program strategy

We have matched traditional loyalty programs with the
TBAC program objectives
Program objectives

Direct
advantage

Relationship

Savings

Increase share of
travel
Increase spent/pax
Improved
communication
Improved
awareness
Fit with business
objectives
Fit with positioning

65

Contest

Event

Customer
advantage

2. Program strategy

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

Actual
purchase

DEPARTURE

Postpurchase

Transport

Parking

Boarding

Gate

Check-in

Shop, eat,
relax

Customs

Security

Flight

ARRIVAL

Arrival

Transport

Stay/
Home

Arrival
@ TBAC

Customs

Bag claim

Bag
complaint

Postevaluate

Stay/
Home

66

Transport

Waiting
pick-up

...

To
declare

2. Program strategy

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

Loyalty vision

To ___________________________________________
(Target group)

Is it relevant?

BAC is the ___________________________________

Is it unique?

That _________________________________________

(Frame of reference)

(Rational/emotional benefits)

Is it sustainable?

Because _____________________________________
(Reasons to believe)

Fit with equity of today?

67

3. Program design

We build a program that combines a focus on
targeting, delivering high perceived value at limited
cost, and creating a memorable customer experience
Best Practices
Target customers
1 based on activity
and profitability

Deliver unpublished
2
benefits

Form partnerships with
3 both industry and nonindustry companies

Definition

▪
▪
▪
▪
▪
▪
▪

4

Diversify away from
currency

Engage customers
5
through new media

Make earning rewards
6
fun and engaging

▪

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
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)
Share program costs with partners to reduce individual company reward
expenses
Redemption flexibility increases perceived reward value to the consumer
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

▪ 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, …)

▪

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

Loyalty 2.0
LSM Consulting Club
Tuesday, 5th of November 2013

Loyalty needs to be measured in different ways and for
different objectives
Effects of attitudinal loyalty
= customer equity

Effects of behavioral loyalty
= marketing value
Key questions

•
•
•

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?

Measures
•
•
•
•

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

Use
•

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

•
•

71

Business case
ROMI

Measure behavioral loyalty - Customer Lifetime Value
Net actual value of expected profit during customers’ lifetime
Definition

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

Start – before initiative:

• Current customer base
• Current profitability
Impact of
loyalty initiative
on CLTV

After initiative:
• # extra customers
• Profitability

• Current retention %

• Retention %

• Current referral %

• Referral %

Change in CLTV
Investment loyalty initiative

72

Measure attitudinal loyalty - Net Promotor Score

Question

• Have you or would you ever recommend … to others?
• 10 point scale

1

2

3

4

5

6

7

8

9

10

Responses

Detractors

Calculation

Neutral

# Promoters - # Detractors
# Respondents

73

Promoters

Measure attitudinal behavior - Customer Effort Score

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

problem fixed?
• 5 point scale

• Single metric
Result

• Indicates improved areas for separated customer processes to
increase experiences
• Predictor of loyalty

Source: Geert Teunkens, May 2012
74

Loyalty 2.0 lsm 05.11.2013

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Editor's Notes