A basic review of the core understanding on loyalty programs for business.

1. Loyalty 101
1
The Set Up!
All Customers Are Not Created Equally
“It’s OK To Play Favorites”

2. Loyalty 101
2
The Set Up!
“If you want to change attitudes, start with
changing behavior.”
Walt Disney
“Attitude is the speaker of our present; It is
the prophet of our future.”
Winston Churchill

3. Loyalty 101
3
07/22/163
Developments and opportunities: Maritz true loyaltysm
lifecycle
engagement
marketing
consumer
loyalty
sales channel
loyalty

4. Loyalty 101
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• over 127 million customers choose Walmart vs 68 million who
choose to watch the evening news each week
• 70% of purchase decisions are made in-store and 68 percent
of in-store purchase are “impulse buys”
• investment in Shopper Marketing is estimated to be
growing 21% annually; Canadian growth rate is even higher
• 86% of Canadians actively participate in a loyalty program vs.
52% in the US
• 5 loyalty cards in a Canadian wallet vs over 15 cards in the US
• 5650 advertising & marketing companies in Canada
Market updates

5. Loyalty 101
“Consumers seem to be moving
faster than the retail
industry itself. [They] are
less brand-connected, more
in control, and in all
things mobile “
Kiril Tatarinov, Microsoft Corporate
Vice President of Business Solutions,
Retails BIG Show NYC Jan 11,2011
“There’s clearly something
that’s resonating about the
fact that you can feed a
family in America just by
walking into McDonald’s or
help an injured animal by
the time you’ve ordered your
latte at Starbucks.”
Follow The Ad Money
Opportunities Benefits Features SuccessImpact Research

6. Loyalty 101
CMG Study 2009
Loyalty Program Impact On Buying:
Customers who join loyalty program
attached to a credit card will almost
immediately spend more on that card by
a multiple of 2 or 3 times what they
were spending on the same card before
they joined the associated loyalty
program.
The second and far more
significant behavior change occurs
when the customer makes their
first redemption for a reward. At
this point their spend on the card
increases again by a factor of 3 to
8 times their pre-loyalty program
spend.
Do Loyalty Programs Work?
Do Loyalty Programs Work?

7. Loyalty 101
Maritz Top of Wallet Study:
- 63 percent of current and
prospective debit and
credit card rewards
program participants said
they would choose a card
that allowed them to earn
more points by shopping
with a specific merchant
over other cards.
Dog Lover
SuccessImpact Research

8. Loyalty 101
• Point based program participants
outspend non-participants at an
average ratio of 2.5 to 1
• Number of purchasing transaction
increase by 53 percent
• Value of purchases will increase
by 51 percent
Loyalty Point
Program Research
Maritz Loyalty Research
Loyalty Point Program Research

9. Loyalty 101
• Rewards that matter
• Easy to redeem
• Choice in rewards
• Tracking & awareness
• Small to big rewards
Maritz Loyalty Marketing Almanac Study: Small businesses in loyalty programs
redeem points for larger valued rewards and rewards for things they need for their
businesses. In addition, business owners redeemed 35% of points for travel.
Key To Program Success
Key to Program Success

10. Loyalty 101
10
Lessons From

11. Loyalty 101
11
A Simple Question
Do You Know What Your Best Customer Looks Like?
?
?
??
?
?

12. Loyalty 101
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A Simple Question
And If You Do – NOW WHAT?
? ?
?
?

13. Loyalty 101
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Customer Is King
Not All Customers Are Good
Customers
Challenged Myth

14. Loyalty 101
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"The research shows clearly that the existence
of a loyalty card scheme is not associated
with a degree of loyalty in shopping
habits."
-Source: Customer Loyalty Today
If I’m In Your Pocket You Must Be Loyal
Just Because They Carry Your Card
Doesn’t Mean You’ve Captured Their
Heart
Challenged Myth

15. Loyalty 101
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Keeping Customers Is Cheaper Then
Getting New Ones
Not If You Lose The Bad Ones And
Find More Of The Good Ones
Challenged Myth

16. Loyalty 101
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Loyalty Is…
Challenged Myth

17. Loyalty 101
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Loyalty Is…
Challenged Myth
Knowing Who Your Customers Are
Understanding Who The Best Are & Why
Building A Bond Beyond The Price Tag
Finding More Of The Same &
Growing What You Keep

18. Loyalty 101
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Loyalty Is…
Challenged Myth
Understanding How Your Best Customers Think
Capturing Their Hearts & Devotion
Rewarding Their Loyalty & Support

19. Loyalty 101
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Long-Term vs. Short-Term
“Customers who glide into your arms for a
coupon or minimal discount are the same
customers who dance away with
someone else at the slightest
enticement.”
-The Loyalty Effect

20. Loyalty 101
20
Long-Term vs. Short-Term
Loyalty Drives Long Term Behavior
Discount-driven customers are not
loyal customers—they will move to a
competitor when attracted by lower
temporary pricing
Frequency program:
“I get this for buying that.”
Incentives/Promotional
Programs
Incentives/Miles
Programs
Frequent Flier Miles
Programs
Competitive Scale
Incentive Programs
short-term
customer acquisition
Loyalty Programs
customer retention
Better customers are less sensitive to
price and are more concerned with the
value proposition of the company
Loyalty program:
“I am given value for being a loyal
customer.”
Long term

21. Loyalty 101
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22. Loyalty 101
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History Of Loyalty
A Simple Beginning

23. Loyalty 101
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24. Loyalty 101
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History Of Loyalty
 It Was How Small Business Did Business:
 New the best customers
 New the worst customers
 Was able to offer more services to the best
 Owner was involved in all aspects
 As Things Changed :
 Increased competition weakened the bonds
 Increased complexity blurred the relationships
 Increased organization size numbed the brain

25. Loyalty 101
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History Of Loyalty
 By The 1950’s:
 Manufacturing Was King = Product Volume
 230 Brands Of Refrigerators
 Birth Of Mass Marketing
 A Customer Is A Consumer
 Businesses Lost Sight Of The Customer
 By The Late 1970’s :
 America Consumers Tired Of Bad Business
 Rejection Of Poor Quality & Low Customer Service
 No Longer Loyal To A Brand

26. Loyalty 101
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History Of Loyalty
 The Start Of Modern Loyalty Actions
Most Were Unsophisticated Offerings:
 Merchandise & Coupon Based
 S&H Greenstamps
 Raleigh Cigarette Coupons
 Mainly Consumer Frequency Programs
Market Conditions Created A Shift Towards
Longer Term Relationships

27. Loyalty 101
27
Birth Of Frequent Flier Miles
1981 Regulatory And Market Changes
Give Birth To FFP

28. Loyalty 101
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History Of Frequent Flier Miles
 1981 American Airlines Invents
Frequent Flyer Miles
 Others Quickly Follow
Loyalty Becomes Impossible Without A Planned Program

29. Loyalty 101
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FFPs: Network Expansion
 Car Rentals
 Hertz joins and subsequently drops, citing
the high costs. Later rejoins after
dramatically losing market share without a
FFP
 Today Hertz belongs to 20 FFPs
 Hotels
 After in-house Frequent-Stay Programs,
hotels conclude that the greatest marketing
benefits still come from the FFPs

30. Loyalty 101
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Insight
"We didn't want an FFP. But it came to my
attention that FFPs were siphoning business
travel away from us. We did it defensively, and I
think if we had not done that we would have been
terribly disadvantaged."
Herb Kelleher, President, Southwest Airlines
First 20 Years Of FFP 9.77 Trillion Miles Accumulated
- Source: InsideFlyer Magazine 2001

31. Loyalty 101
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FFPs: Expansion Continues
Banks Team Up With Airlines
Activation
Spend Acquisition
SPEND
ACTIVATION
ACQUISITION

32. Loyalty 101
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FFPs: Expansion Continues
 Co-branded Cards Wildly Successful
 Average spend up to 10x higher
 Active account rate up to 80 percent or higher
 Attrition and acquisition costs decline

33. Loyalty 101
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FFP Membership Takes Off
 Worldwide Frequent Flier Membership
Growth continues
 From 150,000 members in 1981 to
200,000,000 members in 2001
Proven cardholder addiction to miles by the fact that
more miles earned via a card than by actually flying

34. Loyalty 101
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Why Miles Were So Successful?
 Rewarding the Behavior You Seek:
 Highly Appealing
 Aspirational Value - People love to envision
themselves in their dream destinations that air travel can
take them to.
 Trophy Value -Traveling is something to be proud of.
 Perceived Value- More valuable than t-shirts or CDs.
 It’s the Law - Gravity, Direction, Universal Principle

35. Loyalty 101
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Problems Begin
 By 1991:
All major airlines and banks
established exclusive relationships
Hundreds of credit card issuers
locked out

36. Loyalty 101
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Solution Found – Generic Points
 1994: “Virtual Airline” is Born
 The Idea
 Run the world’s largest airline partnership
and outsource the jets, pilots, flight
attendants, airport operations
 Miles by a different name
 Single Branded Miles vs. Co-branded Miles
 Generic vs. Branded Points
 Non-Restrictive Points – Any Airline In The
World
 Improved rate of attainability

37. Loyalty 101
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Solution Found – Generic Points
 How Generic Points Work:
 Sold to Over 125 of the largest US Banks
 Consumer Acceptance: fees $25 to $75
 Spend Ranges: $8,000 to $22,500 a year
 Officially Sponsored by MasterCard
 Amex plays “Follow the Leader”
 $200 Billion + Spent on Enrolled Cards
 No need to Co-brand with an airline partner

38. Loyalty 101
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Solution Found – Generic Points
Unrestricted Points Are Simple & Powerful:
 Compelling Offer:
 Free travel – high perceived value
 No complicated conversions
 Singular reward
 Customers join for free or fee, i.e.,
 Fee for Classic and Gold cardholders
 Free for Platinum cardholders
 Fee for Small Business cardholders

39. Loyalty 101
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Learning’s Gathered
Data Begins To Chug In

40. Loyalty 101
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* Source: Carlson Marketing Group
Loyalty Learning's
Consumer Reaction to a Loyalty Program*
. . . can attract new business . . .
80%
52%
70%
16%
40%
24%
8%
6%
4%
0% 20% 40% 60% 80% 100%
Credit Card
Retail
Airlines
More business than before
Already giving company as much business as possible
Would have given them more business even w/o program
73%
18%
24%
18%
43%
47%
8%
39%
27%
1%
0%
2%
0% 20% 40% 60% 80% 100%
Credit Card
Retail
Airlines
Use just that company
Shop around/spread purchases less than before
Shop around/spread purchases same as before
Shop around/spread purchases more than before
“Companies can boost profits by almost 100% by retaining just
5% more of their customers.” - Harvard Business Review
45% started doing business with a company
because of their loyalty program
. . . and ultimately drive profitability

41. Loyalty 101
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Consumers were asked, “For what type of product do you
prefer to redeem your loyalty balances?”
Consumer Reaction to a Loyalty Program
26%
14%
12%
10%
4%
0%
0%
1%
18%
12%
18%
34%
0% 10% 20% 30% 40%
Under $30K
$30K - $49.9K
$50K - $74.9K
> $75K
AverageAnnualIncome
Source: Jupiter Communications/NFO (2/00); N=1,478
• Across all income levels,
travel is a strong loyalty
incentive
• The power of travel becomes
more pronounced as income
levels increase
CashGift CertificatesCharityTravel
Loyalty Learning's

42. Loyalty 101
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Consumers were asked, “What type of reward would you prefer?”
Consumer Reaction to a Loyalty Program
Airline Miles
Gift Certificates
Merchandise from a Catalog
% Off Coupons
None
52%
16%
12%
11%
9%
Source: The Loyalty Effect, Frederick Reichheld.
Loyalty Learning's

43. Loyalty 101
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Loyalty Learning’s
 71% of consumers if FFP said they wouldn’t
trade their frequent flyer benefits for lower
airfares.
Source: Frequent Flier Magazine
 The proven addition of miles can drive
repeat purchases and maximize customer
lifetime value.
Source: Hambrecht & Quist
 Consumers charge about $3,200 a year on
a typical credit card – add miles and they
spend more than $18,000 a year.
Source: Bank Rate Monitor

44. Loyalty 101
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FFP Learning’s
 How “Free Travel” Can Profitably &
Quickly Increase Revenue Channels:
 Number of cardholders, activation rate, charge
volume, frequency and average purchase of existing
base
 Profitability and loyalty of key customer segments –
moving existing customers up the spending ladder
 Drive conscious choice in cardholders’ minds to be
loyal to your bank – particularly your “best”
customers
FREE TICKET

45. Loyalty 101
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FFP Learning’s
 How “Free Travel” Can Profitably &
Quickly Increase Revenue Channels:
 Develop distinct differentiation over your competitors
 Provide a low-cost, comparison program to “Rewards
Program” pilot tests in selected product or segments
 Create stickiness to annual fees
 Charge enrollment fees
FREE TICKET

46. Loyalty 101
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The Market Never Stops Changing
The Next Wave Takes Shape

47. Loyalty 101
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The Evolution Continues
 2000 Next Generation Of Mile Program
Miles + Network + Card + Travel
Shift From Frequency To Loyalty

48. Loyalty 101
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 The Vision Of WebMiles
 Change The FFP Landscape
 Offer One Of The Most Valued Rewards –
Unrestricted Airline Points – To Drive Profitable
Cardholder Behavior
 Any Airline. Any Flight. Any Time. sm
 Unlike Carrier Mile Programs – No Restrictions, No
Blackout Dates, No Limited Seating
 Gain Member Value Through “Dollars Off”
 Build A True Loyalty Network
 Earnings Velocity Through Attainability – More Than
Web, Every Day Shopping
The Power Of The Universal Mile

49. Loyalty 101
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Availability: 11 out of 134 seats or 8% Availability: 123 out of 134 seats or 92%
Availability drastically
enhanced. Rather than
being limited to an
estimated 8% of seats,
WebMiles has 92% of
seats available.
Flexibility drastically
enhanced. Rather than
one airline, WebMiles
can book on any major
carrier.
Travel-based loyalty solution with one airline
The Power Of The Universal Mile
. . . Or any other
airline

50. Loyalty 101
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300 Miles 800 Miles250 Miles100 Miles 375 Miles300 Miles
$ 300 $ 300$250$ 100 $ 75$ 300
Gas & OilGrocery Electronics Trip TeleCom
Retail
(online & offline)
+ + ++ +
The Network as a Catalyst for Increased Spend and Activation
Miles Earned Through Partners: 2,125
Miles from Card: 1,325 +
Total Earning that Month: 3,450 +
PLUS all other
card purchases
outside the
partner network
$
Purchases on
card at partner
retail locations
Universal Mile + Network + Card
XYZ BANK
$1,325

51. Loyalty 101
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$0
$100
$200
$300
$400
$500
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
$2,400
IncreaseinMonthlyChargeVolume(in$Millions)
* Revenue figure based on 2.9% of gross charge volume in interchange and miscellaneous fees, plus 60% revolving balances at 13.9% annual interest.
Average Monthly Spend
Incremental monthly revenue charge volume increases over 400% & revenues increase
$100Million + a year.
Sample Card Issuer with 200,000 cards
Increased
Spend
Increased
Activation
Increased
Acquisition
TOTAL
$ 4.0 M
$ 2.7 M
$ 1.9 M
$ 8.6M
$ 48.0 M
$ 32.8 M
$22.3 M
$ 103.1M
Monthly
Revenue
Increase
Annual
Revenue
Increase
EXAMPLE*
Incremental monthly
charge volume goes
from $72M to $314.2M
—an increase of
430%
Universal Mile + Network + Card

52. Loyalty 101
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Applied History + Learning’s
How To Ride The Wave

53. Loyalty 101
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Reichheld Loyalty Effect Model
Six factors that allow companies to form a
clear view of a customer's life-time value:
The Yard Stick To Judge By
Cost of customer acquisition
Base profit
Increased profit from additional sales
Reduced operating costs of a loyal customer base
Profits from loyal customer referrals
Price premiums charged to loyal customers who are
less price sensitive

54. Loyalty 101
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 When Forging New Alliances
 Leveraging What Each Partner Does Best
 Customer Ownership
Clear demarcation between who owns “touch points”
Privacy plays a big part in customer ownership
No one partner brings the customer to the table
 Exit Strategy From The Start
 Intellectual Property – Don’t Play It Too Close To The
Vest
 Co-Branding – No One Partner Likes To Think Of Their
Brand Being Subservient To The Other
Considerations

55. Loyalty 101
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 When Forging New Alliances
 Profitability Metrics
Partner economics
Tough without “open books”
Be careful of “who stands to gain more” thinking
Address immediately “the feeling the other partner is
gaining more” – otherwise a short-term relationship
 Brand Reputations
 Partner Customer Base
 Partner Business Philosophy
 Partner Product & Services
Considerations

56. Loyalty 101
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 When Forging New Alliances
 Metrics Which Overlap Partners Include:
Acquisition
Attrition
Average Spend
Active Account Rate
 Apply Learning’s From The Past Into Future Contract
Developments
Pricing adjustments built in based on movement of
economic variables
Allows the impartial third party – the market – to
impact pricing, reducing partner volatility
Considerations

57. Loyalty 101
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 When Forging New Alliances
 Partner Financial Contributions:
New Account Acquisition
Share Vale Proposition Funding
On-going Activation/Retention Marketing Efforts
Human Resource Commitments
 Contract Development:
Requires Dedicated Team
Time Factor
Multiple Contract Templates
Regular Scheduled Meetings
Considerations

58. Loyalty 101
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 When Forging New Alliances
 Key Profit Drivers:
Annual Fees
% Of Active Accounts
Average Number Of Transactions
Average Transaction Size
Average Total Spend/Account
Average % Of Revolvers
Average Revolving Balance
Average % Interest Rate
Attrition Rate
Considerations

59. Loyalty 101
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 When Forging New Alliances
Keep Two Simple Thoughts In Mind:
Considerations
1. The Real Art Of The Relationship Will Be Managing
Circumstances Beyond The Contract - A Contract
Doesn’t Make A Relationship
2. The Whole Is Greater Then The Parts – Each Party
Brings Value, Ideas And Strength

60. Loyalty 101
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 As An Industry We Need To Keep In Mind:
Industry Wide Focus
Attainability Of The Program Member
Limited Earnings Capability = Short-Term Loyalty & Interest
Single Partner, Stand Alone Programs
Even Top Customers Can’t Make For A Successful
Program – It Requires A Network
Mind Set – “But I Don’t Travel”
Getting More Than The Top 8% Of A Base To Realize
They Can Travel

61. Loyalty 101
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The Close!
“All things are created twice: first mentally;
then physically. The key to creativity is to
begin with the end in mind, with a vision
and a blueprint of desired results.”
Stephen Covey
“If you can keep your head while those all
about you are losing theirs, you probably
haven’t check your voice mail.”
Jack Hennies

62. Loyalty 101
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Conclusion
Card Partners + Networks + Miles + Travel
Makes For A World Of Difference

63. Loyalty 101
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Conclusion
 The best way to keep your customers
coming back is to send them away.
 Oddly enough, the ticket to cardholder
loyalty really is a ticket.