Loyalty Management 1st Quarter 2012 Issue

Volume 4 Number 1

January 2012 powered by Loyalty 360

Strengthening Customer Relationships through Loyalty Programs

Loyalty Expo 2012 Preview2012 Trends Executive Predictions Case Study - The Power of Information for Costa Coffee

Who Do You Love? Heating Up the Relationship with High-Value Customers

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Loyalty Management LOYALTY360.ORG 2012 BBY Solutions, Inc.

This Month inJANUARY 2012 VOLUME 4 NUMBER 1 WWW.LOYALTY360.ORG

FEATURES

22Winning Millennial Consumers with CollaborationMelanie Shreffler, Ypulse

24How Luxury Brands Can Reinvent the Customer ExperienceMark Robeson, VIPdesk

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36Case Study: The Power of Information for Costa CoffeeBryan Wang, Givex

Strengthening The Impact Customer of Employee Relationships Engagement through Loyalty on Healthcare Programs OrganizationsSutowo (), Deloitte Analytics South East Asia Tricia Mikolai, BI WORLDWIDE

LOYALTY FORUM: IN EVERY ISSUEWhats on Loyalty360.org Letter from the Editor Contributors Your Voice Behind the Brand Jonathan Clarkson, Southwest Airlines 360 Insights: Customer Retention & Engagement Remain Top Challenges for 2012 Mark Johnson, Loyalty 360 Q & A: Ask the Experts In 2012 we are looking to integrate our social media efforts with our loyalty platform. We have several thousand followers and fans on Twitter and Facebook; how do I recognize and reward my best customers in the social space? Loyalty Innovation By the Numbers Loyalty Reads Behind the Brand Zain Raj, SolutionSet 6 8 10 12 14 18 20

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Loyalty Management JANUARY 2012

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YOUR BUSINESS RESULTS DELIVERED OUR INSIGHT

We see relationships di erently. Visit us to learn more.Loyalty Management LOYALTY360.ORG

aimia.com

This Month inJANUARY 2012 VOLUME 4 NUMBER 1 WWW.LOYALTY360.ORG

TECHNOLOGY, TRENDS & REWARDS42 The Inside Scoop: MyLowe's Loyalty 360 interview with Lowe's Home Improvement 44 It Pays to Go Mobile SEO Michael Martin, Covario 46 Driving Digital Donations Q&A with Robert Carroll, SDL & Dustin Hardage, Compassion International 48 The Basic Elements of Customer Engagement: Location, Location and Location John Orlando, Sixth Sense Media

BEST BUSINESS PRACTICES52 The Inside Scoop: Whataburger Q&A with Rich Scheffler, Whataburger Restaurants 54 Case Study: Who Do You Love? Heating Up the Relationship with High-Value Customers Kathleen Diamonon, The Turning Point Group & Pam Lockard, DMN3 56 Bing: Search, Engage, Rewards Loyalty 360 Interview with Bing 60 Sprint Loyalty & Engagement Q&A with Melinda Parks & Kim Whitehead, Sprint 62 The Inside Scoop: Taking Customer Relationships to a Higher Level Seth Hall, Philadelphia Insurance Companies

Loyalty Management Editorial & Production Team Erin Raese - Editor in Chief Mark Johnson - Contributing Editor Caitlin Schar - Editorial Director Kathleen Ostoich - Graphic Designer Crescent Printing Company - Print Production Loyalty 360 Team Mark Johnson - President & CEO Erin Raese - COO Caitlin Schar - VP Account Management Kathleen Ostoich - Marketing Manager Jillian Hensley - Corporate Marketing Manager Lindsay Wagner - Sales Manager Contacts Article Submissions & Advertising: Erin Raese [email protected] or 513.360.8680, ext. 210 To subscribe to Loyalty Management, visit loyalty360.org.

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SPECIAL PREVIEWa sneak peek at loyalty expo

2012 Loyalty 360, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Loyalty 360 disclaims all warranties as to the accuracy, completeness or adequacy of such information. The opinions shared are those of the contributing authors and not necessarily reflective of Loyalty 360 and/ or its affiliates. Loyalty 360 shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.


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LOYALTY 360 ON THE WEB

NOW 64% ResearchLoyalty 360 and SAS recently conducted a survey focused on behavioral, qualitative and quantitative characteristics of customer loyalty trends within both B2B and B2C facing organizations. Over 150 industry professionals reported in from a variety of organizational backgrounds. Loyalty Management is pleased to provide you a sneak peek at just a few of the survey results. Full research findings will be revealed in a report due out in late January. In addition, SAS and Loyalty 360 will be discussing these findings in detail at the Loyalty Expo 2012 in Orlando this March.

trending

Have a department whose primary focus is Customer Retention and Loyalty

Plan to develop a Customer Retention and Loyalty department

31%

Report an annual budget of $2M+ for retention marketing programs

23%

TOP TRENDING CHANNELS FOR LISTENING TO THE CUSTOMER

EMAIL

84%

77%

SURVEYS

76%SOCIAL MEDIA

Note Increase Customer Spend as the primary objective of their loyalty or retention efforts

47% 51%

Report Rewards Programs have the largest positive impact on their customer retention and loyalty efforts

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Loyalty Management LOYALTY360.ORG

NEWComing SoonInspired by our users' feedback, we're redesigning loyalty360.org to make it faster and easier to find the content, resources and tools you're looking for. Be on the lookout for the launch of our brand new design and streamlined interface. You'll find a completely revamped resource center where you can browse news, research, articles, multimedia and more by topic and industry. We've also implemented a site-wide search tool and content subscription options so you can quickly find and receive the information you need on and off loyalty360.org. In addition to this exciting new functionality, you'll also find the same great features you rely on from Loyalty 360 with a new and improved look and feel: Loyalty Management Online Loyalty Today Blog Aggregator Webinars & Conferences Calendar Find a Partner Councils (Beta) Job Board & Resume Bank And much more!

what's

on LOYALTY360.ORG

The NEW loyalty360.org

Featured Articles Found Exclusively @ Loyalty Management Online.Challenges and Opportunities for Customer Loyalty in the World of Mobile Commerceby Robert Hasson, Accenture

Cause Marketing: The 5 Best Practices and the 10 Benefits They'll Bring to Your Businessby Steve Schroeder, AmeriCardGold Stored Value Networks, LLC by Chris Malone, The Relational Capital Group by Haley Barrile, Medallia, Inc.

Building Loyalty Through Warmth And Competence Creating a Customer-Centric Culture: Five Best Practices For Empowering your Frontline Plus, more executive predictions and insights from the Loyalty 360 Special Feature: Industry Insights 2012!

Loyalty Management NOVEMBER 2011

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FROM THE EDITOR

Welcome to 2012 and our 3rd anniversary issue of Loyalty Management!In preparing this issue and for our upcoming 2012 Loyalty Expo, we've had time to reflect on the changes in the industry over the last three and a half years. During these recessionary years, it has been refreshing to see such a renewed focus on the customer. There was a need for us to get back to the basics, to really focus on what we're delivering and how we're delivering it. Probably unfortunate that it took a recession for us to take this look, but imperative. We're seeing renewed focus on everything from the customer experience, associate knowledge, training and customer interaction to a resurgence in direct mailyes, mail! When done right, to the right person, direct mail is still a very effective engagement tool. Even the loyalty program... some are saying it's dead; but the smart dollars are focused on doing a better job of incorporating this strategy into the overall core customer retention strategy; no longer a silo by itself a strong customer loyalty initiative can reduce attrition to single (even basis point) digits. In this issue, at the Loyalty Expo 2012 and throughout 2012, we'll be focusing on sharing stories, best practices, insights and research to help us all increase the value of our overall customer experience. Get the inside scoop on new customer initiatives, loyalty programs and technologies in exclusive interviews with Lowes Home Improvement, Bing, Whatabuger and Paypal. In addition, Givex shares best practice advice on to effectively use customer data in a case study with Costa Coffee, and DMN3 & The Turning Point Group reveal how a major Texas utility company is building relationships with its best customers. Interested in reaching the elusive millennial consumer? Melanie Shreffler of Ypulse, is tapped into this unique demographic and shares her insights in Winning Millennial Consumers with Collaboration and Communication. Further, what can we all learn from luxury brands in elevating the customer experience? VIPdesk reveals How Luxury Brands Can Reinvent the Customer Experience. And, throughout this first issue of 2012 we share insights and predictions from industry executivesdiscover what are expected to be the biggest trends in the year ahead. I look forward to seeing you in Orlando, March 18 - 20, at the Rosen Shingle Creek for the 2012 Loyalty Expo! Enjoy the issue! Sincerely,

Welcome new Loyalty 360 Members:Southwest Airlines Love's Travel Stops & Country Stores Bridge2 Solutions TraseMiller HP Schwan's Home Service, Inc. Bazaarvoice Hawkeye Worldwide Radio Shack Sears Holdings Corporation ACI Worldwide8Loyalty Management LOYALTY360.ORG

Erin RaeseEditor-in-Chief Loyalty Management [email protected]

we're here to guide you along the way.

loyalty is a journey.

Looking to build your organization's engagement and loyalty strategies? Loyalty 360 makes it easy to find a partner with the capabilities to help you reach your goals. Want to be a part of the largest engagement and loyalty supplier directory? For only $2500/year, sign up to be listed with your own customizable member page. Find tools, tips, and connect with your peers to find the answers to your loyalty questions at loyalty360.org


CONTRIBUTORS

Kathleen Diamonon

Kathleen Diamonon is cofounder and coowner of the Turning Point Group, a customer retention and loyalty firm. Her firm uses the 10 Steps to Creating Customer Passion approach based on many years of customer marketing.

John Orlando

Kathleen Diamonon

John Orlando

Mr. Orlando is responsible for market and service strategy, corporate marketing, and partner development at Sixth Sense Media. Mr. Orlando currently serves as a Special Advisor for the global trade organization MEF (Mobile Entertainment Forum).

Seth Hall

Seth Hall is currently the Vice President of Customer Service for Philadelphia Insurance Companies. Seth has over 15 years of service operations experience primarily focused in the healthcare and property and casualty industries.

Seth Hall

Mark Robeson

Mark Robeson

Mark Robeson, Senior Vice President, Sales & Marketing with VIPdesk, has over 18 years experience designing and managing bespoke B2B and B2B2C customer loyalty programs for Fortune 500 clients, luxury brands, and other brand-conscious companies.

Mark Johnson

Mark is the President & CEO of Loyalty 360. He has significant experience in selling, designing and administering prepaid, loyalty/ CRM programs, as well as data-driven marketing communication programs.

Sutowo

Mark Johnson

Director, Deloitte Melanie Shreffler

Melanie Shreffler is Editor-in-Chief of Ypulse, the leading authority on youth. Melanie is immersed in the world of youth culture, studying trends in technology, media, fashion, and more. She regularly serves as an expert source on the Millennial genAnalytics South East Asia eration.

Melanie Shreffler

Pam Lockard

Pam Lockard is the founder and owner of DMN3, a marketing agency focused on helping clients acquire and retain customers through customer insights. Her firm focuses on the energy, financial, health care, and consumer industries.Sutowo

Sutowo is currently leading Deloitte Analytics Customer Analytics practice in Sutowo is an Analytics, Analytics, South East Asia. Sutowo is an CRM and Loyalty M specialist Management specialist CRM and Loyaltywith experience stemming across a disciplines including customer segmentation with experience stemming across a variety predictive modeling, campaign management of disciplines.

Sutowo is currently leading Deloitte Analyti Sutowo Analytics practice in South East Asia.

Pam Lockard

development, customer/marketing strategy f implementation, payment and collection stra programme design and optimization.

Michael Martin

BryanPrior to his current role, Sutowo led projects Wang

Machael Martin

Michael Martin is the Senior SEO Strategist & Mobile lead at Covario based out of San Diego, California. In his 10+ years of Internet Marketing experience he has project managed & overseen the online marketing improvements for BlackBerry, Dell, T-Mobile, SC Johnson, IGN, and Avaya.

banking, consumer packaged goods, Bryan Wang is Director Marketing at Givex, energy, publishing, retail, powering many the technology provider and telecommunications i companies first gift card andIndonesia, India, Japan Singapore, Malaysia, loyalty programs, and now solutionsstint in Accenture and Carls Kong during his for every stage of their customers journey.

Bryan Wang

Sutowo received a Chemical Engineering fir bachelor degree from National University of minor in Bioengineering. He is also a recipie Lee Kuan Yew gold medal.

Tricia Mikolai

Tricia is a strategic marketer with 10 years of experience in the healthcare industry. She is currently a design director at BI WORLDWIDE. She earned her masters degree in Business Communication from the University of St. Thomas.

If you would like to contribute to a future issue of Loyalty Management please contact Erin Raese at (513) 800.0360, ext. 210 or email at [email protected].

Tricia Mikolai

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LOYALTY FORUM: YOUR VOICEspecial feature

What's Ahead in 2012? Executive Predictions & Insights

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As we reflect on 2011 and begin to plan for the year ahead, Loyalty 360 invited our members and contributors to share perspectives about the coming year. Company leaders from various backgrounds and industries shared predictions for top industry trends in 2012, and highlighted what they are looking forward to seeing develop for their industry and company. You will find these exclusive insights throughout this first issue of the new year, and more executive predictions on the newly launched Loyalty Management Online.

As instant gratification continues to increase, the need for hyperrelevant messaging and programs will be key. Companies should know when a consumer in their database has redeemed an offer and not send them a reminder or any other communication, aside from a thank you, or suggestion based on that purchase. Mobile continues to refine our way of accessing information but there are still too many apps that dont provide any value. Marketers will begin stripping down content, providing instant gratification and relevance in the app the same way it is accessed in-store; Starbucks does a great job accomplishing that with their app. Loyalty initiatives will continue to grow and be a stronger part of the marketing mix, not just an add-on program. Heidi Shurtz Senior Manager, Customer Relationship Marketing Allergan Medical

While social media has been at the top of all loyalty

managers to do list for the past year or two with organizations scrambling to be liked or followed, gamification will become an increasingly important concept over the next twelve plus months. Gamification isnt about designing the next FarmVille. It is simply the idea of using game thinking and game mechanics to drive engagement. The idea as it relates to loyalty programs is to make the journey (accumulating) as fun as the destination (redemption). If organizations can inject more fun into the accumulation process, customers will seek out these opportunities more actively, theyll talk about it with their friends and hopefully as a result they become more engaged with your brand. The good news for loyalty programs is that many have already incorporated gaming concepts like status, competition and prizing into their program designs. The next step is to build gaming into the everyday experience. SCENE has started to go down this path with the launch of our recent SCENEtourage campaign. SCENEtourage lets members create a group that they enjoy going to the movies with. When these friends go the movies together they are rewarded in a number of ways including bonus points (prizing) and badges (status) earned for demonstrating certain behaviors. Groups who see the most movies together can even track their progress on the SCENEtourage leaderboard (competition). For SCENE, it has proven to be a great way of enhancing the experience of going to the movies, its generated a lot of positive discussion on our social platforms and has resulted in our members actively recruiting their friends and family to join the program and enjoy a night at the movies. Its still early, but everyone seems to be having fun. Which is really the point isnt it?

"Loyalty initiatives will continue to grow and be a stronger part of the marketing mix, not just an add-on program."From an industry standpoint, it is exciting to see continuedrebound in the economy, albeit choppy from day to day. This is driving favorable unit revenue growth in the hotel industry and portends a decent year to come. As for our company, most excited about our Relationship Marketing infrastructure development that will significantly upgrade our marketing interactions with past and potential guests. As for predictions of top industry trends, more mobile, more talk about social media, and more periodic angst about the global economy as it ebbs and flows over the year. Gregory D. Brown Vice President, Loyalty, Promotion & Relationship Marketing ChoicePrivileges

Gamification is simply the idea of using game thinking and game mechanics to drive engagement.Shawn Bloom General Manager SCENE LP


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Your Voice (continued)

We all talk about the age of the customer; I think its

also the age of the company that truly understands its customers, and how to better serve them. Power has shifted so fundamentally, away from the old world of we know best organisational behaviours. In the insurance sector, the perfect storm of low trust and increased connectivity through new technologies will bring about a sea change in how companies need to interact with their customers. Out go command and control, occasional listening to customers, and even rarer acting on what we hear; in comes constant listening, and of course, acting on what we hear. This feels like one more return (!) to back to basics, and the realisation that the only way to build true loyalty is to firstly do right by the customer. Theres no short cut, its about meeting their expectations, consistently, and only then earning the right to be considered as a good company to stay with, to buy more from and so on. So, Im really excited by the brave new world we face, because it grounds us in the everyday realities of just striving to do better and better by our customers and of course our being loyal to them its the realisation that we can only really expect our customers to be loyal to us if we are firstly loyal to them, and view them not as walking ATMs but as people like us, or better still like family members. So, its the age of humility, listening and acting, and doing this all the time, and moreover, consistently! Rod Butcher Head of Customer Experience and Insight Aviva Group

Safelite AutoGlass, the nations largest provider of vehicle

glass repair and replacement services, ended 2011 with a Net Promoter Score (NPS) of 85 percent. For those familiar with the NPS measurement, this is an impressive accomplishment. We began our customer delight journey four years ago and we realize we still have many opportunities to demonstrate our commitment to service. We are re-focusing our efforts to ensure we are a customercentric company, considering the customer experience every step of the way. With this in mind, we are excited to introduce more technology into our buying cycle. That includes a new and improved website where customers can easily book appointments and chat with an online CSR, the launch of an iPhone app for quoting and scheduling, and testing of tablets by our technicians in the field. The web continues to be a moving target when interacting with customers and we predict more companies will come to realize the importance of giving customers an online voice for both ranting and raving. For example, the latest crop of brand-advocacy programs allow businesses to be more proactive in asking for online testimonials. In fact, Safelite AutoGlass has been able to garner more than 15,000 positive online testimonials and increase average star ratings on various sites from 2.4 to 4.0 within a one-month time period. Indeed, we expect to see more companies using this type of loyalty marketing. Jennifer L. Kielmeyer Web & Emerging Technologies Strategic Marketing Manager, Safelite AutoGlass

We are in the building materials industry and produce cement and concrete for theconstruction of residential and commercial infrastructure. The year 2012 will bring a moderate uptick as we gear towards a better economy after the US presidential election year. Our company CEMEX has been engaged in a major transformation with well defined values and will be positioned to further address our customer needs. Our Customer Experience journey that started with laying the foundation for addressing transactional needs of our customers will be expand to an integrated platform for marketing and sales.

Customer Experience will gain further popularity as a key opportunity for engagement in the coming year and beyond. Customer Experience professionals will find the year ahead to be a challenging one, especially with competing capex. But they can help ensure success by continuing to focus on the interactions that promise the biggest impact on their bottom line. The customer experience ecosystem will expand with array of powerful new devices and multiple interactions. Our customers who interact with us daily are also consumers of other emerging technologies in their personal lives that influences their experience. Their demand for flawless service that they are getting while buying a book or a video game, planning their vacation will make them demand for the same level of effortless service when they are buying our products. Mobility will become a top business and technology trend impacting customer experience. Many companies have a myriad of business processes, information systems and connection points with legacy and cloud based information sources. Using mobility to empower the business with actionable insights, getting the right data to the right person at the right time with the right interface will be the way of the future to provide the best customer experience. Ven R. Bontha Vice President of Customer Experience CEMEX, Inc.

The web continues to be a moving target when interacting with customers and we predict more companies will come to realize the importance of giving customers an online voicefor both ranting and raving.Want more Industry Insights? Look for this symbol throught this issue of 2012 Loyalty Management and check out more online!

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The ability to analyze customer data and turn that insight intohighly relevant customer communications provides a powerful platform to help brands prepare for the digital future. And, everything marketers understand about customer loyalty is changing. Nowhere is that change more profoundly felt than in the collection and use of customer data for marketing.

communication platform and to use those interactions to extend the loyalty cycle. Understanding transactional data is in many cases now the floor of your customer strategy rather than the ceiling. As our ability to track behaviour grows, it is likely that marketers will reward many more mundane customer activities besides simply making a purchase. 4. Marketers around the globe are engaged in an arms race to "connect the dots" between these varying data touch points. All of us have pieces of the consumer puzzle, and loyalty marketers typically have more of those pieces than most. But the winners will be those marketers who can successfully unite disparate sources of data in order to paint a complete picture of the customer relationship. So a new loyalty hierarchy will emerge, led by the Datarati, and based on the ability to connect those digital dots in service of customer relationships. Its our view at Aimia that the time to begin connecting those dots is now. Arguably the best way to join the ranks of the Datarati is to adopt at all times the perspective of your customers. Rather than starting with the technology and trying to force fit it into customers lives, start by understanding their needs, and then working backwards. Tomorrows winners will be those who reconcile new data sources with the complexities of consumer life to deliver customer loyalty strategies to the benefit of both companies and their customers. Rick Ferguson Vice President Knowledge Development, Aimia

Hal Varian, Google Chief Economist and Economics professor at UC Berkeley, believes the new coin of today is consumer data. In today's globalized, fragmented economy, winners will increasingly be separated from losers by their ability to collect, analyze and derive actionable insight from consumer data. He has coined a term for those companies who have an edge in customer data insight: the Datarati. The challenge for these companies lies in making effective use of the data theyve collected. Here a few key implications for marketers: 1. If you don't use your data, others will. If you don't collect and use proprietary customer data, other companies will collect and use data on your own customers. 2. Remaining on the sidelines is no longer an option. Every consumer-facing company in every industry must develop, execute and evolve a data-based customer loyalty strategy in order to maintain control of and build value into their customer relationships. 3. Recognize interactions as much as transactions. It has become increasingly important to track and measure customer interactions across every digital channel and

Rather than starting with the technology and trying to force fit it into customers lives, start by understanding their needs, and then working backwards.

Beyond the like: SocIal loyalt yIs your brand a good friend? Apply traditional loyalty techniques to strengthen your social media performance. Well help elevate your status in your consumers personal space.

Redefining loyalty across social, mobile and web channels: points-based rewards, auction, community, punch card, promotion overlays, catalog management www.eprize.com facebook.com/eprize 877.837.7493 Loyalty Management JANUARY 2012

LOYALTY FORUM: BEHIND THE BRAND

Jonathan ClarksonDirector of Rapid Rewards, Southwest Airlines

of Rapid Rewards, Southwest Airlines frequent Jonathan Clarkson is Director maximizes Customer value. His responsibilitiesflyer program which encourages Customer loyalty and include Member acquisition, communication, and partnerships for the industry-leading program, which re-launched as the All-New Rapid Rewards in March of 2011. Jonathan joined Southwest in 2007 and helped establish the first Customer Insights team there, and also led Product Development efforts for Instation and Inflight. Prior to Southwest Airlines, Jonathan worked in a variety of marketing roles at PepsiCo, YUM! Brands, and Dr Pepper. Laura Hewitt from Aimia incorporating Carlson Marketing, spoke with Jonathan on behalf of Loyalty Management; we share insights from their conversation below. Through the years Southwest has maintained an amazing reputation within the low cost carrier space. How do you think the new program is being received?The program has been received generally well. We have been very pleased with all of our business metrics around it; from the new members who have joined the program, to the impact it has had on bookings and the impact it has had on revenue related to partners. As is always the case, when you change a program that people have loved for so many years, there will be a certain amount of resistance. We have a little of that. We generally believe as people learn about the program and start seeing how it works in terms of not just earning, but also redeeming, and seeing how easy it is to get a flight and how quickly you can do it, the frustrations will start to go away. In fact, there are scenarios now if you buy three tickets you may already have enough points for a free flight, as an example. The number one frustration frequent flyers have is with their points/miles/credits. They cant redeem for the flight they want. Recently Ideaworks came out with a report that said that of those surveyed, 99.3 of the time people were able to redeem for the flight they wanted on Southwest, who was #1 especially good publicity right out of the gate. We are really excited about the direction we are going and its been a fun ride these last few months.

What can other industries like retail or financial services learn about customer loyalty from Southwest?Other industries are learning from us all the time. We host workshops where many companies come to learn about how we approach customer service and how we approach a people-centric culture. And there is a sort of natural extension of that to the loyalty program. We just had a major financial services company in the other day. They brought all their key HR people and the head of our credit card together to try to understand a little but more about how we approach customer service and how we make decisions with one eye on the customer all the time. Because ultimately that is how you build loyalty. Everybody is happy. Everybody is positive. We just want to put customers at ease as thats how we do everything here.

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Social media has been a phenomenal way for us to get realtime, immediate feedback on changes whether they are positive or negative. You definitely have to have a thick skin!

We do a lot of customer research. I would argue that we are among the most customer centric companies in America. So we actually put a lot of value on the voice of the customer. As a result, we are always going out and asking people what else they would like to see, or what does Southwest Airlines do that you would like to see us do better. Colleen Barrett our President Emeritus has a famous question she often asks, which is if you could shake a magic wand and change one thing what would it be? We use that approach when we are looking for ways to enhance the brand and the program with customers and members. Other industries could benefit from this approach.

Do you have a sense of where you overlap fans and followers to your programs best customers?I think so things are still evolving with marrying those two sources up you can tell from the quality of responses and information that people share what kind of customer they are based on what they post.

What more can we expect from Southwest in 2012 and beyond?The best predictor of the future is the past, and if you look at the recent past -whether its the new program or the brand in general - we have been in growth mode for several years. You can only expect us to grow, whether its new planes or new cities with the merging of AirTran. So were definitely in growth mode and its a fun place to work when things are like this. I have been in places when youre not in growth mode so being here makes me really appreciate that.

How has the program evolved with the addition of social media?Social media has been a phenomenal way for us to get real-time, immediate feedback on changes whether they are positive or negative. You definitely have to have a thick skin! But when we get that feedback, we are able to get it real time and we can implement changes real time, whether its on the technology side or communications or whatever. In the past, you used to have to do surveys to understand how people felt about your brand. It would take two weeks to field it and collect responses and by the time you got it back, the situation had passed. Thats not the case here. So social media has enabled us to evolve in that sense. And in a proactive sense it has given us another advertising channel. We are buying up more and more of an advertising presence on Facebook and social media places. It has also enabled us to have a communication channel to tell people about new developments, get the word out very quickly about things and get the barometer on how people feel.

You have a Masters degree in Psychology tell us a bit about why you chose to get that degree?I originally got that degree because my plan was to get a PhD in Forensic Psychology, which is a field where you do expert testimony. I use the elements of psychology every day. I believe there is a huge component of the everyday going to work that is based on relationships and I think your ability to manage and build relationships and foster them has as much to do with the success in your career as anything else. So there is the interpersonal side at work, and then there is the understanding of what customers think, want, say and what they really mean that has helped to have a little bit of psychology background. Its an art to take the science and bring it down to a heres what we should do at a tactical level.continued on next page Loyalty Management JANUARY 2012

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Behind the Brand: Jonathan Clarkson (continued)much growth happening! I continually tell people it seems like every time you turn around there is something else going on were rolling out a new loyalty program or acquiring a new airline, or a new initiative in which were involved. I dont know when we are going to be bored! The fact there is always new stuff going inspires me. And, with new things come new questions that you dont have the answer to, so that drives my inspiration even more.

Who has had the most influence in your life?Southwest.com Triple Rewards Visa

What is your personal customer loyalty philosophy?I think it starts with the overall experience. The way you build loyalty in the airline industry for example, is through great customer service at the gate, on the phone, online, being on time, not charging for things that people dont think they should be charged for, and the loyalty program is an extension of that. So the loyalty that we build through a great customer experience when you fly and you get points for doing that - enables you to reward yourself rapidly with free tickets. At Southwest Airlines, we pride ourselves on building loyalty within the actual customer experience versus using the loyalty program as simply a mechanism to reward people for their purchases.

Obviously my parents had a big influence on me, but professionally I have had the good fortune to be around a lot of people who have been very influential- not necessarily directly, but learning by example with the type of wisdom you cant directly impart. You have to watch it. I have been lucky to have been able to be around a lot of folks who are able to do that. It goes back to what I was saying about relationships and how important those are in the workplace. When I worked at Pizza Hut for a while, my boss was a very bright guy and good mentor who taught me a lot about how to interact with people and how to work in a corporate environment, because its not always easy.

If you could meet anyone (past or present) who would it be and why? And, have you met Herb Kelleher?I have met Herb Kelleher and he is a fantastic guy and genuinely one of the funniest men I have ever met. He has a fantastic sense of humor and is so unique I know thats an overused word, but he is truly that. However, Ive always thought that Bill Clinton would be a good guy to meet. I always admired his political savvy and the fact he was really very phenomenally intelligent, but was also was able to balance out social awareness and being socially facile. Thats a tough balance to achieve.

Tell us about the last time you had an ah-ha customer experience.My ah-ha customer experience was with Apple the other day. My house was broken into a couple of months ago and we were robbed of our computer. There is this whole dance you do with the insurance company to tell them everything that was taken, but its hard to tell them whats missing when its not there anymore, AND especially since its a relatively emotional experience. Well, I had forgotten to claim my iTunes songs that I had downloaded onto my computer. When you multiply all of those by $.99 it adds up! So I sheepishly called the Apple store and explained the situation and that I was planning to buy another Apple computer. I explained that I had forgotten to claim the iTunes songs with the insurance company. I asked them if they could regrant me these songs. I assumed the answer was no and the guy at the Apple store said it was 50/50 shot. The folks online actually granted my request! So to me, its kind of like they didnt have to, but they did, and within a day I was downloading all my old songs onto my new computer. I was thankful for that and it was something not expected. It was an ah-ha moment because I went in thinking, well I will just take what they will give me and I enjoyed those songs while I had them, but instead they replenished almost my whole library. We are starting to become Apple loyalists based on the fact they were good to us.

What have you learned from your experiences that could help others in the loyalty industry?Look for companies with a history of innovation. I have been fortunate with Southwest Airlines and previous places to have been exposed to a great deal of innovation or some form of innovation process which is something you dont see as much of in the airlines industry or in a loyalty program. Its difficult to innovate in the airlines because its so cross functional and operationally driven, but there are a lot of opportunities like we just had with the overhaul of the program to innovate in loyalty, and I think having worked at places with effective innovation pipelines and processes apply here most appropriately. L

2012

Predicted Trends

What inspires you?Work inspires me to get up in the morning because I love this job. What inspires me is the fact that there is so

Continued increased focus on marketing of co-brand credit cards, especially due to increased competition from airline-agnostic reward cards like Cap One Venture and Chase Sapphire Airlines will make more deliberate, strategic efforts to integrate loyalty programs with social media platforms Airline loyalty programs will continue to broaden alternative means of redemption, beyond just free flights

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How does your loyalty program stack up? Fiserv is the leading provider of full service direct marketing solutionsspecializing in results driven loyalty communications. With Fiserv you have a partner that can help you with every aspect of your loyalty program from strategy and analytics to creative and production. With Fiserv you have the power to win your members loyalty. The power within. www.directmarketing.fiserv.com

Direct Marketing from

Visit us at the Loyalty Expo in Orlando, Florida on March 18-20, 2012, Booth #303

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Proces sing Ser v ices

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R isk & C ompliance

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Cus t omer & C hannel Managemen t

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Insigh t s & Op t imiza t ion

2012 Fiserv, Inc. or its affiliates.


LOYALTY FORUM: 360 INSIGHTS

Customer Retention & Engagement Remain Top Challenges for 2012by Mark Johnson, Loyalty 360

M

arketers are at a very critical juncture. Customer loyalty, versus acquisition, is critical for driving sustainable growth. Yet, businesses report that retaining and engaging customers remains one of their greatest challenges. Here is a look at the key trends we believe are going to impact loyalty marketing in 2012:

Marketers will work to glean intelligence from social media feedback.The vast majority of real-time data created today is unstructured data. Study after study is showing that marketers are struggling with mining this data and analyzing it in order to derive valuable insights and actionable intelligence from it. In fact, a just-released report by EMC found that only 38% of business intelligence analysts and data scientists strongly agree that their company uses data to learn more about customers.

Customer engagement is the journey, loyalty is the destination.Loyalty is a much bigger, broader, richer and growing ever more complex idea than it has been in the past. Loyalty is no longer about points, discounts, miles, rewards; it is about the way the processes, technologies, ideas, interactions engage an individual with the brand. The only way to achieve loyalty is through deeper engagement.

Loyalty program is seen as critical element of life cycle management.Engagement with customers over a lifecycle is the new model for success. The only way to earn loyalty is through deeper customer engagement and data gathered from loyalty programs can be used effectively to drive a quality experience across all touch points and at all stages of the customer lifecycle.

There will be a renewed (and well-needed) focus on customer retention and loyalty vs. customer acquisition.Customer loyalty has been identified as the top non-financial business challenge facing companies in 2012 (Protiviti). While daily deals like Groupon, LivingSocial are generating lots of buzz, marketers are realizing that these price-based technologies have taken their focus away from the real prize: customer loyalty.

Marketers will look at a mix of location-based behavioral data and attitudinal and preference data.This trend will have an especially important impact on the daily deal space. Brands will want to have this data and control the message rather than offering such huge discounts to anonymous individuals.

Brands need to recognize customers at all touchpoints, especially the call center, to deliver a quality customer experience.A recent poll by Loyalty 360 found that 78% of respondents believe that having a great customer experience makes them loyal. Creating this type of customer experience involves delivering quality customer service across all touchpoints, and marketers are realizing that this means integrating the call center into the overall customer experience.

Mobile coupons will go mainstream.Juniper Research forecasts that the total redemption value of mobile coupons worldwide will be more than $43 billion by 2016, representing an eightfold increase from $5.4 billion this year. Cost effective mobile coupon campaigns provide merchants with an easy way to build customer loyalty.

We will see a focus on social media ROI.While marketers believe that social media is worthwhile, most dont know how worthwhile it is. As marketers become more

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sophisticated and skilled at navigating the social media channel, they will be more demanding of tools that track and improve ROI. In fact, the 2011 IBM Global CMO Study found that 63% of CMOs believe ROI on marketing spend will be the most important measure of their success by 2015. However, only 44% feel fully prepared to be held accountable for marketing ROI.

leads. They will become more proactive in encouraging reviews, implementing refer-a-friend programs, etc.

Mobile digital wallets will mark a big shift in retail payments.With the value of transactions made over mobile devices estimated to be $240 billion this year (Juniper Research) and predicted to triple that size over the next five years, its not surprising that the battle over mobile wallets will continue to intensify. And with analysts at Forrester predicting that by 2016 consumers may be able to leave their traditional leather wallet at home and pay for most of their shopping over their handset, retailers need to think about the impact of mobile wallets as they build out their loyalty programs.

Brands will increasingly use the rich information about customer buying patterns generated via loyalty programs to create more targeted marketing/ messaging.Gathering and tracking data amassed in the loyalty program will be used to help marketers with segmentation, messaging, for acquisition and retention. The information on customer transactions, likes, dislikes and preferences gives brands the deep level of customer intelligence needed to deliver the most relevant, highest quality customer experience and drive long-term loyalty.

Worthy causes will continue to influence consumer brand loyalty.A study from Cone Communications found that consumers are more likely to pick a brand based on charities or causes it supports. A full 94% of responding consumers said they would abandon their typical brand for one of approximately equal quality and price if it backed a social issue. L

Social personalization will increase.Marketers will harness the power of recommendations and referrals to persuade customers and prospects to follow their friends'

The 2011 IBM Global CMO Study found that 63% of CMOs believe ROI on marketing spend will be the most important measure of their success by 2015.


LOYALTY FORUM: Q&A

Q&AAsk the Expertspromote this opportunity is Twitter. Discover has tweeted that tickets are available; tweets link directly to the rewards program website. When a cardmember redeems Cashback Bonus for Orange Bowl tickets and other exclusive offers, they can also tweet about it. Additionally, Discover uses Twitter as a support channel and theyve personalized it by providing the names and photographs of their Tweet Team. Check out @Discover for great examples of the convergence of loyalty and social media. There are interesting examples from other industries as well. The National Geographic Society developed a mobile photo safari trek that rewards participants for engaging with the brand through submitting photos, answering trivia questions and earning points. NASA also has embraced Twitter by creating Tweetup events, combining the thrill of rewardswinning a coveted spot to watch a launchwith Twitter and blog buzz. From varied corners, the social space is beginning to see more successful connections between loyalty rewards and social media. How do you move from having fans and followers to the next level of developing a strategy and measuring it? Align your internal resources and business goals; then foster dialog, promote advocacy, facilitate support and spur innovation. Building on these will give you a solid foundation for success.

Q: In 2012 we are looking to integrate our social media efforts

with our loyalty platform. We have several thousand followers and fans on Twitter and Facebook; how do I recognize and reward my best customers in the social space?

A:

Congratulations on recognizing the necessity of integrating social media with your loyalty marketing efforts. Erik Qualman, author of Socialnomics, stresses, We dont have a choice in whether we do social media, the question is how well we do it. Many businesses are learning that fans and followers are nice, but whats next? Social business is game changing and impacts all departments in an organization. Successful companies will align internal roles, processes, policies and stakeholders related to social media with their business objectives. They will then build a foundation similar to the one suggested by Jeremiah Owyang of the Altimeter Group and John Lovett of Web Analytics Demystified. That foundation has four key components that must be measured: foster dialog, promote advocacy, facilitate support and spur innovation. As organizations experiment with new social technologies, they are learning ways to incorporate them into their loyalty strategies. One of our clients, Discover Financial Services, is building loyalty through enhanced customer experiences. In October, Discover announced that cardmembers will have exclusive access to the 2012 Discover Orange Bowl. Specifically, cardmembers can redeem their Cashback Bonus to purchase tickets and other exclusive items. But Discover took it one step further by integrating this compelling loyalty offer into their social media strategy. Discover does a great job of understanding their socialgraphicsknowing where people are and meeting them there. One channel they use to

Mike McDonnell

Vice President, Product Management & Client Solutions, Affinion Loyalty Group

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Fans and followers are nice, but what we really want to do is identify true brand advocates, understand who they are and why they are advocates, and design rewards and incentives to attract more of them. Try and give people a reason to do more than Like you. Give them a reason to login with you, and connect with you in others ways. Depending on the type of goods and services you are selling, a great, easy way to do this is with the new Facebook Lifestyle apps. These apps encourage your fans to share what they are doing with your brand (cooking with it, running with it, listening to it, etc) on their timeline. When they register for your app, you get to ask them permission to share with you some of their Facebook data. At a minimum, ask for email address and their basic profile information. A second way to do this would be to offer an incentive, perhaps at checkout, to share this purchase with their social graph.

A:

Regardless of the chosen method, your brand now has the ability to access your Facebook users likes and other key data. This begins to unlock the mystery of who are your brand advocates, and how they differ both in their behavior with you (transactional), and how they differ from your traditional customer base. Importantly, you can also begin to develop personas strictly within your social media base to begin content optimization strategies to those personas, both within social media and in other traditional outbound programs like email. Those who have the passion with your brand to connect with you in more powerful ways are truly your brand advocates, and can provide invaluable data to help in all of your marketing efforts. L

Bob Fetter

What we really want to do is identify true brand advocates, understand who they are and why they are advocates, and design rewards and incentives to attract more of them.

SVP, Sales & Marketing, Pluris

A:

Four steps to recognize and reward your best customers in the social space

1. Connect social profile information to customer database Integrating social media efforts with loyalty platform starts with tying online profile to existing records in the customer database. For retailers without a loyalty program, this could be a daunting task, but still doable. You can either use identifiable personal information of your fans to connect to a customer in the database, or buy social data from a third party, or send out an opt-in form or applications to collect customer social data. If you are running a loyalty program, things might be a little easier for you. Your loyalty members are more likely to release their social data if you encourage and incentivize them with right rewards. The reason why this step is so important is that you can better understand your fans through their past purchase behavior. 2. Establish Goals for your best customers The next step is to identify your best customers. Normally, retailers used the RFM (Recency, Frequency, and Monetary) or predictive modeling to segment the customer list. Recent customers with the most visits and had the most monetary are oftentimes defined as the best customers. In the social space, key influencers are of equal importance as big spenders if not more important. Some of the key influencers may not be the best customers per se in terms of monetary, but you

may want to pay special attentions to this sub group. Sysomos , a Toronto-based Social marketing company found that as Twitter users attract more followers, they tend to Tweet more often. Understanding their influences within communities and networks helps deliver and manage relevant messaging. Once you identify your best customers, based on their past purchase history, you can further segment them into more meaningful subgroups, i.e. Big spender and key influencer, Big Spenders but quite fans, Moderate spenders but Key Influencers, etc., and then set up goals for each segment respectively. For example, increase retention rate by x%, or increase number of /Tweets/day by y%, or increase number of fans by z%, etc. 3. Leverage Advantages of Social Loyalty The traditional loyalty programs mainly rewarded each consumer for their purchases; the social loyalty rewards purchases and reward those that influence the most total purchases through invitations, brand engagement, and positive world of month as well. By taking advantages of social incentives, interactions, gaming, and WOM of social media, social loyalty is able to establish emotional bonds with consumers, thus foster continuing relationship. What paybacks should you provide to your best customers? First thing is to understand what they really wanted from your loyalty programs. You can employ traditional research tools such as survey and/or focus groups to

find out your customers needs and wants. Again and again, research shows that Exclusive offers, Special deals, and exclusive contents are the top reasons why people became a fan of your brand. Generally speaking, tactics that have worked in the traditional loyalty programs will work in the social space too. The key is to be creative while keeping your rewards fiscally responsible. For example, a retailer sent its best customers a Surprise and Delight offer, say a free gift with high perceived value, but customers have to pick it up in the brick-and-mortar stores, thus creating cross-selling opportunities for store associates. 4. Measure, Learn, and Improve There are many ways to measure the effectiveness of marketing initiatives in the social space. You can measure the customer satisfaction, monthly referred social traffic to the site, or the growth of Facebook fans and Twitter followers, etc. However, ultimately, the single most important metrics is the Lift: whether or not your social loyalty has increased the conversion rate and the number of new customers; whether or not it has improved the retention rate of your best customers; and most importantly, whether or not it has generated incremental value for your business. L

Mu Hu

Director of Marketing & Strategic Planning, Golfsmith


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FEATURES

Winning Millennial Consumers with Collaboration and Communicationby Melanie Shreffler, Ypulse

Millennials, those under-30 consumers, are a fickle group that marketers are still

trying to figure out. They want to be thought of as individuals, but theyre collaborative in nature and group-minded. Theyre living at home and watching cartoons, but are aching for more responsibility at work. In short, theyre a paradox. But these seemingly opposing characteristics hold the clues to winning them over.

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Millennials have a close relationship with their parents, who have trusted them since a young age to help with household decisions. Modern families act more like partnerships than like dictatorships. Childrens opinions are given as much attention as adults opinions. As a result, Millennials are skilled consumers, having years of experience making purchase decisions on everything from breakfast cereal to family vacations to cars. Whats more, because theyve grown up having thoughtful conversations with their parents, they expect to have similar communication with other authority figuresfrom bosses to brand executiveswhom they consider their equals. Young adults have opinions that they believe matter, after all, their input has been valued by their parents and friends growing up. Whats more, with the advent of social media and online reviews, theyre also used to their opinions being respected by perfect strangers. So of course brands would want to hear what they think, too, right? Millennials filter isnt the same as that of older generations. While grown ups may be cautious about what they share online and hedge their comments, kids will share exactly what theyre thinking. Every word of it.

Millennials want to collaborate with their favorite brands and need to know their opinions are being heard, which requires two-way communication.Their willingness to share what they think can work in favor of brands to turn young customers into true advocates, but that requires more than just listening. Millennials want to collaborate with their favorite brands and need to know their opinions are being heard, which requires twoway communication. When they post to a brands Facebook page, for example, they expect to hear back. It doesnt matter if the response is in agreement or not; they simply want acknowledgment of their contribution. The exchange helps them feel vested in the brands and responsible for its success. Yes, it takes a lot time and effortand in some cases a whole team of staff membersto maintain a social media presence, but the payoff is worth it when customers become brand champions and share it with their friends both online and offline. Brands social media sites are rife with sweepstakes and contests to the point that they dont even register with Millennials. They dont want to like a brand to get a chance at winning something; they want to interact with the brand in a meaningful way. Mountain Dew offers a great example of turning the age-old contest into a product development tour de force when it chose its most recent flavor. It recruited its most loyal fans for street teams to represent three possible new sodas and then

turned them loose with samples and a Mountain Dewbranded Facebook page for their flavor. Each team was passionate about its flavor winning and set out to recruit more fans through both online and real-life events, campaigns, and activities. In the end, the flavor with the most Facebook likes won and hit store shelves. Letting fans take over took trust, but it added to its reputation as a brand that is authentic to its fans while also building an excited and engaged social media following. That wouldnt have happed through a simple like-to-get-a-coupon campaign. Such contests also get at Millennials preference for fun game-like marketing. Facebook is key, but dont forget about other media. Millennials are spending more and more time on other social platforms, including Twitter, Tumblr, YouTube, GetGlue, and others, each fulfilling a different need. Theyll friend just about everyone and everything on Facebook, and reserve Twitter for their inner circle and favorite brands. They use YouTube and Tumblr for entertainment. They use email and more traditional media for information. But they only want to hear from certain brands in certain ways; being in as many places as possible lets them choose how they want to hear from you. They may not allow brands to invade their Twitter feed, preferring to hear from them by email. And of course, marketing messages should be designed to fit the medium. Theyll take more time to read what a brand shares via email than via Twitter, so dont be afraid to give them details rather than force them to a website for more information. As loyal as Millennials want to be to brands, their heads will still be turned by price. Coming of age in a down economy, theyve seen their parents worry about making ends meet and have fears about their own economic futures. Theyre deal-oriented and time-sensitive. Companies like Groupon and Gilt Groupe have taught them that they can get quality items for less if they act fast. But those companies only maintain loyal users by ensuring that their purchase experience is in line with what they expect of the brands they are buying. Theres nothing like buyers remorse to end a retail relationship. Brands targeting Millennials should do so in the same way Millennials approach brands: openly and honestly. They dont take themselves too seriously, and dont identify with brands that cant have a little fun with themselves. Of course, thats also a necessary aspect of interacting on social media. Its only a matter of time until a brand rep slips up and says something, ahem, off-color. Going all corporate in a response might solve the situation, but it changes the tone of the peer-to-peer forum that is social media. Bringing a little levity to the situation can go a long way. L

2012

Predicted Trends

Tablets. Millennials are obsessed with the iPad, but will end up with a cheaper Kindle Fire or Nook tablet that fits their budget and their tech needs. Twitter. Students love Facebook, but now everyone is on it, so they are using Twitter as a way to filter updates from friends and brands that really matter to them. Cord cutting. With TV nets making more content available online, students are turning to legal streaming because it fits their busy schedules.


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FEATURES

How Luxury Brands Can Reinvent the Customer Experienceby Mark Robeson, VIPdesk

A

ffluent consumers in search of an unforgettable customer experience have historically been able to trust well-known luxury brands to provide just that. Luxury icons including the Ritz-Carlton, Four Seasons, Lexus, Porsche, Louis Vuitton, Chanel and Tiffany & Co have consistently been customer service mainstays, along with upscale fashion specialty retailer Nordstrom. Nordstrom has a reputation for customer service excellencean urban legend even exists stating that the department stores liberal return policy once allowed a customer to return a set of snow tires, although Nordstrom has never sold tires in the companys 100+ year history. Nordstroms customers are willing to pay a premium for stellar customer servicewhich has paid off, as the companys net earnings have outpaced that of its competitors in the first two quarters of 2011. Unfortunately, Nordstrom seems to be the exception vs. the rule regarding the current state of the luxury customer experience. Recent research conducted by the Luxury Institute reveals that while 57 percent of shoppers with an income of at least $150,000 identify superior customer service as a defining quality of luxury goods, 50 percent have noticed a marked decline in the quality of the customer experience. It is not surprising therefore that customer attrition rates in the luxury industry are hovering between 80-90 percent.

As is often the case, however, issues around the quality of the customer experience constitute opportunities to re-engage customers with improvements and win a stronger degree of loyalty from them long-term.Three principal ways in which luxury brands can take advantage of this untapped opportunity to reinvent their customer experience stand out: placing the customer experience at the heart of their enterprise, revisiting the power of personal relationships, and embracing the social and mobile revolution.

The Heart of the Luxury Experience = The Customer ExperienceBefore it is possible to provide an unforgettable luxury experience, it is important that a holistic view of the customer experience be constructed, according to Kerry Bodine, vice president and principal analyst at Forrester Research. Brands must conduct an audit of sortsthat is, examine all touch-points of the customer journey before determining what needs to be changed in order to provide their customers with a true luxury customer experience. Most brands look at traditional touch-points such as the in-store experience: dressing rooms, product packaging, register lines, and receipts. However touch-points that cant be overlooked are the actual use of the product, as well as the support that consumers experience

24


through information and call centers. Bodine also recommends that brands which havent done so already develop a loyalty program designed to maintain engagement with previous customers. As is the case with all aspects of the customer experience, an existing loyalty program must be examined as a touch-point just as important to the customer experience as a dressing room and post-purchase support. If the loyalty program that is currently in place is not an extension of the brands values or smoothly integrated into the overall customer experience, it needs to be revisited in the lens of the brand as a whole versus a one-off offering.

Return to a Personal RelationshipDeveloping personal relationships with their customers is something that all brands should strive to achieve in 2012. Many brands, including luxury brands who are often late adopters of online technologies, have invested in upgrading their online presence in recent years to the detriment of their offline, personal relationships. Unfortunately, according to the Luxury Institute, this means that only 10-15 percent of luxury customers state that they have a first-name relationship with a sales professional. This trend could be directly related to the 80-90 percent customer attrition rates seen in the luxury industry because customers who have a true human relationship with a brand typically buy double from that brand and

stay loyal for a longer period of time. The good news is that there is an opportunity for luxury brands to increase their customer loyalty, starting with a seemingly simple technique: a note. In the era of e-mail, handwritten correspondence can go a long way in developing a bond with a brand. One luxury executive who is a strong believer in a handwritten thank-you note is Fendis head of accessories, Silvia Venturini Fendi. Every one of the brands made-to-order Peekaboo bags come with a handwritten note from Ms. Fendi. Another brand that is well known for sending handwritten notes to its customers is Montblanc, purveyor of luxury watches, writing instruments, jewelry and leather. A personal relationship has also proven to go a long way towards customer loyalty in the hospitality industry. Brands ranging from international chains such as Starwood and Hyatt to luxury providers such as Strategic Hotels & Resorts Inc., which owns and manages hotels under the Four Seasons and Intercontinental brands, have realized that it isnt amenities such as perfumes, shampoos and soaps that matter. "It's a smile at reception, calling the guest by their name, serving breakfast on time, not making any mistakes with the bill," said Bernard Lambert, Chief Executive of Society des Bains de Mer, which runs four hotels and five casinos in Monaco. "It's about getting to know and then remembering your customers. Guests want to be recognized."

The good news is that there is an opportunity for luxury brands to increase their customer loyalty, starting with a seemingly simple technique: a note.

continued on next page Loyalty Management JANUARY 2012

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How Luxury Brands Can Reinvent the Customer Experience (continued)The Social and Mobile Revolution and Its Influence on LuxuryResearch conducted by CTIAThe Wireless Associationrevealed that there are now more smartphones and cellular-enabled devices in the United States than there are peopleand these devices are in the hands of the affluent. A recent Fidelity Investments survey of millionaires shows that 85 percent use text-messaging, smartphone applications and social mediaproof that this demographic is wired across the spectrum of channels offering online and mobile content and customer interaction. Luxury brands including Burberry, Coach, Louis Vuitton, Juicy and Kate Spade have recognized this from a product development perspective, developing iPhone, iPad and other smartphone and web-enabled device coversindicating a clear recognition of the power of these devices in the marketplace. Yet, many luxury brands have not embraced the influence of social media and mobile technology in regards to the customer experience. One major reason why luxury brands have been slow to embrace social media is that it is hard to maintain brand exclusivity when anyone with an internet connection is now able to develop a connection with your brand. However, luxury brands such as Jimmy Choo, Burberry and Mercedes Benz, and stores including Bergdorf Goodman have found a way to embrace social media because they know that super-affluent consumers are twice as likely as their average counterparts to use Twitter and LinkedIn36 percent of those with an average annual income of over $500,000 follow a brand on Twitter, compared with only 14 percent of the general population.

Reinventing the Customer ExperienceWhile the current prognosis of the luxury customer experience is not ideal, the time is right for luxury brands to re-engage their customers, securing the level of longterm loyalty that is synonymous with market leaders like Nordstrom. Through a dedication to placing the customer experience at the heart of their enterprise, revisiting the power of personal relationships with their customers, and embracing the social and mobile revolution, luxury brands have the opportunity to reinvent the customer experience, and position themselves once again as the first choice for affluent consumers searching for an unforgettable customer experience. L

36 percent of those with an average annual income of over $500,000 follow a brand on Twitter, compared with only 14 percent of the general population.

2012

Integration of mobile and social media into loyalty programs will continue to grow. As consumers increase their online time via smartphones, tablets and other web-enabled devices, loyalty marketers must embrace these new communication tools in order to maintain relevance. In addition, the importance of the customer interaction will remain a strong focus, due to the increasing importance of a personal relationship between a brand and its customers. Not only are customers receiving deals via group buying sites such as Groupon and Living Social, but they are able to comparison shop on-the-spot via tools such as shopkick. As such, the customer experiencenot pricewill be the determining factor in long-term customer loyalty.

Predicted Trends

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CUSTOMERS COME AND GO. FANS RETURN AGAIN AND AGAIN.For three decades, Afnion Loyalty Group has been a pioneer in the loyalty and enhancement industries. We help our clients retain and motivate consumers while delivering tangible results and incremental revenue. We continually develop ground-breaking products found in almost every wallet in America.

www.afnionloyalty.com

1-800-622-4863

FEATURES

Strengthening Customer Relationships through Loyalty Programsby Sutowo ( ), Deloitte Analytics South East Asia

The New Global Currency Data

According to IDC, the global volume of digital data will increase more than 40fold by 2020. The emergence of customer datainformation about customers needs, behavior and value is generating a new wave of opportunity for economic and societal value creation. Companies such as Google and Facebook have proven that profit pools are shifting towards companies that are adept at mining vast amount of data that consumers continue to generate. Along with the emergence of data, there comes a new lever companies are using to pull ahead of competitorscustomer relationship. Strong relationships between a company and its customers provide a sustainable competitive advantage that is extremely difficult to beat. Research shows that building stronger relationships is the most effective organizing principle for driving business results.

Loyalty Program

For coalition loyalty programs such as Nectar in UK (20 earn and 30 burn partners) and Aeroplan in Canada (75 earn and 188 burn partners), the very act of setting earn rates requires input and agreement from the partners who participate in the program. Besides earn rate, burn rate has an impact on financial accounting. IFRIC 13 which was instituted in 2008 stipulated that Airlines needed to defer the recognition of revenue from the sale of their FFP (Frequent Flier Program) miles until members made the redemption. In the case where a very small group of customers contribute a disproportionately large profit to an organization, the creation of an elite level in the program should be considered. A unique value proposition that appeals to customers is required for such an elite level. For example, access to an airport lounge is a much sought after value proposition that airlines can bestow upon their elite members. The creation of an elite level in the program will invariably introduce additional complexity for customer service and communications requiring flawless execution of the technological and operational delivery capability. An airlines elite members will be upset if they observe that bags without priority tag being delivered before theirs.

Figure 1: Key Elements of Loyalty Program

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Program owners can deliver targeted acquisition, activation and retention campaigns by leveraging the insights derived from customer data. Not only are such campaigns critical to the success of a loyalty program, they form the key components of the program structure and they define the system and operational parameters of the program. By enrolling, a member enters into a contract with the loyalty program. It is vital that the program terms and conditions provide detailed information on the program structure, program benefits and points expiration. The points that program members earn are entered as financial liabilities which need to be managed carefully. Members are looking for points that never expire, while program owners want to expire members points balances periodically to reduce the financial liability. To satisfy both parties, an activity-based points expiry approach can be taken. If members make at least one point-earning transaction, their points remain evergreen but in the absence of such a transaction over an extended period, their points will expire. Customer Insights through Loyalty Programs The CMO Councils research, The Leaders in Loyalty: Feeling the Love from the Loyalty Club, found that 73 percent of members admitted to receiving promotions for products or services they already owned. Cost savings and more precise targeting can be achieved by segmenting customers according to their behavior, value and needs as shown in Figure 2. Maximum impact can be achieved by realigning the marketing budget and effort according to these customer groups, beefing up offers to customers who are sitting on the fence and reducing offers to customers who will remain loyal regardless.BehaviorDrives

Generates

NeedsCustomer

Value

Emotion Needs DimensionDrve t Lear i o nJ ul oyf Con dent Expl aton Bus ac i ,energeti y, tve cAdvance ent or i Culure Har onious, ance m bal d m t l nvol y Lea der Pow er Har ony Social i ved m

Transaction Behavior Dimension

Equity Value Dimension

Drve t i o Acquie r

Advent ous ur Competit i on Athetc,s l i port y I ndependence Competit i ve Bol d

Cr i eatve

Altru im s

Empathetic

Aggr ive ess

Frindly e Cooper i aton Carig n nurturi ng s upportive Famil y Sens ble i Tr t adiion Consevatve r i Control Safety Sec urity Protei ctve Tr t adiional Cautous i Controi l ng l Status

Drve t i o Bond

Drve t D nd i o efe

The motive and need behind interest in services and how the value of the company meets them

Product usage of customers and their behavior when using these products

Value the customer brings to the business

Figure 2: Dimensions Used for Customer Segmentation

Figure 2: dimensions used for customer segmentation

73 percent of members admitted to receiving promotions for products or services they already owned.The success of precision targeting through customer segmentation depends on its adoption. One such adoption challenge with statistical segmentation such as K-means clustering is that some segments that are derived may not be entirely homogeneous. For instance, one would not expect there to be average spending customers in the best segment but because K-means segregate customers by their relative distance from one another, customers at the borderline between two segments are never precisely segregated. Depending on the data points used, it does not always lead to actionable marketing campaign which negatively impacts

its wider adoption beyond customer insight department. To overcome these challenges, the traditional RFM (recency, frequency and monetary) model can be enhanced by including variables such as the potential to spend more. One global retailer adopted such an enhanced RFM approach where they found that low value customers could be further categorized into an upsell segment where there was potential for the customers to spend more and a true low-value segment where they genuinely had small wallet size. By doing so, marketing budget and effort could be directed at the up-sell segment instead of the entire group of low-value customers. A customer may randomly walk into a retail store, buy something and join the loyalty program. The first transaction made by the customer cannot be considered as activation as it could be a random act. The second transaction made by the customer, however, is a better representation of activation. If one were to plot the cumulative percentage of members who make their second transaction after x months of joining the program, one will find that this cumulative percentage plateaus after two to three months. This means that beyond two to three months post joining a loyalty program, little natural activation and intervention is required in the form of incentives for customers to come back to make that important second transaction. One thorny issue that organizations grapple with is that they do not know which customers who are inactive now will return in the future even without incentives. A reactivation study that was conducted for a global retailer shows that customers who did not turn up in one particular month would naturally come back within the next four months and any reactivation incentive given to them was going to waste. However, if one were to wait too long, in this case nine months or more, the customers would not come back and could be considered lost. Therefore, the ideal reactivation window was between five to eight months of inactivity. Surveys, interviews or focus groups can further enrich the segment profile by providing insights into the underlying needs or motives behind the customers use of products and services. This qualitative information can then be used to tailor communication strategy for each segment. Economics of Loyalty Programs One of the many aspects of loyalty programs that is hard to get right is engineering the economics of the reward structure and creating incentives good enough to change behavior but not so generous that they erode margins. Many loyalty programs that are launched with much

continued on next page Loyalty Management JANUARY 2012

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Strengthening Customer Relationships through Loyalty Programs (continued)fanfare were terminated with embarrassment because the economics were not sustainable. One way for loyalty programs to stay financially viable is to leverage the opportunities presented to them at each stage of the loyalty lifecycle to drive engagement and profitable behavior as shown in Figure 3. As the balance of power tilts towards members of loyalty programs, they are increasingly demanding more value from the program. The lessons from the Great Financial Crisis that started in 2008 have taught the finance department that program owners can do more with less. As a result, program owners find it increasingly difficult to satisfy the demands from both their members and their finance departments.

Share of Spend

TenureL

Advocacy

Acquisition

Spend

Redemption drives lift in subsequent valuable behaviors

Redeem

Data & Technology

Earn

Incentivise profitable behavior & reward interaction, not just transaction

CommsCommunication drives engagement & redemption

Figure 3: How the Economics of Loyalty Work

The conventional wisdom in loyalty programs suggests that: redemption is a cost and lowering cost per point increases program profitability; redemption is an outcome, not an influencer for future behavior; little can be done to influence redemption behavior. However, the latest thinking in loyalty program economics runs contrary to such conventional wisdom. While some redemptions are pure cost, some can lead to incremental profit in the future. It is more appropriate to look at profit per point rather than cost per point. When a member redeems, they tend to stay longer and transact more post redemption compared to pre redemption. Not all redeemers are equal: some members who have decided to leave cash their points out and redemption is a pure cost while for others, redemption leads them to longer tenure and increased sales. Similarly, not all redemption items are created equal. Members who are cashing out their points tend to gravitate to certain items. In contrast, some items create more loyalty than others. Expensive items in the catalog that do not lead to desired outcomes can be eliminated. Through the right messaging and offers, members can be influenced to redeem for lower cost items or those that drive profitable behavior. Having a proactive redemption management strategy will maximize profit per point and alleviate the budget concerns of program owners. Making sure a companys loyalty program can support itself begins with careful attention to program design focusing on the key elements described above. Once the basics are covered, companies can raise the bar by taking a data-driven approach to create more value for both the program and its members. Finally, companies that effectively use analytics can change the game by optimizing the economics of their loyalty programs turning them from cost centers into profit centers. L

Companies that effectively use analytics can change the game by optimizing the economics of their loyalty programs turning them from cost centers into profit centers.2012 Predicted Trends

Return to basicsgreater adoption of Analytics to identify and understand customers so as to customize offers to them. Leveraging SoLoMo (social, location and mobile) to improve relevance to customers based on where customer is at any given moment, what his social media posts say about his interest and even what his friends are buying or discussing online.

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FEATURES

The Impact of Employee Engagement on Healthcare Organizationsby Tricia Mikolai, BI WORLDWIDE

F

or organizations in the healthcare industry, such as hospital networks, medical device manufacturers and pharmaceutical firms, the needs to comply with regulatory mandates, manage costs and provide excellent patient care are driving leaders to evaluate their business practices. For some, the most discernable solution may be to implement another process, conduct another survey or install a new data analysis system. A less tangible but more long-term solution, however, is to invest in human capital: those employees who need to adopt the process, respond to the survey or operate the technology. Employees and their level of engagement with, or loyalty to, the organization are directly responsible for its financial health.

Adopting New ProcessesFor many healthcare organizations, new regulatory mandates will require a change in business processes and reporting. Hospital networks, for example, are under pressure to reduce costs while adopting new processes such as electronic medical records. In response to patient feedback surveys, a major medical center in Pennsylvania initiated a change to its quality management processes in conjunction with a cost-reduction program. Leaders at this organization believed these initiatives would increase the quality of patient service, but they needed employees to buy into the enterprisewide changes that would take place. To drive employee engagement in the initiative, the organization chose to implement a rewards and

recognition program. This program provided electronic tools for leaders to recognize individuals and teams for demonstrating behaviors that were in line with quality management as well as other corporate values. It also provided two-way communications between leaders and employees that was used to produce consistent messaging about the changes in the organization. In addition to quality management, the organization wanted employees to participate in the cost-reduction initiative. Using the recognition platform, the organization launched an idea process for gathering employee input. Employees submitted cost reduction ideas, which leaders could review and approve as an initiative to implement in the organization. Employees who submitted ideas earned public recognition, and those whose ideas were selected received additional rewards. The results for this initiative exceeded the organizations goals. More than 60 percent of the employees submitted an idea, yielding savings in the first year of $1.3 million. The average value of an implemented idea was $19,000, and 35 percent of the submissions were implemented.

Increasing Job SatisfactionIn many studies over the past several years, data shows that engaged employees are less likely to leave an organization. While this is a cost-saving measure in terms of recruiting and training, its also vital to healthcare because gaps in staffing equal poor patient care and increased safety violations.

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For a Midwestern healthcare facility, employee satisfaction surveys showed low rankings. Administrators were concerned that the low scores affected productivity among its employees as well as its overall level of care. After conducting employee focus groups and holding stakeholder meetings with executives, the organization launched an employee recognition program to drive long-term staff engagement and increase job satisfaction.

The engageme

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