LOYALTY

Volume 1 Number 2

April 2009

MANAGEMENT
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Sneak Preview:

LOYALTY EXPO 2009

DataCo

The Retention Imperative

EMPLOYEE INCENTIVES
Do They Work?

Are You Ready for the Next Generation of Loyalty?

Comarch Loyalty Management

The last puzzle piece in Customer Relationship Management
Loyalty | Business Intelligence | Customer Experience
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This Month in LOYALTY
MANAGEMENT
APRIL 2009 VOLUME 1 NUMBER 2 W W W. L O YA LT Y 3 6 0 . O R G

DEPARTMENTS
6 8,10 Letter from the Editor Contributors

FEATURES
20 Your Customer — Version 2009: Understanding the New Consumer Mindset Sandra Gudat – Customer Communications Group, Inc. Upside and Challenges of a National Coalition Roger L. Brooks – ValueCentric Marketing Group, Inc. Do Student Discounts Build Loyalty? Bjorn Larsen – Edhance Is the “Customer Insight Gap” Limiting Your Loyalty Program ROI? Andy Cutler – Mercury What Consumers Really Want Justin Barrie – Perkler The Retention Imperative John Dawson & Tom Salutz – DataCo

LOYALTY FORUM
12 14 Your Voice What Creates True Loyalty? Q&A: Ask the Experts A small hotelier asks, “What Creates Loyal Customers?” Behind the Brand/People Interview with Rich Phillips, President – Maritz Loyalty Marketing Behind the Brand/People Interview with Jill Noblett, SVP – Wyndham Hotel Group

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LOYALT Y EXPO 2009 PREVIEW
Featuring topics from:
n brandMIND n Gallup Consulting n Pluris n MetroSplash n Affinion n rDialogue n Loylogic n Carlson Marketing n Loyalty Lab n Working Solutions n Arvato n Hanifin Loyalty n Epsilon n Maritz

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Michael, age 36 Combined his points for a well-deserved golf experience

“I my credit card points to my debit card.”

converted

Cbsi provides more ways to build rewarding relationships. www.consumerbenefit.com | 800.657.8167 | pr@consumerbenefit.com

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This Month in LOYALTY
MANAGEMENT

(continued)

APRIL 2009

VOLUME 1

NUMBER 2

W W W. L O YA LT Y 3 6 0 . O R G

TRENDS & REWARDS
36 38 40 42 The Five Forces of Social Strategy Karen L. Webster – Market Platform Dynamics Mobile Loyalty & Rewards Drew Dahms – Mobile Marketing Consultant An Integrated Approach Constance Baker – edōInteractive Breaking Through the Clutter: Building Loyalty in a Digital World Mike Reynolds – Parago Driver’s License—The Many Uses Today— Tomorrow Loyalty Brent Harms – IDLoyalty, LLC One Time Incentives Do Drive Engagement Dennis Propp – Propco Marketing

BEST BUSINESS PRACTICES
48 50 Satisfaction Does Not Equal Loyalty Tom Cates – Brookside Payment Strategies are Critical to Successful Loyalty Programs Julie Bohn and Stuart Kiefer – First Data Eight Things You Really Should Know Before Launching a New Loyalty or Incentive Program Judith Rinearson – Bryan Cave, LLP Creating a Successful Employee Incentive Program Dan Paulson – InVision Business Development Employee Incentive Program Profile: “The Pyramid of Prizes” Bob Branson – Tack-USA Your Voice #2 Do Employee Incentive Programs Really Work? Loyalty Program Profile: Southwest Airlines Rapid Rewards

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Loyalty Management Editorial & Production Team: Erin Raese – Editor in Chief Caitlin Schar – Editorial Director Victor Wilcox, Graphics Plus Inc. – Layout & Design Jet Lithocolor – Print Production Loyalty 360 team: Mark Johnson – President and CEO Laura Rusche – Director, Marketing Operations Amanda Chasteen – Associate Manager, Marketing Operations Toni Dore – Sales Associate Jennifer Wickline – Marketing & Events Coordinator Julie Hellebusch – Controller Contacts: Article Submissions: Erin Raese (630) 235-8251 PR and News: Laura Rusche (513) 545-5612 Advertising: Toni Dore (513) 226-0925 To subscribe to Loyalty Management visit Loyalty360.org.

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Loyalty 360 and Loyalty Management want to know: Do you have a program that is in need of repair? Are you looking at new technologies? Do you have a question for our panel of experts? We want to hear from you. Write us at: Mailbag@LoyaltyManagement.com

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FROM THE EDITOR

In this issue, we explore changes ahead for loyalty marketing, asking: “Are You Ready for the Next Generation of Loyalty?”
A generation who grew up with mobile phones, social networks and a lifestyle accustomed to quick connections and instant gratification is moving into the marketplace. We’ve included articles that highlight new technologies and trends with information on: Mobile Marketing, Social Networks and Student Discount Programs. We are only a month away from the 2009 Loyalty Expo! This issue previews the conference, giving you an introduction to many of the fabulous speakers and their exciting topics. Sandra Gudat, from Customer Communications Group, introduces you to the “New Customer”, Karen Webster of Marketing Platform Dynamics guides us through the jungle of social networking, and Brent Harms, of ID Loyalty, shares a great new way to track loyalty programs without the need for additional plastic in your wallet. In Your Voice, we share your many opinions on the topic of employee incentives. We’ve posed many questions to you over the last year, but none have received the amount of feedback and insights we received from this question. You’re very passionate about this subject! We’ll be delving deeper into this topic in future issues and at the 2009 Loyalty Expo. Thank you for your continued feedback and sharing your voice, keep it coming! We look forward to seeing you in Florida. Sincerely,

Erin Raese Editor-in-Chief Loyalty Management erinraese@loyaltymanagement.com

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CONTRIBUTORS

LOYALTY
MANAGEMENT

Constance Baker
Constance Baker, Director of Marketing for edō Interactive. Constance has a long history of marketing within the financial industry including American Express and Wachovia Bank.
Julie Bohn

Andy Cutler
As Chief Strategy Officer at Mercury, Andy works closely with prospects and clients to create insight-driven marketing solutions that deliver breakthrough results. Andy has over twenty five years of experience in direct/database marketing and is particularly skilled at helping companies evolve from a productfocused to a customer-focused marketing and sales approach.

Justin Barrie
Justin Barrie is co-founder and CMO of Perkler. Justin is one of Australia’s leading customer-led designers and a high-level strategic marketer.
Andy Cutler

Julie Bohn
Julie Bohn, Vice President of FI Loyalty Programs at First Data, has more than 18 years of experience in the card processing industry. For the past two years, she’s focused on working with financial institutions to develop enterprise loyalty and merchantfunded loyalty programs.

John Dawson
John Dawson - SVP Sales at DataCo Solutions. John has been monetizing the Internet since 1995 in the senior sales management teams of such pioneering companies as Excite, AltaVista, LookSmart, E!Online, and Webloyalty. The last six years have been spent primarily working with commerce companies to generate rapid sales growth, strong customer bases and loyal customer relationships.

Bob Branson

John Dawson

Bob Branson
Bob Branson has extensive expertise in the training and professional services industry having worked in that sector for the entire length of his 30 year professional career. Bob is President of TACK-USA. TACK-USA is part of the TACK International consortium that has been providing sales and leadership training for 60 years.

Drew Dahms
Drew Dahms is a mobile marketing consultant based in Minneapolis. His background is marketing, advertising, communications and has worked in retail, food & beverage, consumer electronics, and technology.

Roger L. Brooks

Sandra Gudat

Roger L. Brooks
Roger brings more than 16 years of customer loyalty experience to ValueCentric Marketing Group as Vice President, Business Development. In his role he implements new processes for clients needing to build or enhance customer loyalty programs.

Sandra Gudat
Sandra Gudat is President and CEO of Customer Communications Group, a loyalty initiative strategic design company and publisher of customer.com. Sandra’s broad-based experience has provided her with the marketing experience and database expertise to strategically design and successfully implement relationship marketing programs for clients in the retail, healthcare, telecommunications and financial services arenas.

Tom Cates

Tom Cates
Brent Harms

Tom Cates, Founder and President of The Brookside Group, Inc., helps his clients develop growth strategies and improved business performance. Tom takes a customer-based approach to assisting his clients with issues such as measuring and managing customer satisfaction, retention and Loyalty; key account planning; sales force effectiveness; and leadership development.

Brent Harms
Brent Harms, CEO, President and founder of ID Loyalty, has over 18 years experience in loyalty programs and in managing companies. He previously founded and managed two marketing companies, Mall Marketing Media Inc. and Tecmark, Inc.

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SUCCESS MADE FRESH
When results go stale, CCG has the recipe to refresh your bottom line.
Behind the counter: You’ll enjoy the benefits of an agency with more than 30 years of experience developing and executing customer relationship marketing programs in the retail industry. Our team members are thought leaders and sought-after speakers who are committed to using their expertise to help retailers attract, retain and grow profitable customer relationships. On the menu: Select the services you need from our full slate of offerings, including … Strategic CRM consulting Loyalty marketing program development Loyalty program alternatives Data analysis and data management Customer research Creative execution Production services ROI measurement

Five-star rating: CCG has developed, launched and managed dozens of CRM and loyalty marketing efforts for top retailers in the U.S. and Canada. Let your store be the next to take advantage of our complete, proven approach — and start on the road to fresh sales and revived profits today.

800.525.0313 • customer.com Greg Sultan, SVP, Strategist • ext. 122 • greg.sultan@customer.com

P E TCO

Ta l b OTs

C h EC k E r au TO Pa rTs

N O r d sT r O m

P i E r 1 i m P O rTs
April 2009

G E N E r a l m OTO r s | Loyalty Management

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CONTRIBUTORS (continued)

LOYALTY
MANAGEMENT

Stuart Kiefer
Stuart Kiefer, Division Manager of merchant loyalty at First Data, has more than 10 years of experience creating, launching and managing loyalty marketing programs. In his current role, he works with merchants of all sizes to design and implement programs specific to their individual needs.

Mike Reynolds
As Executive Vice President of Market Development & Strategy, Reynolds is responsible for leading Parago’s strategic direction, expansion into new market sectors, product marketing and acquisitions. Reynolds has more than 23 years of experience in sales, marketing and product development of technology-based solutions.

Stuart Kiefer

Bjorn Larsen
Mike Reynolds

Bjorn Larsen

Judith Rinearson

Founder and Executive Vice President for Edhance. Bjorn has helped build some of the most successful student discount businesses in the world. He served as Director of Business Development for StudentUniverse, the largest online student travel agency in the United States. Bjorn is also a board member for Mecenat, an organization offering thousands of discounts to more than a million Swedish students through a partnership with the Swedish government.

Judith Rinearson
Judith Rinearson is an attorney who is a recognized authority in the laws of prepaid cards and stored value payment products. As a Partner at the global law firm Bryan Cave LLP, Judie advises a range of clients (including banks, program managers, non-banks, retailers and processors) in all legal aspects of launching and managing a range of prepaid products.

Tom Salutz
Managing Partner of DataCo LLC— a company he co-founded in 1993 broadly dedicated to providing usable data analytics for marketers. Over the last two decades, Tom has built a wide variety of models, analytical tools, and data-driven solutions for direct-response agencies, financial marketers, and technology industries which have helped them strategically manage their businesses more intelligently.

Dan Paulson
Dan Paulson

Tom Salutz

Daniel W. Paulson, President/CEO— InVision Business Development. For the past 16 years, Dan’s focus has been on organizational development and strategy. He achieved record sales for all types of businesses ranging from small companies to multi-billion corporations. In addition to being one of the top sellers, Dan has trained scores of people into leadership positions.

Karen L. Webster
Karen Webster is the President of Market Platform Dynamics and is a frequent industry speaker and the author of numerous published articles and whitepapers on loyalty, social strategies, mobile and new media. Her client work spans diverse industries and is typically focused on how to monetize new channels, corporate assets and client relationships.

Dennis Propp
Dennis Propp

Dennis is President of Propco, a leading provider of proven tested incentives to the financial and loyalty industry.

Karen L. Webster

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LOYALTY FORUM: Your Voice

What Creates True Loyalty?
We asked readers: Who, what, where are you loyal to without program incentives?

LOVE THE quESTION because it gets at what is intrinsic loyalty, versus the mercenary variety many of us more often deal with as loyalty professionals and consumers. I find myself being loyal without any programmatic incentive when either 1) the product is exceedingly cool and makes me feel like an “insider” for owning it or 2) the brand provides me with exceptional service that makes me feel personally appreciated. For me, Apple is the best example of the first type—I own two different iPods and an iMac and will never go back to a PC, even with the disparity in price point, simply because I love the product and because I’ve bought into The Cult of Mac. A good example of the second is a restaurant I frequent in St. Louis where I’m greeted like a friend and the bartender always remembers what I like without me having to ask for it. I’m a believer in points programs, especially in situations where competitive differentiation is difficult, but they’ll never replace the power of great product and great service. Barry Kirk Director of Strategic Consulting at Maritz Loyalty Marketing ET’S TAKE IT back to the company that had the most loyal customer base that had nothing to do with getting a financial or product benefit. People purchased from The Body Shop in the 1990’s because they believed in Anita Roddick’s vision and promise to help the people that she was making money from. If you asked the customer what the Body Shop stood for they all new it was “Against Animal Testing” and “Trade not Aid” assistance to people like the Amazonian Indian in the Rain Forest. It felt good to wash with Brazil Nut Oil shampoo because it was a natural product that was harvested in a sustainable way. Of course, now a lot of companies have what they call a CSR program but unless it is the passion of the company leaders the staff and customers will not feel the emotion that is

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“I am loyal to companies that provide excellent, personalized, customer service and good value for money.”
Cynthia O’Connell Luxury Boutique Hotelier part of the business. People like uPS, who have an amazing staff volunteer program, connect with everyone they do business with and with every community they effect with their business and their staff retention rate is 94% including people who retire. They were also voted the best brand in the uSA in 2006 and not because of any loyalty program. People become loyal because of great and personal customer service and when your vision and values are aligned with the those of the customer. This may include ensuring that you offer your products at the best price for the market conditions and having a loyalty points program, but make it possible for the customer to join your social program as well by donating some points to the community activities that you run. It’s the combination of giving and receiving that makes people believe in your company and products. Tavis Stewart General Manager at Landmark Group

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“I am always loyal to excellent customer service. No loyalty program in the world is rich enough to compensate for bad customer service.”
John Racine Managing Principal, Altamont Partners Fund I

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REAT quESTION, SINCE the concept of loyalty has become so watered down by ubiquitous rewards programs that are great for incenting desired behavior, but do little to generate true loyalty or devotion to a particular business. To earn customers’ loyalty companies must do two things: 1) Be excellent. 2) Be consistent. Only one of the two will not suffice. Occasional excellence will not generate devoted customers, nor will consistent mediocrity. Excellence, of course, is in the eye of the beholder. To me, Trader Joe’s fits the bill for its unique products, great value and friendly shopping experience. In the research I’ve conducted on mass merchandisers, I often hear Wal-Mart (customers trust they are getting the best price possible) and Target (for affordable fashions in apparel and home). Adam Fox Experienced Strategist and Consumer Marketing Executive

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uSINESS WITH KNOWLEDGEABLE personnel. Most of the time I am apt to be most loyal to the Mom and Pop stores (like my seed store or neighbor’s produce stand).

At my local garden store they know me by name, have all the right answers and seldom do they have a sale. Yet, I return to buy all my seeds, plants and supplies. I recommend them not for prices but for quality, friendliness, and because they care and educate me about my garden. Caroline Cooper Owner/Artist at Grapes Galore
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A q&
LOYALTY FORUM: Q&A

Ask the Experts

q: “Do incentives we introduce just scratch the surface
or is loyalty about personal acknowledgement? What creates loyal customers?”
—Something of great interest to a small group of hotels vs. global companies

We all want loyal customers. They spend more, stay longer (churn less), engage in insightful dialog that can help us to make smarter decisions, and they tell others great things about our brand. There’s plenty of value being added in every one of these outcomes. So what should you do to make more of your customers loyal? It should come as no surprise to learn that offering an incentive alone—e.g. a discount, a rebate, a better customer experience, points, prizes and rewards—is not enough to create loyalty. In simple (and universal) terms, to create loyal customers, you need to build relationships with them.

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“This is why you have your loyalty program— it is your customer insight machine.”

Assuming you have repeat transactions/interactions with your customers, the resulting relationship is complex. Different industries, brands, and even different customers each have different relationship drivers. In service-based industries for example, the customer experience plays a significant role in building the relationship. The foundation of creating loyal customers is knowing how to build stronger relationships with them. This is why you have your loyalty program—it is your customer insight machine. The data your program generates helps you to understand: what motivates your customers; what elements of your brand, product or service they most value; how they prefer to engage with you; what their past behavior reveals in terms of their interests and needs; what their future value is likely to be; what incentives will encourage them to change their behavior. Once you have these insights, you can deliver a more relevant value exchange (customer experiences, offers, content, etc) through a 1to1 dialogue that creates reciprocity, and ultimately, more loyal customers. —Luc Bondar, VP, Global Loyalty, Carlson Marketing

q:
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Do you have a question for our panel of experts?
Write us at: Mailbag@LoyaltyManagement.com

| Loyalty Management

Loyalty is about much more than incentives and often, it has little or nothing to do with them. Loyalty is earned and can’t be bought, at least not beyond the short term (and then it’s still not “loyalty”). There are a lot of ways to think about loyalty, particularly for a small group of hotels. One is to recognize that while there’s no way that a small group of hotels can compete on the same level as a large chain like Marriott or Hilton, there’s no reason you should. Being small means your organization is more manageable and nimble. That alone means that there are things that your group can do to connect with customers and build a level of trust and intimacy that simply can’t be replicated by larger competitors. Beyond customers, loyalty starts with employees, especially in a business like hospitality, where there is so much direct contact between employees and guests. So the first thing you have to do is make sure your employees are taken care of. Do this and they will take care of the customers. —Phil Rubin CEO & President rDialogue

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Hotels typical value proposition: “ Spend money and stay with us, and get free lodging in exotic locales, or free merchandise, or gift certificates, etc.” Key Attributes: n Leverages the gap between perceived value and true cost n Breakage runs 40% plus n Elite tiers offer differentiated services for highest value customers n Usually funded by a tax on each property n Have become a defensive play, rather than a point of difference What Matters: n Develop a premium version of the product for your best customers designed to speed the reservation/ check-in/checkout process n Become best of breed at maintaining a customer history and employing that customer history to tailor your offerings as well as tailor the on-line, concierge and call center experiences Employ a customer’s history and profile to deliver recommendations as well as to create customerspecific services n Use the concept of “clientelling” (ie Nordstrom) which you employ to deliver 1 to 1 service, advise your best customers of sales, invite them to special events, deliver personalized thank-yous. n Smaller, niche players should have a higher-end sense of service than global brands Considerations: n Niche hotels offer elite tiers which allow the program to confer recognition and status, as well as deliver customized service delivery based on the members value (e.g. upgrades) n Information collected as part of the rewards program is employed to create profile and preferences on each member which drives customized service delivery for all members (e.g. room preference, e-check-in, e-notification) n A smart loyalty program uses a permission based relationship marketing platform which is employed to deliver targeted offers and content as well as create a means to deliver partner offers n Rewards can be the foundation of the loyalty program, but they should establish a “proposition” for customers to opt-in to a relationship and to continue to identify themselves with every transaction More important than rewards, in designing a program you have to ask: n What are the economics of customer loyalty? n What are the drivers of purchase behavior? n How can we identify customers and their transactions? n What does the brand stand for? n What are competitors doing?
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—Michael F. Hemsey President Kobie Marketing, Inc.

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LOYALTY FORUM: Behind the Brand/People

Rich Phillips
Loyalty Management looks “Behind the Brand” at Rich Phillips, President, Maritz Loyalty Marketing.
What are the qualities you most admire in a person?

MR. PHILLIPS possesses an impressive combination of business and technology management experience, achieved through corporate and entrepreneurial enterprise. Responsible for the successful launch of two companies, he has spearheaded business strategy, sales, marketing, product development, and operations management activities in several industries. Phillips holds a Bachelor of Science in Electrical Engineering, a Master of Information Management, and a Master of Business Administration; he has also served as Adjunct Professor of Management in the Washington university Olin School of Business.

I had the honor of knowing Bill Maritz, former chairman of Maritz Inc., and the driving force behind its success for nearly 50 years. He was known for a number of qualities, all of which became part of the fabric of the Maritz culture: intellect, intensity, dedication and decency. I would also add the trait of integrity which I feel is vital in any leadership position.

What’s your personal motto?
While I have never specifically contemplated a motto, I am such a believer in honoring the gifts of time and life by using every day to its fullest.

What do you consider your greatest achievement?
While I am personally proud of some of the companies I have helped to grow and prosper, there is no question that my greatest pride is my family and the 3 incredible kids I have. I could not be more proud of the people they have become. The values they possess, their perseverance and confidence are due, in large part, to my wife. She is one of the most intelligent, giving people I know and has dedicated her life to the development of our children. Even in the face of daunting health challenges, her dedication to our family is unwavering.

Which books are you currently recommending?
I am a pretty voracious reader. unfortunately, my schedule of late has trumped my ability for recreational reading. Groundswell by Li and Bernoff captures the essence of a fundamental shift I believe in – that of the power of the consumer.

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Which historical figure do you most admire?
Probably Abraham Lincoln. The strength of his conviction in the face of enormous adversity, coupled with his vision for “what could be” and what was fundamentally right, changed history for generations to come. This clearly captures the essence of leadership.

If you were not doing what you do today, how would you be spending your time?
My uncle is a missionary serving in villages in Bangladesh. He has spent over 40 years building trade schools and teaching trades to the people there. I would love to serve along side him in his work. Although, in addition to witnessing incredible hardship, I must say, one of my biggest challenges, in this situation, would be my fear of giant insects and snakes.

“There is no question that my greatest pride is my family and the three incredible kids I have. I could not be more proud of the people they have become.”
What can we expect from Maritz in 2009?
I am so proud of the accomplishments of our teams in building leapfrog capabilities and finding new applications for loyalty practices. Over the past 18 months Maritz has been in a significant innovation cycle and we have made incredible progress in reframing what loyalty can and should be. We will spend much of 2009 launching these capabilities into the market with vigor. As we bring our new capabilities to life, we will be extremely purposeful in the alignment of our loyalty and engagement strategies with the goals of our clients regarding channel partners, employees, and consumers.

How can loyalty marketing companies make a difference in today’s economy?
We see many firms shifting more strategic focus to retention rather than acquisition. Smart companies should be taking advantage of this opportunity to identify and appeal to customers in order to grow their business. Loyalty programs are a great way to attract customers, engage customers, and grow your best customers. Additionally, loyalty companies have a unique ability to help clients focus on measurable results – loyalty marketing is measurable marketing.

“Think like a consumer. Be aware as you walk in your own shoes—as you live your daily life—and the needs of the marketplace will be self-evident.”

Word of advice for a novice loyalty marketer:
Think like a consumer. Be aware as you walk in your own shoes—as you live your daily life—and the needs of the marketplace will be self-evident. L

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LOYALTY FORUM: Behind the Brand/People

Jill Noblett
Getting to know Jill Noblett, SVP at Wyndham Hotel Group
Join us at the Loyalty Expo and hear Jill share how Wyndham—the worlds’ largest hotel company—is continually innovating its’ customer loyalty strategies. JILL IS RESPONSIBLE FOR the strategic development and management of the Wyndham Rewards loyalty program, customer loyalty initiatives, the Hotel Group’s customer database, directmarketing programs, strategic marketing alliances and promotional initiatives across WHG brands. She spearheaded the design, development and 2004 launch of TripRewards, the company’s first system-wide, multi-brand customer loyalty program, its 2008 rebranding into Wyndham Rewards and the program’s global expansion. The Wyndham Rewards loyalty program is the largest in the lodging industry based on the number of participating hotels, which include the Wyndham®, Ramada®, Days Inn®, Super 8®, Wingate® by Wyndham, Baymont Inn & Suites®, Hawthorn Suites®, Howard Johnson®, Travelodge®, Knights Inn® and Microtel® brands. Prior to her current role, Noblett held marketing positions with Bertelsmann Corporation, Columbia House, Prudential Direct Inc. and Rapp Collins Worldwide.
What is your favorite vacation destination?
I have a tendency to pick a different destination each time versus going back to the same place again. I guess it’s a sense of adventure driving that, and also a strong desire to experience a variety of places and cultures. There are certain countries I have visited several times that I can site among my favorites—I love the west coast of Mexico for the relaxation and the weather, I love Italy for the diversity it provides in terms of places to see—Venice, Florence, Rome, the Amalfi coast—all such beautiful locations and all so different in terms of experiences. I would describe France in that same way—you can go back several times to locations that are very different—one of my favorite trips was the Route du Vin in Alsace Lorraine. The sheer physical beauty of Switzerland always takes my breath away and in the past several years, I have really rediscovered the joy of traveling right here in the wonderful uS.

When traveling for fun, what is your packing secret? I wish I could say packing light, but that is not my

forte!! I like to be prepared, so I tend to pack on the heavier side depending on how accessible things are where I am going. But, I am usually glad for what I have brought. Since I carry liquids, I typically check baggage now but have learned to always pack at least for one night in my carry on just in case of lost luggage (which has happened to me more than a few times unfortunately). And, I will bring a bag for dirty clothes so that when I come home, I can just dump it all in the wash.

Which books and magazines would we find in your luggage? I use long flights as an opportunity to catch

up on work reading. So often, it will be industry publications, but I make sure to bring along a few entertainment pubs (People!) for some light reading. I have recently become a fan of historical fiction—Philippa Gregory is one of my favorite authors in that genre. She wrote, “The Other Boleyn Girl” and several others in that series.

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Which talent would you most like to have?
Songwriting. Music evokes such emotion and creates connections between people. Songs are engrained in the fabric of our lives and the memories we have. It would be a cool feeling to be the originator of something that powerful.

Mother Theresa of Calcutta. She was such a symbol of compassion to the world. I read a description of her once that called her a ‘luminous messenger of God’s love.” What an incredible honor it would have been to have met her.

If you could invite anyone to dinner, past or present, who would it be? I would have to say

Tell us about “Wishes by Wyndham” As one of the core values of Wyndham Worldwide, we feel strongly that it’s our responsibility to do what we can to improve the world around us. It’s because of this value to support our communities that Wishes by Wyndham was created. We have teams of volunteers who work together to identify and support charities that reflect our interests in women and children. We have four signature charities: Starlight Children’s Foundation, Beyond the Moon, The Christel House and Hole in the Wall Camps. We are actually using our loyalty program Wyndham Rewards as a mechanism to provide these organizations with philanthropic support. The website is www.wishesbywyndham.com

“I guess I am fortunate in that I love what I do; marketing within the travel and hospitality industry is very exciting and dynamic.”
Which person has made the most impact in your life? My mom. Hands down. Her name was
Joyce and it fit her perfectly because she was so joyful. She was mom, best friend and sister to me—we were inseparable. My mom was such an amazing woman and role model. She raised three kids on her own after my dad died, was a great daughter to her own mother, and dealt with terrible illness and grueling treatments with courage, dignity and grace. She never lost her lust for life and her sheer joy in being alive. The room lit up when she entered it and everyone loved being around her. I miss her every single day. strategies and programs are increasingly critical in this economic climate. There is a limited spend available so we must prevent the defection of our best customers and find ways to increase our share of wallet. The key is obviously landing on those efforts that provide the greatest return on investment. I think right now it’s about marrying the concept of loyalty with providing true customer value—so we may not want to discount product, but if we can add more reasons for the customer to believe they are getting value for their spend, that’s a winning strategy.

What’s your outlook for customer loyalty for 2009 and beyond? I believe that loyalty initiatives,

If you were not doing what you do today, how would you be spending your time?
I guess I am fortunate in that I love what I do— marketing within the travel and hospitality industry is very exciting and dynamic. I am especially passionate about the whole loyalty effect as there are so many dimensions to it. I had the good fortune to be able to design and build a program from scratch and it has grown to be a very important part of our business. Not everyone has the opportunity to do that. It has been a challenging yet very rewarding (pardon the pun) experience. I don’t do it alone though. I have an incredible team of people who are equally as passionate about the program and our business.

can give is to be open to testing and learning. Not everything you try will be a success but even small wins (and yes, the failures) can result in great learning. It’s also important to realize that what worked yesterday might not work today because we see how customer behavior and expectations continually evolve. We are also all in a mode now where we have to do more with less. But don’t give up! Sometimes relatively minor tweaks in strategy can move the needle and open up the appetite to do more. And I have found that managing through tough economic times can make us smarter, more effective and more efficient. L

Your advice for up and coming customer focused executives: I think the best advice I

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FEATURES

Your Customer—Version 2009:
by Sandra Gudat – Customer Communications Group, Inc. (CCG)

Understanding the New Consumer Mindset
Understanding how the consumer mindset has shifted over the past year is the first step to keeping up —and getting ahead.
In case you haven’t noticed, there’s a brand new consumer mindset at play today. The conspicuous consumption of the past couple decades has given way to penny-pinching financial conservatism. Consumers are more fickle than ever— they’re hunting for the deepest discounts, thinking longer before buying and tightening up their credit usage. Businesses in all sectors are feeling the impact. Since there’s no better way to begin overcoming a challenge like this than to understand it, we’ve compiled an overview of four key traits of the customer—version 2009.
FRUGALITY GETS CHIC Layoffs, pay cuts, battered investment portfolios and a general worry over the state of the union and “what may be” has caused vast numbers of consumers to cut back on spending and redirect their budgets around the nearforgotten art of saving. n More than 50 percent of consumers say they have less discretionary funds than in 2007.1 n Two-thirds are buying fewer items or delaying purchases.2 n 60 percent are shopping for sale items and using more coupons.2 TRUST AND VALUE ARE THE NEW HOT BUTTONS With retailers discounting merchandise up to 90 percent over the holidays, some customers have grown distrustful that merchant pricing is a true reflection of product value. n Nearly 50 percent of consumers are switching between retailers to get better values.3 n And they want real value, whether from value pricing or value-added services, such as free consultations or a knowledgeable staff that can answer their questions. CONVENIENCE AND SERVICE RIVAL PRICE From faster checkouts to seamless multi-channel integration to more customization options, customers want a faster, easier, more personal shopping experience. And, they may be willing to soften their focus on price if they get it. n Nearly three-fourths of consumers say they are more likely to shop with a retailer that gives them the flexibility to interact easily via online, mobile and kiosk self-service channels versus a retailer that does not.3 n They’ll appreciate new technology that enhances their shopping experience. For instance, IBM’s Virtual Mirror Kiosk lets consumers “try on” makeup using a digital photo, then share the results with friends via e-mail and social networks. n Forty-six percent of U.S. multi-channel shoppers want to receive price comparisons, product reviews, coupons, promotions and store sales information online or via e-mail.3 INDULGENCE AND ESCAPISM WON’T BE FORGOTTEN Embattled and anxious they may be, but consumers will still want to indulge and escape momentarily from the stress of day-to-day life. n They’ll look for small, affordable luxuries (i.e., premium chocolates and coffees). n They’ll seek out light-hearted experiences, entertainment and products that promise to enhance their mood. n They’ll bring more experiences into the home, such as pre-packaged gourmet meals and home spa products. ADJUST NOW FOR A STRONGER FUTURE In a tough economy, customers rule more than ever. Understanding their current mindset and making appropriate adjustments to your business and marketing strategies can help you maintain your customer base. Play it right, and you could even emerge from this downswing with customer relationships that are stronger — and more profitable — than ever.

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Bring your customer loyalty and retention initiatives to a new level!
CCG’s Sandra Gudat will be presenting at Loyalty Expo 2009. Join her session as she discusses focusing scarce resources, finding and mining for opportunity within your customer base and developing stronger loyalty value propositions.

Survival in the “New World Order” of Consumer Marketing:
Three Things Retailers Can Do Right Now
Loyalty Management asked CCG retail experts Sandra Gudat and Lane Ware to offer three actions you can take now to put your business in a better position.
1. MAKE SURE YOUR VALUE PROPOSITION IS STRONG.
Differentiation is essential when the amount of consumer dollars available is shrinking, Gudat says. “Revisit your value proposition. How does it differentiate your business? Is it still valid in the new economy? Is your messaging on target? Does your customer experience live up to your promises? These are the questions that will drive a retailer’s bottom line,” Ware says.

3. UNDERSTAND YOUR CUSTOMERS BETTER THAN YOU EVER HAVE.
A business should be collecting data on its customers — on their buying habits, preferences, discount responses — to drive their decisions, Ware says. “There is no time or money for trial-and-error business operations today,” Gudat says. “Businesses can’t afford to guess anymore. They need deeper customer intelligence to direct decisions — from marketing and merchandising to product development.”

2. FOCUS YOUR RESOURCES.
The value of knowing where to place your marketing dollars and effort can’t be overstated, according to Gudat. “You have to not only know who your best customers are, but also which customers are likely to become your best customers,” Ware says. Every retailer is looking for the right thing to build traffic, Gudat adds. “But it’s more than driving all shoppers. It’s about bringing in the profitable customer.” One tactic to consider is loyalty scoring of your customer database. “That score should include a profitability factor to guide your discounting moves,” Ware says.

BOTTOM LINE: OPPORTUNITIES ExIST
Both Gudat and Ware agree that opportunities are out there for strong retailers who can take advantage of them. “It’s all about watching for trends, and then being quick to act,” Gudat says. Plus, remember that history has been kind to retailers who maintain an aggressive presence in the marketplace, Ware says. “A recent Nielsen Company report reminds us that in the 1980s, companies that stayed the course enjoyed a 275 percent growth rate in the first five years after the recession, compared to companies who cut their marketing budgets and saw less than 20 percent growth.” L

1. “Shopper advocacy: Building consumer trust in the new economic environment,” IBM Institute for Business Value survey, http://www-935.ibm.com/services/us/gbs/bus/pdf/qr_gbe03143uwen_nrf08.pdf, released Dec. 2008, accessed Jan. 22, 2009. 2. “IBM Helps Retailers Respond to Changing Consumer Behavior,” IBM Press Room, http://www-03.ibm.com/press/us/en/ pressreleases/recent.wss, posted Jan. 12, 2009, accessed Jan. 22, 2009. 3. “Consumers are shopping on price and want more self-service help, study says,” Internet Retailer, http://www. internetretailer.com/dailyNews.asp?id=29126, posted Jan. 20, 2009, accessed Jan. 21, 2009. © Customer Communications Group, Inc. (CCG); first published in The Profitable Customer, Spring 2009

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Upside and Challenges of a National Coalition
by Roger L. Brooks – ValueCentric Marketing Group, Inc.

How can loyalty marketers in the uS learn from their neighbors when it comes to coalition-loyalty? Let me count the ways.

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’M REFERRING SPECIFICALLY to our neighbor to the north who has slightly more square miles of land, yet is ten-times our junior in population. The uS capitalistic ideals have typically adopted a generalized philosophy toward our friendly neighbors; “Anything You Can Do, I Can Do Better” (lyrics from the song “Anything You Can Do” from the 1946 Broadway musical, Annie Get Your Gun.) Canadians would argue however, that this egotistical philosophy falls short when it comes to their fancies like hockey, maple syrup and loyalty. Yes, I said “LOYALTY”. Loyalty programs and coalition programs in particular have thrived in Canada. By coalition I’m referring to national retail partners (called sponsors) who have teamed up to issue a common loyalty program currency. The coalition-revolution began in Canada less than twenty years ago when AIR MILES opened their doors and launched a coalition program with anchor partners in virtually all major spending verticals. Today, more than half of Canadian households are active AIR MILES “collectors”. In addition, other long-standing loyalty programs such as Aeroplan have evolved and followed suit by developing coalition programs of their own.

So, just what is it about coalition programs in Canada and AIR MILES in particular that has the stars aligned perfectly? It comes down to one word – will. AIR MILES had the will to: n Issue a non-payment loyalty card which they call the “Blue” card. n Open negotiations and partner with national merchants. n Overcome point-of-sale and technical challenges. n Offer category exclusivity. n Defy the odds of issuing a common loyalty currency. n Partner with two competing card issuers (American Express and Bank of Montreal). n Make coalition-loyalty happen! Loyalty marketers in the uS should continue to learn from AIR MILES’ success, which has since expanded to the Netherlands, Spain and the Middle East. Now, more than ever, the uS is in prime position to offer a common loyalty currency. Reason #1 is the current state of the uS economy. Merchants are in need of any competitive advantage they can get. They are in need of new business opportunities which are compelling, proven and profitable to their bottom line. Although a majority of leading national consumer giants offer stand-alone loyalty programs,

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“It’s not a matter of if, rather, it’s a matter of when. When will coalition-loyalty launch in the uS and what will it look like?”
the potential for coalition-loyalty in the uS is enormous. The coalition model provides a platform for impactful crosspromotion opportunities, as well as tremendous benefits such as analyzing consumer data. The shared data that comes along with coalition-loyalty is powerful, and if marketed correctly has a direct impact on motivating customer behavior. If the incentive is great enough, consumers will change their buying habits. The beauty of the uS marketplace is that there’s room for more than one coalition provider. Being first to market is always a key factor, but the reality is the dynamics of the uS marketplace is vastly more complex than in Canada. For example, in the uS, large providers in certain categories such as fuel and grocery tend to be more regionalized. There are many franchise locations in the uS which can create complexities. In addition, payment processing systems and point-of-sale variations can complicate the effort. That being said, there are still enough compelling reasons why coalition-loyalty will work. The sure fact that several category leaders have existing loyalty programs in place today is a big advantage. Currently, there are several companies testing the waters with coalition-loyalty in various pockets around the country. There are formal Requests for Information & Proposals circulating around the industry. There are executive-level meetings taking place every day on the subject. There is strategic planning happening in many boardrooms. It’s not a matter of if, rather, it’s a matter of when. When will coalition-loyalty launch in the uS and what will it look like? It may not look exactly the same in the uS as it does elsewhere, but coalition-loyalty can breed success for both sponsors and collectors. But in the end, and like our Canadian neighbors, this gigantic opportunity will most likely come down to that one small word – the will to get it done! L

Roger L. Brooks had a chance to catch up with Bruce Kerr, President of LoyaltyOne US (the parent company of AIR MILES) to provide his view on coalition-loyalty in the US.
Can loyalty-marketing in the US replicate what is being done in Canada? [Bruce Kerr] “Yes it can, the overall household penetration may not be as high, but the avidity of the customer base will be equal if not greater. The ramp up of penetration will outpace that of Canada, due to the high embedded base of loyal customers across the partners. What makes the coalition model so strong is its ability to leverage consumers’ everyday spend in high-frequency categories to offer them attainable rewards and benefits they can’t earn as easily in a proprietary program. The everyday spending component is key. Proprietary programs tend to focus on a subset of consumers, like road warriors or the affluent. But the high-frequency categories really open your reach into middle-class consumers, which allows a coalition to naturally build a much bigger customer database from which to generate results for sponsors.” What are the obstacles that have stood in the way in the past? [Bruce Kerr] “Obstacles of the past were the unwillingness of US companies to work together cooperatively — sharing marketing costs and issuing a shared currency. Plus the sheer size and diversity of the US marketplace is challenging. Coalitions are notoriously difficult to orchestrate, but once they launch and achieve critical mass with consumers, they demonstrate formidable longevity and are difficult for competitors to replicate. And with coalitions now operating from Brazil to Malaysia and points between, the case studies suggest that most markets eventually evolve toward coalition loyalty. The US is poised to be next.” Are things different today, and if so, how? [Bruce Kerr] “The current recession may ironically open a launch window that finally allows a U.S. coalition program to take flight. Lack of liquidity and low consumer confidence may lead to a short-term weakening in company investment in proprietary loyalty strategies. Conversely, the same environment will fuel a need for U.S. Companies to share marketing costs and control program liability, which will drive demand for partner and coalition loyalty models. Companies are now prepared to evolve or integrate current strategies with coalition opportunities. Consumers craving differentiated programs allow them to quickly earn great rewards for their everyday spending.”

Bruce Kerr

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Do student discounts build loyalty?
by Bjorn Larsen – Edhance

When you see a young college student standing at the sidelines of a football game with his face painted in school colors and three letters proudly written in permanent marker on his chest, screaming from the top of his lungs something that might resemble his school chant, it’s hard to argue that students aren’t loyal. The question is, how do you make them loyal to your brand?

S FRESHMEN STuDENTS haul their parents up and down the aisles at Target every fall, something unique is happening. The dependent kids are turning into independent consumers, and over the next four years they begin shaping their brand loyalty for decades to come. While parents often get the honor funding the spending, students take more and more control of what is being bought and why as they progress through college. This is the defining time when they decide which bank to trust, what apparel brands represent them, and which beer to enjoy on a warm afternoon in their own backyard 40 years later.
Another benefit to marketing to young adults is that they are excellent brand ambassadors. How many students have convinced their parents to purchase an iPhone, versus the other way around? Who put Facebook on the map, now the hottest thing amongst stay-at-home moms? Students are demanding consumers, and by giving them special treatment, companies can get on their good side. But how can we build lifetime brand loyalty when today’s young adults have amongst the lowest participation in loyalty programs across the board? Research tells us that young adults filter out traditional push marketing more than any other group, both online and offline. It’s also a known fact that students have less disposable income than the general population and are constantly trying to save a buck. So, even if merchants are able to get students interested in their products, students might simply not be able to afford to spend the money.

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from Manhattan’s Fifth Avenue is a common strategy to acquire customers who are less willing and able to pay full price. By offering discounts to affinity groups who are more price sensitive than the general public, merchants can achieve the same effect. In fact, if they could charge a different price to every customer in a socially acceptable manner, merchants would ultimately increase overall revenue. A perfect example of this is demonstrated by colleges and universities themselves. These organizations typically offer need-based and merit-based tuition discounts to their customers through financial aid. Through this strategy, they are able to dynamically set a price students and their families are able to pay, while maximizing the future income from that customer. Students with better grades tend to get higher-paying jobs, and are more able to donate more to the university in the years to come. Schools have found a socially acceptable way to charge a different price to every customer, and by offering student discounts, merchants can follow their example.

It’s hard to build an effective college program
The college market is extremely scattered: in the united States alone, there are more than 6,500 higher education institutions, each with different trends, audiences, and policies. It’s hard to find a common denominator that resonates well with everybody. Students at some of these institutions like to dress professionally, some wear alternative clothing, and some don’t seem to wear anything at all. While competitive college athletes spend every extra hour of the day in the gymnasium, others spend all night building their own virtual world in Second Life. Sure, most of them are on Facebook, but what they do in social networks varies enormously from person to person. In fact, that is why it’s so appealing to them—it’s personal. How do we, as corporations trying to sell products and services to this demographic, get their attention? An old adage offers some great advice: Everybody likes a good deal. If a merchant decides to offer discounts to students, they are still facing some very real challenges. It’s important that the offer is only available to a closed audience, meaning currently enrolled students. Coupons or special online links can be easily shared with non-student friends and family. Secondly, the discount has to be operationally convenient. Training a sales force of thousands of employees to evaluate 6,500+ different kinds of student ID cards, many of which never expire, isn’t very scalable. But perhaps

Student discounting does not discount the brand
A common misconception among marketers is that price differentiation towards students is considered discounting, which is just not something they should associate their brand with. However, several well-established brands with solid student offerings, including Apple, Microsoft, Dell, Jetblue, Amtrak, J.Crew, and Club Monaco, have proven this wrong. For companies like Apple, in fact, student discounts are perceived as corporate contributions to making education affordable, which is certainly a positive association for the brand. A far more familiar practice for marketers is geographical price differentiation. Lowering prices for consumers who live in a lower income area or choose to drive to an outlet mall area far away

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‘‘

When I bought my laptop, Apple not only gave me a student discount, but threw in an iPod too…Love it! Maya
Age: 20
Student at Arizona State University

’’

On STUDENT DISCOUNTS: Top Uses: Movies & The Apple Store
most important of all, it must be measurable. If a merchant can’t track the success of the program, they will never know if they are offering the right discount at the right locations at the right time. The key is to get into the transaction.

The next generation of student discounts
At Edhance, we are building a no-fuzz merchant-funded rewards program for college students by seamlessly processing discounts behind the scenes. Edhance is free to join for students and completely pay-for-performance for merchants. All members are actually students and all participating merchants deliver real value. We have direct relationships with universities and colleges that allow us to verify enrollment and market to students on-campus. Students register their credit or debit cards with us, and through integration with payment processors, we get visibility into their transactions with our partners. From there, we calculate the discount, charge it to the merchants and credit it back to the students. Our partners get online access to a multitude of reports, detailing which schools their customers are from, their average time to graduation, which locations are most popular, and so on. Limited time promotions can be customized and targeted towards specific store locations, transaction amounts, or universities. No staff training is necessary, since everything happens magically on the back end. While many of us perhaps try to forget many of the things that happened in college, the reality is that these few years are some of the most influential times of our lives. Let’s learn from the best, the universities, and build lifetime brand loyalty through price differentiation. It’s a proven strategy that still gives us a warm and fuzzy feeling every time we spot a rusty old car with our old school name in the window, decades after we graduate. That’s brand loyalty. L

Thoughts: “I love student discounts… wish there were more of them. It’s always a nice surprise when I am out and see someone is offering a special price because I am a student. Makes me feel better about what I am spending to know they are thinking of me.” What Loyalty Marketers Need to Know or Better Understand About Your Generation: “We want everything to be fast and easy. We don’t want to have to fill out forms or wait for regular mail. We want… or I want anyway, ‘Instant Gratification.’”
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Is the “Customer Insight Gap” Limiting Your Loyalty Program ROI?
by Andy Cutler – Mercury Most companies spend a lot of time and money figuring out how they want to configure their loyalty program. Should it be points-based? Do we offer redemptions through partners? When should accrued-value expire? These are all critical drivers of success when designing your program—and most companies do a good job in this area. uT ONCE THE PROGRAM is up and running, most companies miss a major opportunity to increase program ROI. The problem is this: too much focus on program results and not enough on customer results.
All loyalty programs track metrics such as total members, number of active members, total liability, point redemption rate, recruitment program performance, etc.—and these are critically important to understanding the health of the program. However, they provide little insight into how to change the customer dynamics of the program to improve program ROI. We call this the “Customer Insight Gap.” And it can only be bridged by asking different questions from the ones you are currently asking—and then using the answers to change how you manage your loyalty marketing program. For example: Instead of Just Asking: How many customers are we enrolling? How many customers are active? What is our current liability? Ask This: Are we enrolling the right customers? What does customer migration look like? Are we over-discounting to some customers?

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who use up a lot of your marketing budget but don’t spend a lot in return. And your poorest customers actually have a negative ROI. While these customer truths are less severe within a loyalty program (which naturally draws in your better customers), it is still the case that program ROI can be improved dramatically by shifting your member recruitment focus from “getting the most customers” to “getting the best customers”. Remember: when your goal is to maximize the number of customers you bring in, you are inevitably going to bring in a large number of customers who turn out to be unprofitable—and that will be harmful to the ROI of your program. The first step towards making this shift is to fill the insight gap on customer profitability within your loyalty program. A bit of advice: don’t over complicate this. You are just trying to differentiate between customers, not create a new accounting process. Here’s the basic process: 1. Estimate customer profitability by subtracting total marketing costs from total revenue for each customer (for the past 1 or 2 years, depending on purchase cycle) 2. Pull out the most profitable customers (top 20%) 3. Perform a demographic profiling exercise (the off-theshelf cluster profiles like Prizm or PersonicX are good for this) to understand what your most profitable customers look like and where they are coming from 4. Modify your program recruitment targeting to focus on bringing in members who look like your most profitable members If you need to convince yourself (or management) that this will be worth it, here’s a tip: once you have your customers ranked by profitability (Step 1), calculate the change in ROI you will achieve by increasing the number of most profitable customers by 10% and decreasing the number of least profitable customers by 10%. It will surprise you.

There are many more customer-centric questions we could ask, but let’s explore how just asking these three questions can help lead to better ROI for your loyalty program.

Are We Enrolling the Right Customers?
With apologies to Thomas Jefferson and the Declaration of Independence, the truth is: not all customers are created equal. Most companies are aware of the 80/20 rule (80% of your revenue is generated by 20% of your customers). But did you know that the top 20% of your customers typically generate more than 100% of your profits? This means that your best customers actually subsidize your weakest customers—the ones

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“Did you know that the top 20% of your customers typically generate more than 100% of your profits? This means that your best customers actually subsidize your weakest customers.”
What Does Customer Migration Look Like?
Loyalty programs are primarily designed to concentrate spending (share of wallet) and lengthen the customer relationship (retention). On average, most of them are successful at achieving these goals to some degree. Then again, on average most loyalty program results are, well, average. But what else would you expect when objectives are set and results are measured to the average? This is what we call the Mercury Law of Averages: if you define success in terms of average performance targets—“on average, we want to bring in XX,XXX members per month and have them spend $YYY per year” for Z years”– you are very likely to achieve average performance. Breaking out of this “Average” trap requires the same basic strategy (discussed above) in enrolling better customers: understand the differences between customers and then use that insight to develop customer strategies based on where they are in the lifecycle and their potential value. Once you have done this segmentation, you can begin to track how customers are moving from one segment to another over time. For example, here is a simple customer migration report that shows how customers are shifting from segment to segment over time:

Are We Over-Discounting to Some Customers?
In an effort to keep loyalty program customers coming back, many companies use discount offers and coupons in all (or nearly all) customer communications. On average (there it is again!) it is an effective strategy that drives traffic and purchases. But there is a price to be paid even beyond the cost of the discount itself, because by constantly discounting you are training your customers to look for and wait for deals— reducing the likelihood that they will buy at full price. What is even more painful is that companies almost always have the feeling that they are over-discounting, but they don’t know how to break the cycle. There is a way out of the discount trap. First, we need to recognize that not all customers are equal when it comes to sensitivity to discount offers. Some are impulse buyers willing to pay full price; some are “coupon clippers” who won’t buy anything at full price but will buy something they don’t need if it’s on sale (great target audience for clearing merchandise); some are in between. The key is to understand the differences between customers (sound familiar?) and then use that insight to vary to offers based on how sensitive they are to discounts. A simple way to differentiate is to look at the percentage of total items purchased at a discount for each customer. Another

Here’s how to read this chart: of those customers who were in the Very High value group in 2007, 50% stayed in the Very High group in 2008, 23% slipped to High, 13% fell to Medium, etc. Conversely, 15% moved from High to Very High. The percentages provide focus as to where the largest shifts are in terms of the number of customers, but overlaying revenue onto this chart (average annual revenue by segment) will reveal where the large ROI opportunities lie. For this client, the most obvious place to start was with customers who lapsed in 2008. In total, this group represented over $130 million in potential revenue that was not realized. This information could possibly lead to the development of a new retention strategy or a lapse/recapture program.

way is to evaluate responsiveness to communications with a discount vs. those without. Once you have done this, you can experiment with replacing discount offers with more relevant product (full price) offers for those customers who appear to be less sensitive to discounts. Over time you will find out the right mix of discount and non-discount oriented communications— and your ROI will be the better for it. Realizing the untapped potential of your loyalty program starts with asking questions that go beyond the traditional measures—questions that lead to increased customer insight once you have answered them. These insights will enable you to make key changes to your program that in turn drive your ROI higher. L

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What Consumers Really Want
Learning Lessons from Turning Loyalty into Community
by Justin Barrie – Perkler

THE LOYALTY INDuSTRY is engaged in a constant discussion about how to improve and get increased benefit from programs. About two years ago, Perkler took a different track and embarked on analyzing and rebuilding the loyalty program dynamic from a consumer experience perspective.

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HE HYPOTHESIS WAS (and is) that consumers are disengaged from their loyalty memberships because they are overwhelmed by the enormous number of relationships they must support in order to be aware of what they are entitled to.
So what have we found by taking a consumer experience perspective?

The reality of loyalty is that THEY own the relationship—be inclusive not reclusive
More and more the consumer owns the relationship with the brand rather than the other way around. In reality this is what has been happening in loyalty (and shopping) for years. Households hold multiple memberships, utilise different programs at different times and happily engage with their entire Loyalty Portfolio. Deep down, even program owners with a wealth of data on what their members do within their program long to know the truth about that member’s activity OuTSIDE of their program. Brands may be top of mind in a particular segment, but they never completely own the heart and mind of the consumer— particularly at the point of sale. This is particularly true in the current economic environment. While the current focus is on the need to have tools and campaigns that differentiate one program from another, a culture of ‘winning the consumer and bringing them home’ seems to have developed. This is played out by dragging the consumer to a brand’s own collateral only, interacting with specific offers and messages direct to the consumer. In short attempting to silo them into a direct relationship. If loyalty is to evolve, at least some of the energy put into communicating directly with consumers should be put into

being part of an inclusive loyalty market. It has happened with books and music and it’s time for loyalty to get all of the programs, offers and communication points in one consumer focused place. Make this place a research tool for learning about programs, brands and perks, and you can then interact with the consumer when they are actually looking to find out about you—not when you think they should be sent a communication. This is confronting as different programs worry that their offer isn’t as good—but no one ever improved by staying away from a market. Brands need to jump in and play.

Changing from ‘loyalty’ to ‘Entitlement Shopping’
The term loyalty has taken a beating in recent history. Rightly or wrongly, from Frequent Flyer programs to small retail offerings, the perceived value of the loyalty program currency has reduced significantly as consumers question both the economics and availability of the perks they have been working hard to earn. The risk is that in order to re-engage with consumers, brands feel the need to drastically increase the offer—getting caught in essentially a price slashing exercise via their loyalty program. Instead of being caught in this cycle brands have another option. Turn loyalty into entitlement shopping. At a time when consumers are universally looking for any advantage to making their purchasing more economic, why isn’t the loyalty industry positioning it’s perks as a standard and immediate entitlement that enables the consumer to have greater purchasing power. Imagine a time when retail prices are attached to an Entitlement Price! Linking the outcomes of the loyalty program deeply with the purchasing process is a great way of describing the inherent value of a program.

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“You can interact with the consumer when they are actually looking to find out about you.”

Allow the consumer to ‘pull’
Everything we have seen and heard from consumers tells us that they are overwhelmed by the loyalty industry. Multiple offers, non-stop communication from tens of retailers and programs, different styles of websites and other channels can lead to a disengaged and passive audience. Certainly the industry research on active memberships as opposed to actual memberships in uS households seems to support this. Rather than trying harder to ‘get the message through’ to consumers, we’ve learned that allowing them to seek answers when they want it is essential to building trust in the sector. It also allows for a lower cost if programs have data available and the consumers choose when to interact with it. The potential tools to enable this are varied and exciting. Perkler has done this in a web platform by building an ability to build and search across a virtual wallet. This enables consumers to search their entire portfolio when they want to based on likes, purchases and location. For programs, they get to see what members are searching inside and outside of their own program (the great missing link from the inclusive/reclusive debate).

On a mobile level, pull technology is essential. People make significant purchasing decisions on the spot. By enlisting a tool like a Smartphone application, you can allow consumers to search their entitlements right at the point of purchase. Capturing them but allowing them to dictate when and how they were contacted. The Perkler iPhone application customizes the consumer experience across hundreds of loyalty programs to facilitate this right now. Engaging with social media is the last plank in the information, mobility, engagement cycle that we have identified as crucial. Taking part in Twitter conversations, monitoring blogs and linking into niche communities such as Perkler and other shopping and flight communities isn’t a necessary evil, it is just necessary. By engaging with the community a range of quantitative data can be accessed and true brand and program value gauged. In lots of ways we haven’t learned anything new. Consumers move about between brands, they define themselves by a brand but purchase at others, and they are passive within the loyalty program market. What is new are the tools and approaches that will allow programs to engage within the purchasing process so that loyalty drives the purchasing decision and isn’t a passive bystander. L

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The Retention Imperative
by Tom J. Salutz & John Dawson – DataCo *Abridged Version. To read the complete article with detailed study analysis visit Loyalty360.org

ExPO WORKSHOP PART 1: PREPRATORY READING! Sign up now for Loyalty Expo Workshop Sessions held Sunday, May 31st. Join Tom and John from DataCo for phase two of “The Retention Imperative” as they workshop an in depth conversation on Pre-emptive Retention.

Acquisition programs perform better when teamed with pre-emptive retention programs because stabilizing your customer base is absolutely required in order to grow it.
HuRN HAS BECOME the major issue for many businesses in today’s economy, and it may threaten their existence if they panic and lose sight of some key drivers to address it. unfortunately, as budgets get stretched, shortcuts get taken, and desperation takes residence in the Marketing Department, the chance of a miscalculation increases dramatically
Recent work on the relative efficiencies of using pre-emptive retention programs versus acquisition programs to stabilize customer populations has led us to a counter-intuitive conclusion. It is not just: the convergence of growing recession forces, general consumer dissatisfaction, and the failure of programs designed to hold on to customers, which forces marketers to measure, test, and evaluate their acquisition techniques before they commit shrinking budgets to them. It is the need to avoid miscalculations that can destroy a business. Our current modeling makes it clear that acquisition programs alone are not the best or even most efficient way to stabilize your customer base. In fact, they must be teamed with pre-emptive retention efforts to offset the costly inefficiencies of most acquisition programs. By the same token, ill-conceived or margin-destroying retention programs, applied preemptively, can start a tail spin that is hard to pull out of.

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The key to maintaining margin and successfully addressing churn is pre-emptive retention. Most retention programs do not address the person who is about to leave, and most acquisition programs are structurally too inefficient to economically deliver the new customers the business needs to survive. When you address both the need for more new customers and can slow down attrition rates without destroying your margin, we have found that you have the elements required to stabilize and grow your customer base. The analogy we like to use is a bucket. Probably because when I was a lad, my father told me that one of the ‘truths of life’ was that no matter how small a hole in a bucket is, the water would still eventually run out. By the same token, most people realize that if you are losing customers—even at a very slow rate—you will eventually be out of business if they aren’t replaced. But in a highly competitive world; in a world of commodity products and pricing; in a world of fluid consumers with almost no barrier to movement; and in a world which is increasingly uncertain economically; the problem that most marketers face is that, the hole in the bucket is actually quite large. Facing double digit churn rates, the task of maintaining or growing your business by

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simply filling the bucket through acquisition alone will prove nearly impossible. So it is time to take a deep breath and begin to work smarter. Our goal for analytics in this situation is to try to determine the most efficient way to handle this churn. Do you focus on putting more water in the bucket or fixing the hole? In other words, how do each of the tactics—acquiring more customers or retaining the ones you have—compare on effectiveness. Can any one technique—in and of itself—solve the problem? Can moving budgets around help? If not, what is the best approach to take? Analytics can provide the guidance you need to evaluate the consequences before you execute your plan. Just as testing usually provides unexpected insights into the best solution for a particular problem you are investigating, trying to determine the efficiencies of various approaches to the problem of ‘churn’ has once again led us to a surprising conclusion. Going in to this project, we fundamentally felt that acquisition, attrition and retention were all related in a functional way. It just was not clear how, until now.

TO SET THE STAGE, OUR BASE CASE COMPANY:
A continuity-model company ended last year with 1.5 million paying members. In 2009, they are going to lose 271,283 of those subscribers in spite of their best efforts. By spending $50 million the company will be able to add 201,449 new customers in 2009, but it will end the year with a net loss of 69,949 customers. Five years later—when 2013 comes to an end—they will be losing another 273,932 customers a year. And in spite of their spending growing to $83 million to add 248,261 new customers in that year, they will finish 2013 with a little over 1.262 million customers. The cumulative loss of those customers over five years means that the annual revenue for our Base Case company will have fallen by $120 million.

OUR BASE CASE
In order to analyze the effect of one approach or another on the churn problem, we had to build a Base Case model that simulates the situation these companies find themselves in. The model is actually a composite of any number of similar clients we have worked with over the years, and will realistically reflect changes in the variables we are testing. In our Base Case, as in many continuity businesses, the length of time that the customer has been with the company is a critical indicator of likelihood to churn, and, that value changes over time. Consequently, to make the model sensitive to a significant predictor like ‘years as a customer,’ we actually age the entire 1.5 million hypothetical customers in our Base Case to reflect a typical customer mix. Consequently, the model is going to act upon attrition patterns and performance in the same way we would see it with a client. We have set the Base Case, and the scenarios we will test, to run over a five year period. This will demonstrate the affect the scenarios make on the model dynamically, and allow us to create a more realistic idea of what is happening over time. Creating any model relies on making assumptions. In order not to be overly distracted by that caveat, we have included a graph titled ‘Annual Attrition Rate by Year a Customer,’ which is our decay curve. That curve affects the performance of the scenarios we are running against our Base Case. Consequently, the model is predictive against the real world companies that this curve reflects, and is derived from actual experience, not a Ouija board.

“Acquisition programs alone are not the best or even most efficient way to stabilize your customer base.”
Given their own dismal projections, we can imagine that the Base Case company’s Marketing Department would be actively pursuing a better way to handle their residual attrition. So here is what they are going to look at through the following scenarios to better handle their churn. First, they will compare two diametrically opposed scenarios, in an effort to answer the burning questions of: “Am I better off by continuing to focus on acquisition and pouring even more money into that tactic/program, or Am I better served by starting a pre-emptive retention program to retain customers who are getting ready to bolt?”

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The Retention Imperative (continued)

Summary of findings
Let’s take a look at how the two scenarios affect the Base Case model, and then try to see if there is way to improve the performance by combining the different tactics.
SCENARIO 1 RELY SOLELY ON INCREASED ACQUISITION SPENDING
AMPING uP ACquISITION spending is probably the one strategy that most Marketing Departments would attempt without even bothering to model it. And we confess that we thought we could get the growth we wanted by just throwing everything we had at the problem. However, if you increase the acquisition effort significantly, the first problem you will face is the decreasing acquisition efficiency. Consequently, you will end up spending more money and getting relatively fewer customers! If your product is regulated or if your market is small or finite the problem can become insurmountable. You will eventually run out of prospective new customers at any price
Since the highest attrition rates in your customer base come with the newest customers you add, you are ultimately diluting your customer base by putting these expensive, uncommitted, and churn-prone customers in to the mix. If you are being measured on ‘bodies in,’ then the results may look good in the short run. If you are being measured on the ability to develop a sustainable revenue stream out of them, the results should not be surprising. The good news is that these customers eventually become longer-tenured customers, and hence more stable. The question is whether you can afford the cost and time.

SCENARIO 2 IMPLEMENT A PRE-EMPTIVE RETENTION PROGRAM ON TOP OF THE BASE MODEL

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uST AS TuRNING up the acquisition efforts in Scenario 1 intuitively seems like the best approach to grow your customer base, any kind of retention effort – especially one put against existing customers—might just as casually be dismissed. Intuitively you know that a retention program isn’t a very effective way to build up a customer base. However, this approach is actually extremely efficient and outperforms the acquisition program in a couple of important ways once you scrutinize it with predictive analytics.
By retention efforts we are not talking about pre-emptively cutting your prices, ramping up your existing loyalty program’s benefit structure, or dumping more money into the win-back or re-capture effort. None of which would significantly address the immediate attrition problem. Rather, we would recommend that you build value with the customers who have the highest likelihood of leaving. Consequently, you are spending your marketing dollars directly against the attrition problem, rather than casting a wider and wider net with the hope of finding a better prospect! There are two reasons why this approach performs better than you might expect. First, part of the effort is being directed against longer tenured customers. So by adding value to the customer relationship and increasing their inertia to stay put – you get better gains from a statistically more stable customer. Second, slowing down the attrition of the newer customers you have acquired has a significant effect on their lifetime value in the model. Consequently, reducing the attrition rate of this customer can have significant revenue impact even if your overall churn rate reduction appears to be modest. Saving a more stable customer for several dollars a month, instead of acquiring an unstable one for hundreds per individual turns out to be a more efficient tactic. Think of it as the process by which you transition churn-prone customers in to longer-tenure customers and you will understand why this scenario drives healthy revenue growth.

“We would recommend that you build value with the customers who have the highest likelihood of leaving.”
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SCENARIO 3 MOVE SOME MONEY FROM THE ACQUISITION PROGRAM TO THE RETENTION PROGRAM

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O MAKE IT a little more interesting, the proposition we decided to test was two-fold. First, decrease the marketing budget in the Base Case by 10%; figuring that many Marketing Departments could be seeing those reductions or more, and then we wanted to re-allocate the budget—without relying on the model—to test and gauge any performance issues we might illuminate.
Convinced that any pre-emptive retention effort funded by existing acquisition budgets would improve the company’s performance; the results surprised us! For what had seemed like a reasonably good idea – more retention requiring less acquisition—we found that combining the two programs in this way gave us the worst of both worlds rather than the best. Almost every indicator went south except the fact that the model remained positive on net revenue. So while it actually made some money we had to consider this approach to be a failure. Many people think that they can ‘prune’ their way out of this market, by surgically cutting back. However, in the light of this scenario, we remain convinced that cutting expenses for acquisition and retention in the current market will come with significant consequences. Many that will turn up in the out years. It is just as important to realize that indecision—and compromise based on cutting-the-baby-in-half—is not a strategy that will serve your company well. Marketers who want to do more than weather the times and challenges we face will need to test, analyze, make an informed directional choice and then fund the strategy to the level it needs to be effective. Anything less is a prescription for failure. Half-way measures may be worse than none at all

The Retention Imperative
IKE ANY BuSINESS, the Base Case company can wait and see if the model becomes reality in 5 years, or if they can do something about it now. Clearly their present marketing effort will not get the job done, and so they have decided to model several different strategies to fix the problem—aggressive acquisition marketing; aggressive pre-emptive retention marketing; or a combination of the two.
When the scenarios were run out over the five year period, this chart shows the summary of how each of them performed against the Base Case model. Most people would be surprised to find out that—from a revenue point of view—it is substantially better to retain customers [Scenario 2] than to add them [Scenario 1]:

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Scenario reSultS compariSon Net ReveNue AfteR MARketiNg iNcReAse iN eNdiNg custoMeRs iNcReAse iN NeW custoMeRs iNcReAse iN AttRitioN iNcReAse iN ReveNue iNcReAse iN MARketiNg cost iNcReAse iN NeW custoMeR cost iNcReAse iN Net ReveNue Roi of iNcReMeNtAl Net ReveNue As A PeRceNt of iNcReMeNtAl MARketiNg

Scenario 1 $3,958,028,656 614,149 419,341 241,405 $335,746,844 $280,875,149 $280,731,708 $54,871,695

Scenario 2 $4,124,482,644 496,897 -1,250 -151,667 $267,958,735 $46,633,052 $599,400 $221,325,683

Scenario 4 $4,163,598,839 759,046 160,382 -67,296 $410,415,977 $149,974,100 $102,498,312 $260,441,878

“Cutting expenses for acquisition and retention in the current market will come with significant consequences.”
SCENARIO 4 MATCH PRE-EMPTIVE RETENTION WITH NEW CUSTOMER INCREASES

20%

475%

174%

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INCE ANALYTICS DOES work, we were able to combine the programs to produce the best results we had seen against the model. Remember, this time we let the model help us determine the right mixture of the programs to optimize our goals. Could it be tweaked further? Of course! But the improvement over the three earlier scenarios is significant in almost every way that we measure it!

While there are many factors, the main reason for these results is that it is less expensive to incentivize a current ‘at risk’ customer to stay—than it is to add a new customer to replace them, which is why we call pre-emptive retention an imperative.

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The Retention Imperative (continued)

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N THE FOuRTH scenario, with a combination of both aggressive acquisition and aggressive retention, the company will end 2013 with a customer base of a little over 1.491 MM customers, which has actually begun to grow. You can see that growth as a rise in the top line of the graph [Scenario 4] comparing the ending customer numbers.
Acquisition efforts and costs were helped substantially by the lower cost retention program which also increased the lifetime value of the customers, and required fewer new customers be added to the base. In effect you can have your cake and eat it too—with an approach that has low costs, high revenue, and still ends with more new customers. Significantly, the same approach without regard to the model [Scenario 3] turns in the worst performance of the four scenarios and provides only a negligible improvement to the Base Case.

IN CONCLUSION…
As we said earlier, the particulars of any business can be quite different, but the universal lesson that this exercise demonstrates is that prudence requires marketers to always model and test their assumptions about customer growth and the interplay of acquisition, attrition, and retention dynamics. It is far too easy to make decisions based on faulty intuition and assumptions that could prove to be tragically wrong. The most important conclusion you can draw from this analysis is that a pro-active retention program is an imperative. If you could only pursue one tactic, then retention is clearly it. Contrary to your intuition, the models demonstrate that retaining your existing customers performs almost as well—from a revenue point of view—as aggressively acquiring new ones. The difference is that with a retention approach your risk is lowered, your costs are lowered, and consequently you keep substantially more of what you make. Our message for the bold leaders who actually want their companies to grow in this environment is: a tactical strategy is available to you. Integrate a pro-active retention program with an effective acquisition strategy. use analytics to help you achieve the balance you need between those efforts, and you will keep more customers longer, and grow a larger customer base by adding fewer new ones. It has never been more important to analyze, understand, reward, and retain. You will benefit from the efficiencies you will be able to achieve. Growing your business with lower costs and higher margins is a strategy that works in any economic climate. Footnotes: [1]Teleconference: The Science of Churn, Sally M. Cohen, Analyst, Forrester Research PowerPoint, March 4, 2009 http://www.forrester.com/rb/teleconference/science_of_churn/q/id/5474/t/1 [2]T-Mobile Aims To Keep Subscribers with a $50 Plan, by Frederick Lane, http://www.newsfactor.com, February 19, 2009 3:09PM [3]Deep Discounts During the Recession Can Damage Brands, New Yankelovich Study Finds, PRNewswire, Chapel Hill, NC, March 11, 2009 http://news.prnewswire.com/DisplayReleaseContent.aspx?ACCT=104&STORY=/www/story/03-112009/0004986557&EDATE=

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April 2009 | Loyalty www.incentivegroup.comManagement 35

TRENDS & REWARDS

The Five Forces of Social Strategy
by Karen L. Webster – Market Platform Dynamics

The concept of social networking as a platform for engaging a community is clearly not new. In fact, it’s been a staple of interaction for as long as there have been more than two people on earth. What is new is the role of technology in facilitating the development of virtual social platforms that extend the reach, power and potential of community.
Me-driven
HIS ARTICLE PROVIDES a new way of evaluating the critical components of a successful social strategy and offers a “five forces” framework for turning these networks into net revenue. These five major forces—me-driven, peer-driven, trust-driven, time-driven and cause-driven—will shape the development of social strategy for years to come. understanding and then managing these five interdependent influences will help to anchor the development of an effective social strategy.

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Cause-driven

Peer-driven

ME-DRIVEN
People often use social networks for voyeuristic reasons. Once a presence is established, they often find sub-groups of people who work in the same place, went to the same school, like the same causes, follow the same music, read the same books, among many other things. But, no matter what the age nor the reason they join and then visit, users are in control of who they are friends with, who they interact with, what conversations they want to join, and what information they want displayed. Creating a community on the user’s terms. Building communities, therefore, is about the community, first, and not about the advertiser. Advertisers have to be invited in; and will only be invited if their offer strengthens the relationships among the friends in that network. Pull, not push, is the name of the game.

Time-driven
FIGURE 1

Trust-driven

MPD’s Five Forces of Social Strategytm
friends, friends of friends, co-workers, old classmates or whether they are simply there to make new connections, it is one’s peers that drive users to stay connected within their social networks. It is also those peer-driven interactions that increasingly drive decisions about everything from movies to merchants. Peer-topeer word of mouth has always been a highly valued source of credible, dependable information, and social networks make those interactions more efficient and more visible. For marketers, it is critical to understand that connections with peers—even those with several degrees of separation—are stronger than connections with advertisers. Knowing who has the influence in a social network (not always the person with the most friends, but with the most relevant friends and valued interaction) is also important.

PEER-DRIVEN
People join social networks because they want to be part of a connected community. If enough people (or enough relevant people to the member) are not part of the community, users won’t join. Whether social network members mainly interact with

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“Peer-to-peer word of mouth has always been a highly valued source of credible, dependable information, and social networks make those interactions more efficient and more visible. ”
TRUST-DRIVEN
Social networks blur the line between what is public and what is private. Members quite willingly disclose quite a bit of information about their careers, education, interests, hobbies, and even their political and religious preferences. Trust is obviously essential in garnering an audience on a social platform because users who don’t trust the viability of their network or its members will not frequent the sites or find value in it. Social networks are viewed as an efficient way to reduce customer acquisition costs and to create a loyal group of evangelists. Brands must earn the trust of the network before they can earn a sale from its members. One of the most powerful ways that some brands have earned trust is by inviting comments and then acting in good faith upon the suggestions that the network provides. Others earn trust by introducing offers that strengthen the relationships that already exist on the network. Commercial intrusions won’t get you very far, but forging a trusted relationship with each member can.

CAUSE-DRIVEN
Social networks have become platforms for advancing social change—formally and informally. The definition of cause, however, has extended beyond the charitable. A cause is now increasingly defined as a “passion” for a particular idea, concept, political party, or current event that mobilizes people to take action. One recent example is how quickly the “cause” launched to show appreciation for Captain Sully Sullenberger, the uS Air pilot who safely landed in the Hudson River in January of 2009 appeared and garnered thousands of members. For marketers, the trick to making cause-driven work is to engage fans and not just attract them to your fan page or application. It is costless to become a fan, download a badge or send the little green patch to your friends. But, getting the community to really engage is much more difficult. The interest from the brands must be viewed by the community as genuine and credible and aligned with existing behaviors of both the brand and the community. And, it has to clearly add value to the community at large and the individuals who comprise it.

“One of the most powerful ways that some brands have earned trust is by inviting comments and then acting in good faith upon the suggestions that the network provides.”

MAKING THE FIVE FORCES WORK FOR YOUR BRAND
Good marketing has always been about building a relationship with the customer. In many ways, social networks as marketing channels is the opportunity that marketers have been dreaming of for decades: an opportunity to access a ready-made community of people who are open about who they are and what they like, and who—unprompted—share those likes and dislikes with the members of their network. But it’s precisely this aspect of social networks that give it a very sharp edge. As marketers, social networks aren’t yours to control. And neither is your message. The network will decide how they view you and what they say about you. Ceding control is necessary to building the credibility and proving the authenticity that are so critical to being “friended” by these strong communities. Marketers must keep in mind that these communities are already vibrant ecosystems who haven’t invited you in and who will ignore you—or worse - if you barge in uninvited. Earning their trust and building relationships must come before the sales pitch. Heed that advice, and you’ll find that in the end that both your company and your bottom line will be “friended” by them even more. L

TIME-DRIVEN
Online, the typical Internet user belongs to at least two social networks. The time trade-offs that people make between different social networks is a function of the types of interactions they wish to have, their needs at specific times, and their interests. For example, an individual who may manage his social life and related interactions on Facebook every day, maybe used to log in to LinkedIn about once a month but now does so daily due to the current economic crisis and heightened interest in professional networking. Breaking through the clutter and into the community requires that you demonstrate how your offer strengthens and efficiently enables the interactions with those within the community. Competing for time and attention means that relevance is now the name of the game. users need a return on the investment of the time they spend on these networks in the same way that marketers need ROI on their marketing dollars.

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TRENDS & REWARDS

Mobile Loyalty & Rewards Keep it simple. Get in now.
by Drew Dahms – Mobile Marketing Consultant

Everyone leaves the house in the morning with their cars keys, wallet/ purse and cell phone or mobile device. Leave any one of those behind and you’re off balance the entire day.

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HE FACT IS, the mobile phone has become the most immediate and personal way to connect with people, no matter where they roam.
Text messaging, also known as SMS (short message service) is imbued with a sense of immediacy. Mobile phones are with most people almost 24 hours a day. This gives it a sense of intimate, personalized communication—“the message is right there in my pocket”. And people actually read all of their text messages. The cost of mobile marketing is shrinking. For one thing, turnkey platforms absorb many of the costs associated with certain aspects of SMS marketing. Secondly, SMS costs about $0.07 per message, down from$0.15 just a few years ago, with even bigger discounts being applied for bulk purchases. Marketers now have the opportunity to tap build a new kind of relationship with their customers thru mobile. That time is now. Looks at these statistics: n Within the next four years, over half of the top 50 brands in North America (52%) expect to spend between 5-25% of their overall budgets on mobile marketing efforts. Of these brands, more than 40% have already invested in text messaging campaigns, still the most popular mobile service to date. n According to research firm eMarketer, the u.S. mobileadvertising industry is expected to balloon from $421 million in 2006 to $4.7 billion—and to $11.3 billion worldwide—by 2011. n By 2010, mobile phone subscribers will climb to 75% of the uS population or approximately 236 million users, according to The Diffusion Group. n About 63% of Americans from age’s 18 to 27 text message, according to a Pew Internet & American Life Project survey out in March. Those teens are bringing texting to their parents - or are moving into the workforce and texting with older colleagues. Now 31% of cell phone owners ages 28 to 39 use text, and 18% of those 40 to 49 do, Pew reports. Any of your customers in here?

WHY MOBILE?
It’s Permission Based. Like other rewards programs, you invite customers to join and become a member of your mobile VIP Club. And it’s FREE to them (standard text rates do apply depending on what their mobile plan). They opt-in once and that’s it. Nothing complicated here. And they can opt-out anytime. But why would they if you are creating value and giving them what they want? It’s Personal. Mobile provides marketers the opportunity to build a more personal relationship with their core customers. Text messaging communication is 1-to-1 is ubiquitous and directly engages the customer more than other channels. It Engages. Read rates for text messages are upwards of 95%. When you get a text message, you read it and are therefore engage yourself in whatever that message is. Mobile can also provide a more fun, interactive experience for your customer with contests, voting polls and links to mobile sites. Creates Dialogue. Send regular and time sensitive alerts about events, special offers, coupons, discounts to their mobile phones. Your customers want to hear from you about special offerings. This makes them feel valued and rewarded. Creates Loyalty. And when your customer feels valued and rewarded, they become loyal. You have now developed a unique bond with them through their mobile phone. It may sound corny, but isn’t this what you trying to already do through other channels? Low-cost. Today all small businesses can easily afford to get into mobile campaigns and compete with the big dogs. Like I mentioned earlier, turnkey platforms absorb many of the costs associated with certain aspects of SMS marketing. SMS costs about $0.07 per message, down from$0.15 just a few years ago, with even bigger discounts being applied for bulk purchases. It’s Brand Building. Mobile Loyalty will build your brand in the eyes of the customer and portray your business as being at the forefront using technology for their benefit and reward. It also offers a bit of the “cool” factor which isn’t a bad thing, especially to customers under the age of 35.

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“Read rates for text messages are upwards of 95%.”
GET STARTED
The key message here is to keep is simple. Run a simple text messaging (SMS) campaign the first time. Almost every mobile device can send/receive texts and everybody understands how it works. Customers like deals. Offer something of value to get customers to opt-in and join your VIP Club. Make them feel they are getting something special and unique that no one else is getting. That’s why we can them VIP Clubs! You know best what sort of special offers will appeal to your audience. Many customers spend more at your business because they are a part of a loyalty program vs. customers who are not.

SET REALISTIC GOALS
Have modest expectations on your first few mobile campaigns. Run a test campaign. Remember it will be a new experience for both you and your customers. But trust me, they will notice. Offer a great reward for opting in the first time, a coupon, discount, special offer. The goal here is to build and grow your opt-in for future promotions. Get everybody talking about it and cross promote with your other media (if you’re running them). Pump it up at the store level with your employees. Results can be easily measured and tracked. At the end of the campaign, you will have a valuable list of loyal customers you can stay connected with and who want to hear from you. That’s why they opted-in.

YOUR CUSTOMERS ARE READY!
Don’t underestimate your customers’ readiness to join a Mobile Loyalty Program. They are more tech savvy than you may think. You may know people who don’t text or believe it’s evil. Some people still think e-mail is evil but that didn’t’ stop marketers from building email clubs, newsletters and e-coupons. Don’t let the nay-sayers or over analyzers stop you. This year big brands, agencies, marketers and business owners will be dipping their toes into new waters of mobile SMS campaigns to build loyalty. They already are researching the possibilities, compiling data, determining metrics and figuring ROIs. That’s good. They should. But as with all things new, the early adopters are the ones that will win. At some point, they realize the time to jump in is now before the other guy does. Others will sit on the sidelines and wait see what happens with the industry. They call that research. unfortunately, we live in a “speed is life” sort of world and if you wait too long, then it’s too late. Assume your competitors are days away from launching their own mobile campaign. And when that happens, they are going to capture your customers first and never let them go! You can be like Nike and “just do it” or you wait until everybody else is in and you are fighting for the scraps. L

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TRENDS & REWARDS

An Integrated Approach
As marketers seek to incorporate new technologies, economic factors require tactics that build loyalty, guarantee ROI and motivates purchases
by Constance Baker – edōInteractive

As the economy continues to take unanticipated turns, consumers are looking for new ways to economize. Studies show that, more than ever, consumers are not embarrassed to use coupons as they have been in the past and are seeking such incentives. In October 2008 the fastest growing website category was online coupon sites beating out other retail sites such as apparel and jewelry. This emerging trend is providing many businesses an excellent opportunity to market smartly under these conditions.

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N RECENT POLLS, 54 percent of adults will reduce discretionary spending, and 63 percent said they would not make a purchase if a “deal” were not offered. At a time when consumers are looking for these deals, marketers are finding innovative ways to reach targeted consumers and motivate their purchases.
However, the traditional coupon process can be lengthy and expensive, inhibiting ROI for both manufactures and retailers. While consumers are most accustomed to using paper coupons there are limitations for the consumer - cutting, carrying and expiration of coupons—as well as for the retailer—inability to target specific deals and gain valuable behavioral information about the customer.

as training store employees and installing software can make this option costly and time consuming as well. One newcomer, that feels they are integrating many of these approaches (integrating the parts that work while streamlining the more tedious parts), is a Nashville based start-up called edō Interactive. In 2007, edō launched the edō Marketing Platform (EMP) which is a marketing channel that provides the ability to load electronic coupons, called Prewards®, directly onto selected prepaid debit cards while utilizing email, text, and behavioral marketing to give advertisers an integrated way to reach targeted audiences and motivate purchases. According to the company and several restaurants and retailers that have utilized the EMP, it guarantees advertisers ROI which can be monitored online in real time—not exactly since it is not self-service. By using the EMP, advertisers are able to use valuable data allowing them to further refine future “campaigns” as well as other ongoing marketing efforts they plan to undertake. Simply put, the EMP can be used to drive incentive purchases and loyalty in a number of ways. The most common campaign utilizes Prewards. When an advertiser conducts a Preward campaign, they begin by setting the demographic parameters of the customers they are seeking to reach (i.e. males and females between the ages of 25 and 34 in the ten zip codes near a business location). Next, the advertiser will determine the incentive amount that will be offered to customers. The offer can be a specific dollar amount, a dollar off amount or a percentage off amount. The advertiser also selects the duration of the offer and which locations or websites in which the offer can be redeemed.

edōInteractive will be speaking at the Loyalty Expo 2009. Join their session and learn more about the edōInteractive Marketing Platform!

Online and promotional codes are proving popular with consumers because of the relative ease to enter the code at point of sale. Coupon or promotional codes also present their own set of limitations including the potential for fraud and unintended viral spreading of the codes, which can limit the targeting capabilities. Additionally, mobile coupons are gaining traction and are interesting to some marketers, but technological restraints such

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“Initial campaigns using the EMP yielded impressive results.”

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NCE THE ADVERTISER has finalized these details, customers in the demographic pool, who use the selected prepaid debit card, will receive a notification of their Preward. This notification takes place through an opt-in email or text alert. When customers accept the Preward, it is automatically stored in a Prewards “purse” on their card. When the customer makes a purchase, they use their card as they would when making any other purchase. The Preward is automatically deducted from their “purse” with any remaining balance deducted from their card balance. The customer does not have to indicate they are using a Preward, nor is the vendor required to take any special action. The process is the same as any other purchase using a prepaid debit card.
“I found a seamless strategy that fit perfectly into my ongoing marketing efforts when I tried the edō Marketing Platform,” said Colt Hothorn, owner of Which ‘Wich Superior Sandwich shop franchises in Nashville Throughout the campaign, advertisers are able to obtain valuable demographic and behavioral information such as acceptance rate, redemption rate, dollar amount spent over redemption, how quickly a Preward is redeemed, whether the customer was targeted via email or text and many other data points. Advertisers are able to use this information to tailor future Preward campaigns or use the data in other ongoing marketing efforts. Initial campaigns using the EMP yielded impressive results. “High school and college students are the most difficult customers to reach in my business. Coupons yield less than a

“...thrilled to see a 15 percent return rate when we carried out a Preward campaign.”
one percent return rate and other marketing tactics provide similar results. I was impressed when I conducted a Prewards campaign targeting high school seniors with an astonishing 17 percent return rate. The edō Marketing Platform was easy to use with measurable results,” said Dan McDonald, owner of nine Jersey Mike’s Subs. Echoing the sentiment, Hothorn said he was “thrilled to see a 15 percent return rate when we carried out a Preward campaign.” Will the EMP be the integrated answer to many marketers growing demands? Time will tell as more partners in varying sectors sign up to conduct Prewards campaigns including H&R Block, Baskin Robbins, Cloudveil.com and Moe’s Southwest Grill to name a few. “Advertisers are utilizing the edō Marketing Platform and it’s changing the way they view marketing campaigns forever,” said Ed Braswell, edō interactive Chairman and CEO. “Businesses, especially in this economy, are scrutinizing and demanding more from their advertising budgets. The edō Marketing Platform is a ground-breaking approach to measuring return on investment which allows advertisers to see their money at work.” L

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TRENDS & REWARDS

Breaking Through the Clutter: Building Loyalty in a Digital World
by Mike Reynolds – Parago

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VER THE YEARS marketing has evolved from the four Ps, (product, price, place and promotion,) into a broader discussion of the benefits of retention and loyalty—amongst customers, employees and channel partners. We are living in an era of “everywhere advertising,” infinite choice and rapid-fire access to information. The convergence of capitalism and social dynamics has created the need to develop deeper connections in order to achieve the new measurement of loyalty: brand affinity.

customer comments) help to elevate Amazon in the consumer consciousness. Staples’ groundbreaking approach to paperless rebates shows us how technological advancements can lead to positive post-purchase experiences, too. Years ago, who would have guessed that rebates could drive loyalty? Yet today, an innovative paperless rebate solution directly supports the corporate brand position and delivers brand affinity. Through technology integration, fast rebate validation, enhanced fraud prevention and efficient rebate delivery, customer surveys have shown an increase in brand affinity and stated intention for re-purchase. Technology integration has increased brand affinity in the sales channel as well. Sales associates can now get fast, automatic recognition of their efforts and rewards can be received in as little as 24 hours through electronic cash disbursement on a reloadable prepaid debit card. Ongoing brand engagement happens through branding on the payment card, communication of rewards received, online and automated card balance information and visits to the incentive website. As a result the sales associate can focus on selling and, because of a great experience, has a brand affinity that governs which products or services get greater share of mind. As technology continues to advance, so do the opportunities for connecting with customers, employees and partners, and rewarding them in ways that are meaningful to them personally. A new generation of employees and consumers has grown up during the “connected” age. Providing customized rewards is no longer a blue sky idea due to advancements in technology and communication mediums. Re-examining your audiences and approaches, and maximizing technology-based loyalty initiatives to reach them is a cost-effective and powerful way to increase your brand affinity. L

Hear more at the Expo! Mike Reynolds will lead a discussion
about the need for innovation, choice of incentives and reward mix to drive better ROI and long term participant loyalty. Brand affinity refers to connecting with your constituents in a way that turns them into brand ambassadors. They root for you, promote you and fiercely defend you. With every communication they become deeper entrenched in their commandment and affinity for your organization. Creating this connection is critical to drive a consistently good customer experience and the strongest brand affinity. But with constituents overwhelmed with loyalty point banks, key chain loyalty cards and coupons, how do you gain brand affinity beyond a good product or service? One very powerful way is to create a technology-based reward system that recognizes and acknowledges loyal behaviors, simply and efficiently, without breaking the bank. Amazon.com’s approach to exceeding customer expectations through its technology platform provides a good example. A great customer purchase experience with product recommendations and ease of use drives customer loyalty, and the social media aspects of the site (product scoring and

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April 2009

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TRENDS & REWARDS

Driver’s License— The Many Uses Today— Tomorrow Loyalty
by Brent Harms – IDLoyalty, LLC

Loyalty programs tied to plastic cards have existed for years. Some have their own uniquely branded cards, others use credit cards. Both have challenges with participation. The branded cards have to be carried and there is only so much room in a wallet. The credit cards require that you qualify for credit and want to charge items instead of paying cash. A new alternative eliminates both of these issues and makes loyalty programs easier for members—use the card they already carry—the driver’s license.
LOYALTY APPLICATIONS BEGIN TO SURFACE
With this new customer identifier and the emerging group of companies that provide hardware and software tools that can read the state licenses, new uses are surfacing for the license as the accurate, cost effective customer identifier for loyalty programs. Many casinos nationwide including MGM and Harrah’s are using new technology to scan the license and use the data to enroll customers in their loyalty programs. The scanning captures the customer’s name, birth date and address information, eliminating the need for the customer to manually fill out a form and/or the clerk to manually enter the information in the system. This has reduced errors, significantly shortened the process to enroll in programs, and is saving the casinos a large amount of money in the operation of their customer management and marketing programs. one of its loyalty partners, Tecmark, Inc.. Tecmark provides the loyalty points engine for the program and another partner, Posatech will be managing the program. The use of the license in other existing and new loyalty programs is expected to grow rapidly over the next few years as this new marketing technology approach can save businesses up to 25% in the cost to run their program, and will increase participation of the members by up to 25% or more since it will be easier to participate. They can use the card they already carry – their driver’s license as an alternative ID for the marketing program. Specific marketing analysis will be presented at the 2009 Loyalty Expo in May.

THE TECHNOLOGY
There are new emerging companies that provide the technology, both software and hardware to scan and track the license information. These firms provide the software to parse the necessary data from the license into a usable format. They also provide the hardware to scan and read the mag stripe and bar codes; frequently one device that can read either. The bar code and magnetic stripe contain several data elements. In most cases, the customer’s name, license number, address, city state and zip, and birth date are available after the data is scanned and parsed. Each company pulls the information necessary for their solution such as birth date for age verification. Most state laws are evolving to limit the use of the scanned data to the specific purpose such as age verification or check verification tracking. In many states, this information cannot be

relevant market research that addresses this opportunity at the Loyalty Expo 2009.

More to come! IDLoyalty will be presenting
Other companies are also introducing these new capabilities such as the new convenience store loyalty marketing program launching in New York this year. Noco Express will use driver’s licenses to enroll new members in their Friends and Family Program. In addition, the license can be used as an option instead of the loyalty card to redeem rewards and track store purchases. This capability and service is being launched by IDLoyalty and

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HISTORY and USES of the Driver’s License
THE DRIVER’S LICENSE IS not new. They have been around since 1888 when the first driver’s license was issued to Karl Benz. On August 1, 1910, New York had the first driver’s license law in the US for chauffeurs only. In July of 1913, the state of New Jersey became the first state to require all driver’s to pass a mandatory examination before receiving a license. After 9/11, there was significant government consideration given toward the use of a national ID, with the final decision to enhance and move the state driver’s license closer to a national ID. With this, new standards were set and states began to add more information, enable authorized tracking (by decoding information stored in the bar code or magnetic stripe) and enhancing security features. Many opportunities are emerging to utilize the standardized data, enhanced security and ability to extract data off of the state driver’s license. The following are some of the many examples of how the license is being used by private businesses to securely identify and track consumers: Check Verification: With the new ability to scan the license, retailers such as Target have streamlined this process by simply scanning the license with a bar code or magnetic stripe reader, eliminating the need to manually copy the number. This eliminates the potential for errors as well as reducing time at the POS. Age Verification: Several states are now requiring proof of age verification for all age-restricted purchases. This ability to scan and save the data for state reporting has helped businesses, economically, stay in compliance. Airline Check-In: Many airlines, including Delta, offer the option for the consumer to use a kiosk at the airport to check into their flight. At the kiosk, they can scan their license to identify and pull up their flight information, eliminating the need for the consumer to carry their frequent flyer card. Cold Medicine Purchases: Effective September 30, 2006, a federal law was introduced stating that every single product containing pseudoephedrine (PSE) cannot be purchased without capturing driver’s license information. Many pharmacies are swiping or scanning the license to accurately log the information they are required to report to ensure accurate and effective compliance. Return Merchandise: Over 10,000 retail locations nationwide are now using a service from Return Equation that allows them to track return merchandise to reduce fraud and abuse. If a consumer paid for an item with cash or does not have the receipt, the retailer scans the customer’s license to identify and track the transaction. This gives them detailed history to identify excessive and fraudulent returns. They have recently added a loyalty element to incent the cash returns to make a new purchase that same day.

used for marketing unless the consumer has given permission to participate with their license. Permission-based or “opt-in” programs such as consumer loyalty marketing programs are a great example of where the use of the license is secure and preferred by the member.

WHAT NExT?
For loyalty marketing programs, the opportunity is huge to make existing programs more effective from a cost and ROI perspective; as well as increase program participation since members already carry their license. The speed of enrollment enables companies to quickly connect with new members to encourage the next visit. Another terrific opportunity is using the driver’s license for new and existing coalition programs where several different businesses work together in one loyalty program. Finally, the driver’s license may be the solution to make loyalty programs work for quick service restaurants like Subway and McDonalds. The speed and accuracy of the transaction will enable more businesses to establish effective loyalty programs. The driver’s license will simplify and enhance participation in loyalty programs. According to Colloquy “Sizing up the uS Loyalty Marketing Industry” April 2007, the average American belongs to 12 loyalty programs, but is only active in 4 – 5 programs. Would they be more active if they didn’t have to remember their loyalty card? We believe that consumers will appreciate the convenience. L

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TRENDS & REWARDS

One Time Incentives Do Drive Engagement
by Dennis Propp – Propco Marketing

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ROWTH, IN REWARDS-BASED CARDS, has been substantial for years as issuers attract new customers with even more flexible programs and promises of greater rewards benefits. Growth is expected to continue and rewards programs are expected to be a mandatory part of any business. But, the current economic and financial crisis may have a significant effect on the industry’s overall ability to grow as credit tightens and charge-off rates increase. The pertinent questions are: can rewards programs continue to attract new customers and encourage spend, and will retention be the name of the game as businesses battle for wallet share?

significantly improved the impact of the offering. For example, one financial institution using bonus points to drive early engagement tested their control of simply points by adding a bonus of a Companion Airline Ticket, (a two-free gift offer) and for a third of their previous cost, saw a 45% lift in response (point value was reduced). Similar results were shown with a client using a control of 10,000 points after sign-up and first-purchase on a rewards credit card. When they added the Companion Airline Ticket as a bonus to the 10,000 points being rewarded, they saw a 50% lift on accounts both activated and making first purchase!

“The bottom line is, we find that by using innovative instant rewards, you can significantly impact the effectiveness of your rewards programs and ultimately the customer experience.”
Innovative programs, compelling value propositions and new strategies and tactics can help businesses to break thru barriers of propagation. Industry leaders, and cutting-edge companies, recognize where they are in the life cycle and are moving to reinvigorate their programs. By offering customers a wider range of compelling options, which fit their interests and deliver more robust rewards, these institutions are finding new ways to entice customers and keep them loyal, active and profitable. Companies are making it work, revitalizing their programs with features and benefits that are simpler, more relevant, immediate and personalized. Pioneers in new dimensions of performance, their experience may offer insight for others seeking creative ways to reinvent programs which reward customers in a challenging market that continues to mature. The value proposition for most points-based rewards programs is simple—the more accounts customers’ have, the more points they can earn. Consumers’ desire to earn points swiftly translated into a ripe opportunity for financial institutions to cross-sell their products and services. These marketers have found that tying in a “one-time” incentive reward in conjunction with points has Customers expect more value than ever before. Currency has become the reward of choice, but the bottom line is, we find that by using innovative instant rewards, you can significantly impact the effectiveness of your rewards programs and ultimately the customer experience. With traditional programs, customers accrue points monthly and redeem them later. Conversely, instant rewards give customers the ability to immediately redeem and make use of the value proposition today. In addition to building loyalty by putting money back in their customers’ pockets, instant rewards benefit businesses by reducing their liability and, ultimately, increasing their profitability. Immediate “onetime” incentives can help drive adoption of new products and services by current customers, while strengthening and deepening relationships. Change is never easy. This process takes time. And the companies that get it right - seizing the right innovations and taking the right steps to put them into action - will usher their rewards to the next level and lay the foundation for market renewal and growth. We see in today’s climate that one up incentives can drive immediate response, action and offer at much less cost that other alternatives. L

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Loyalty. Reinvented.

Loyalty programs are a strategic asset. To capitalize on them requires going beyond rewards.
First Data provides intelligent, data-driven loyalty solutions that provide insight to make your loyalty program more effective. Utilizing state of the art analytics, First Data enables you to understand your customers, predict purchasing behavior and maximize revenue. First Data is uniquely skilled at providing our clients with more relevant and valuable rewards for their customers, increasing customer acquisition and retention and creating stronger relationships.

To learn more visit firstdata.com
April 2009

©2009 First Data Corporation. All rights reserved. All trademarks, service marks and trade names referenced in this material are the property of their respective owners.

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BEST BUSINESS PRACTICES

Satisfaction Does Not Equal Loyalty
The simple things you can do to improve retention
by Tom Cates – Brookside

Loyalty is an increasingly hot topic among managers, executives, and consultants. With client acquisition costs rising and the competitive landscape becoming progressively more crowded, companies are realizing that client retention has become the key to growing the bottom line. Yet despite increased interest in the subject, there remains widespread confusion about what exactly loyalty is. In fact, much of what has been branded as “loyalty” research relates primarily to “satisfaction.”

SATISFACTION: NECESSARY BUT NOT SUFFICIENT
Simply put, client satisfaction is a prerequisite to creating loyal business relationships, but by itself is not enough. The implication is that while client dissatisfaction will undoubtedly create disloyal clients, merely satisfying clients is not enough to make them loyal. One of the pitfalls in understanding this dynamic is the fallacy of equating retention with loyalty. Obviously a client who defects is disloyal, but just because a client is retained does not make them loyal— they may simply be satisfied. Consider the following simple scenario: you are thirsty and I sell bottled water. You happen to be near me so you give me a dollar and I give you a bottle of water. It is cold, refreshing, and quenches your thirst, leaving you thoroughly satisfied. The next day you receive a phone call from the consulting firm I have hired to build client loyalty and they ask you how satisfied you are, how likely you would be to repurchase water from me, and how likely you would be to recommend me to a friend.

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“Obviously a client who defects is disloyal, but just because a client is retained does not make them loyal — they may simply be satisfied.”
Satisfied with the water you received from me, you rate me all 10’s. Does this mean you’re loyal to me? Sure, if you’re nearby me next time you’re thirsty you will repurchase, but will you walk an extra block to buy from me? Would you feel guilty going to that guy with the hot dog stand across the street if I had a line? Probably not. Contrast this to stories of Starbucks clients who routinely walk past one branch to go to another branch of the same chain. Why walk further to buy a commodity item? In a word: Relationships. If you are going to walk a block further to buy a cup of coffee, it is likely because you have a relationship with, and are loyal to, the person serving it. Now imagine the same dynamic at work in a business to business relationship rather than with consumers. The risk of non-loyal behavior isn’t just a dollar, but potentially millions. The weight placed on personal relationships is also exponentially higher in a B2B partnership, so while the downfall of client churn is larger, so too is the benefit of retention. If your clients are truly loyal, they will go out of their way to call you first for new pieces of business, refer you to their network of family and friends, give you inside information about competing offers and pricing, spend a larger share of their book with you, and a whole host of other benefits. If they’re just satisfied they might stay with you if you’re lucky; why not strive for loyalty? 1. Integrity: Can you be counted on to act in a predictable manner? Do I believe what you say? Are you reliable, dependable? Are you trustworthy in your business dealings? 2. Competency: Can you actually deliver the product or service you have promised? Do you have the people, skills, experience, systems, and processes needed to perform as expected? 3. Recognition: Is our relationship important to you or am I just a number? What have you done to demonstrate and reinforce the importance of our business relationship? 4. Proactivity: Do you only do what has been contracted for, or do you go above and beyond? Do you look out for me and ensure that I don’t encounter any surprises? 5. Savvy: Do you understand the bigger picture? Do you know what my day is like, how my firm makes money, how our business operates, how we succeed, and have you demonstrated how you can help me achieve my goals? 6. Chemistry: Do I enjoy working with you? Do I look forward to our next meeting, or is each interaction a series of missed communications and disappointing appointments? If you only focus on satisfaction in your client service and sales efforts, you’re missing most of the puzzle pieces. Many companies get stuck focusing on Integrity and Competency, which in essence are satisfiers. If you don’t have those, your clients will not be satisfied, but if you only have those, chances are they aren’t loyal. Recognition, Proactivity, Savvy, and Chemistry are what we call motivators. These are the Dimensions that will put you ahead of the game, creating and fostering true loyalty. When I sat down and really thought about these Dimensions in regards to my own clients, it was truly eye opening. I challenge you to do the same. Once you recognize what is most important to your clients, not just about your service or product, but about your relationship, doing something meaningful becomes much easier. What would be the impact on your revenue if you were able to expand your best client relationships to their maximum potential? My guess is it would make a world of difference. L

“If you only focus on satisfaction in your client service and sales efforts, you’re missing most of the puzzle pieces.”

SIx DEGREES OF LOYALTYTM
Building upon research into human motivation and Organizational Climate originally conducted at Harvard university and The university of Michigan, my team at Brookeside and I have captured the six Dimensions of Loyalty that translate into long-term, mutually beneficial business relationships. Read through the descriptions and ask yourself how you think your clients would evaluate you on each one—because that is precisely what they are doing.

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BEST BUSINESS PRACTICES

Payment Strategies are Critical to Successful Loyalty Programs
by Julie Bohn and Stuart Kiefer – First Data

AYMENT STRATEGIES ARE integral to loyalty programs for retailers and financial institutions (FIs), although the program objectives and the role of payments vary significantly by market, business, and payment type. Loyalty programs seek to drive program relevance that result in increased consumer purchases, frequency or overall spend, making the payment type and process critical to program participation. In addition, payment habits may be the consumer behavior change the loyalty program works to drive. Successful loyalty programs must be relevant to consumers, easy to use and include meaningful rewards, ultimately affecting how the consumer pays at the point of sale. Following are payment strategies and best practices that retailers and FIs can use to build or enhance effective loyalty programs to meet their marketing objectives. RETAILERS: Loyalty as Part of a Broader Payment Strategy Retail loyalty programs should be part of a larger payment strategy. Offering customers a mix of payment options makes it easier for them to do business with the retailer, but some types of payment are clearly more profitable than others. In general, consumers should be recognized and/or rewarded no matter what type of payment they choose, a strategy that benefits both consumer and retailer. Recognition can be in the form of discounts, earning points, or a targeted communication. According to First Data’s 2008 Consumer Loyalty Study, more than half of retail rewards members aren’t required to use a specific form of payment to earn rewards, an indication that the majority of programs adhere to this philosophy. The ability to recognize or reward every payment is critical to driving program relevance and helps engage the consumer in profitable behavior.

P

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“71% of consumers said rewards programs really do affect which card they pull from their wallet at the point of sale.”
Incenting consumer behaviors such as specific merchandise purchases, spending thresholds and purchase frequency continue to be among the most important marketing objectives for retailers. The retailer can reward consumers for these high-value activities through a loyalty program. Rewarding or recognizing every purchase allows retailers to accrue more accurate data about individual customers through their buying patterns, contributing to a better understanding of customers and their preferences. Even as they reward or recognize all payment types, retailers can utilize the same relevant, well-branded loyalty program to encourage customers to use more profitable tenders. For instance, members could reach frequency discount milestones more quickly by paying with gift cards or receive an increased discount for using a retailer’s private label credit card. FINANCIAL INSTITUTIONS: Fighting for Space at the Top of the Wallet Today’s FI reward program is quickly becoming a commodity in the marketplace, and FIs must continually work to remain at the top of the consumer’s wallet. Consumers belong to an average of 2.1 credit card rewards programs, and 76 percent of consumers are enrolled in at least one credit card rewards program, according to the First Data’s 2008 Consumer Loyalty Study. However, the same research shows that the majority of consumers (71 percent) said rewards programs really do affect which card they pull from their wallet at the point of sale, indicating the importance of a relevant, well-branded program. The pressure is on to differentiate oneself from the competition, and loyalty programs continue to be an important aspect of the competitive strategy. Credit and debit cards encourage customers to choose their card more frequently to earn rewards faster. Most credit card programs are based on a traditional “point-per-dollar” program, while debit programs typically accrue at a rate of one point per $3 or $4 in purchases. FIs are continually looking at ways to increase consumers’ ability to earn points around the highest-value activities, which include greater transaction amounts, increased transaction volumes, and spending across more categories. In the case of debit, FIs also can use rewards to encourage customers to make more profitable decisions at the point of sale—for instance encouraging consumers to select signature-based transactions.

RETAILER AND FINANCIAL INSTITUTIONS: The Power of Partnership Retailers and FIs are under significant pressure to reduce program costs even as it becomes increasingly important to produce more consumer-relevant loyalty programs. One solution, is a partnership between FIs and retailers that rewards points, or cash back, for purchases consumers make using the FI’s bankcard with a participating merchant. The participating merchant helps support the cost of the points, cash or discounts that consumers redeem, and gains valuable and exclusive marketing opportunities with the FI’s bankcard customers. These programs—if constructed correctly—can create targeted, cost-effective results for retailers and FIs alike. The programs, typically, can be easily integrated into retailer and FI loyalty strategies. They can drive incremental consumer spend at the retailer, increase acquisition rates and card usage for FIs and create program relevance for the consumer. The keys to mutually beneficial programs are consumer segmentation, a variety of merchant participation from both online and brick-and-mortar retailers, and supplemental targeted marketing opportunities for retailers beyond the base program. These FI-sponsored programs represent less risk to the retailer and greater reward then many registered card and coalition programs in the market today. At the end of the day, successful partnerships are what turn a loyalty program into a cost-effective, targeted way to improve long-term customer loyalty for retailers and FIs. Begin with the Customer in Mind It may seem like an obvious notion, but it’s easy to forget the consumer experience amidst discussions about increasing spending, rewarding frequency or establishing a place at the top of the wallet. Whether a loyalty program encourages a customer to purchase at a retail location or pay with a specific card, rewards must be valuable to customers with a program that is easy to use. Consumers have choices about where to shop and how to spend. It’s critical to consider the consumer’s payment choice at the point of sale and create meaningful, valuable reasons for customers to choose you—or your card—over the competition. L

Learn more about how retailers and financial institutions, of all sizes, can use analytics to make smarter offers to the right customers without huge upfront technology costs. Join First Data at Loyalty Expo 2009!

April 2009

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BEST BUSINESS PRACTICES

Eight Things You Really Should Know Before Launching a New Loyalty or Incentive Program
by Judith Rinearson – Bryan Cave, LLP

There’s no question that loyalty programs are becoming more popular. As the economy worsens, consumers become choosier and businesses look for new ways to make sure their customers “stick”. However, implementing a successful loyalty program takes more than just marketing skill. As a lawyer who has advised on over a hundred different loyalty programs, I’ve learned first hand how important it is to plan carefully, to anticipate potential problems, to communicate clearly and to ensure legal compliance when launching a loyalty program. Here are some key factors to consider:
1. Timing
Is this a one-time incentive offer (such as a rebate or gift with purchase), a short term loyalty plan (such as collecting points over a 6 month period and redeeming them for prizes) or a long term loyalty program (such as an airline frequent flyer or credit card rewards program that continues for years)? The longer the program is, the greater the potential rewards, but also the higher the risk for disputes, claims, and problems. When it’s a one-time “gift with purchase” program, regulators don’t scrutinize too closely, consumers don’t often sue, and fraudsters don’t try to “game the system.” But when someone has spent years accruing 500,000 frequent flyer miles, the stakes are higher as are the risks. n Check and double-check product names, model numbers and phone numbers in the rules. Finding out you’ve posted an incorrect phone number will not only hurt your promotional efforts, there may be claims or damages payable to the person whose phone number was accidentally referenced. n For longer term programs (such as frequent stayer, shopper, flyer programs going over many years) you’ll need more than just a list of rules, but you’ll need indepth terms and conditions to cover issues such as how to enroll, point value, transferring points, error resolution, choice of law, limitations on liability, and conduct that may result in point forfeiture (such as failure to pay).

2. Rules
The program rules are at the heart of most loyalty or incentive programs. These lay out precisely what the consumer must do, when and how it is to be done, in order to earn a stated reward. Sounds simple, but these require incredible care in drafting. unfortunately I’ve seen many well-meaning programs turn disastrous because of unclear, incomplete or flawed rules. Here are a few lessons learned: n Include clear program dates—start AND completion— and don’t forget to include the YEAR of the program as well. n Seriously consider some limits, such as “1 per customer,” “no more than 5 redemptions per month,” etc. n Make sure you have the right (to be very judiciously used) to make changes or to terminate the program.

3. Choosing and contracting with a program or fulfillment partner
Having a good program or fulfillment partner is another key to a successful program. Choose your partner carefully. These are your best customers, after all, and so while cost is of course a factor, you don’t want to risk having your customers’ experience be disappointing. Get references. See sample promotions. And make sure you have a good contract that makes clear your and their respective roles in a number of areas, such as: (a) who is responsible for legal and regulatory compliance (keep in mind, many states have specific laws about rebates, gift cards, advertising requirements, sweepstakes, etc); (b) who takes the risk of loss, including fraud or negligence; (c) are there “service level” commitments which protect you if program doesn’t work or the system goes down; (d) who holds customer data and how is it protected, and (e) what happens to the customer data in the event of termination.

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“Is keeping ‘breakage’ or charging ‘service fees’ on gift cards or gift certificates an important part of your economics? Be aware that, depending on the product, some states restrict fees or may assert their ‘abandoned property laws’ with respect to breakage.”
4. Special Concerns About Prepaid Card or Gift Card Programs
Many loyalty programs rely on prepaid cards or gift cards as a means of collecting, holding and distributing rewards. But prepaid cards can raise complex legal issues and merit special attention. If you are contracting for a prepaid card program, in addition to the issues listed above, consider as well: n Who is the “issuer” of the cards? A bank or financial institution? Will the cards be “open loop” and branded by Visa, MasterCard, American Express or Discover? Or will they be “closed loop”—usable solely at a single retailer, website, hotel or restaurant? n When will the cards be loaded and who is going to be holding the funds until the cards are used? n If “open loop”—do they require licensing? And if so, is the card partner licensed? n What happens to any unused funds (often referred to as “breakage”?) What fees and/or expiration dates will apply?

7. Fraud or Misuse
There will ALWAYS be people out there trying to get something for nothing. I’ve seen many programs abused by a few trouble-makers who make multiple reservations and then cancel, who purchase and return goods, who claim their reward was lost in the mail, or take other steps to “game” the system. These are not the customers you want, but they’re out there. Monitor reward usage—if there unusual redemption patterns, extraordinary point collections that don’t make sense with normal consumer behavior—take a closer look. Find out what’s happening. And if it looks like a scam, be prepared to say “no”.

8. Legal Compliance Obligations
Even the simplest loyalty program may raise legal compliance issues. Are you holding customer data (name, address, and transaction data) that might be subject to data security requirements? Do you have a privacy policy? Do you advertise nationally or locally and know what advertising laws apply? Do you screen customers against the federal sanction list issued by the Office of Foreign Asset Control (OFAC)? Should you have an anti-money laundering compliance program in place? Do you know which state laws apply and when? Have you adequately trademarked or patented your intellectual property? And have you considered how to handle any potential abandoned property exposure?

5. Consider your Program Economics
Does your loyalty program business model rely certain assumptions such as minimum spend, or minimum stays? Are those assumptions valid? Can they adequately support the reward? Does your model assume that few if any rewards will ever be redeemed? That approach has significant risks. Is keeping “breakage” or charging “service fees” on gift cards or gift certificates an important part of your economics? Be aware that, depending on the product, some states restrict fees or may assert their “abandoned property laws” with respect to breakage.

6. Tax issues
Many reward programs have tax implications. Do you need to file a 1099 for employee incentives? How are these disclosed to program participants?

A good loyalty program can create lasting ties to your best customers. But to be effective, the program must done right. Careful planning, communications and contracting can help you achieve your program goals. L

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BEST BUSINESS PRACTICES

Creating a Successful Employee Incentive Program
by Dan Paulson – InVision Business Development

Employee incentive programs can work, and they need to be structured very carefully for continued success. Clear measures have to be put in place, and it is the responsibility of the leadership to follow these measures.

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N THE PAST I have seen companies take the “close is good enough” approach and give incentives even though the goals were not achieved. This often leads to entitlement. The incentive is no longer a reward for accomplishing a stretch goal. It becomes an expectation as a benefit. Incentives need to be balanced between realistic expectations and stretching beyond what’s expected out of the job. If the goal is too easy, the incentive is achieved without extra effort (see entitlement). If the goal is too hard to reach, then the people are set up to fail and quit working toward the goal. Below are elements I have seen in successful incentive programs.

Components of a successful incentive program:
The right people —Incentives work well when you have the right people doing the right things the right way for the right reasons. The right culture—A dysfunctional culture will often have difficulty with incentives in the long-term. Exceptions exist, and that is usually when there is little or no competition, which leaves the consumer with few choices. Competitive environments require a strong culture with the right people to perform at their best. Clear measures —The employee must know exactly what they are working towards and have the ability to get it. Realistic expectations —In most cases stretch goals are good, and BHAG’s are not when it comes to incentives. Your entire staff must have the belief that the goal is achievable in the timeline you give them. Make it manageable —Incentives that go on too long or incorporate an “all or nothing” approach can set people up for failure. If the time period is too long, people will forget or lose interest. If the incentive is too rigid and your staff fails to meet the criteria early on, people will quit working toward it.

“Reinforce a positive outcome and get people excited about tackling the next challenge.”

Communication —Regular communication, coaching and reinforcement is needed by the leadership team. Talking about the incentive once a week is not enough. Incorporate it into regular daily communication. Individual vs. Teamwork —Determine what incentive approach is right for you. Individual incentives allow each person to control their destiny. Sales positions are often the best for this. Team or department incentives require all members working together and leveraging their strengths to accomplish a goal. Strong leadership is needed here to make sure the work is evenly balanced and all staff members pull their own weight. Achievement is black and white —There is no quicker way to turn incentives into entitlement than allowing people to still win when they fall short of their goal. Giving an incentive when goals are not reached just conditions the staff that goals do not have to be met to be rewarded. Companies may feel the need to do this when some of the other steps listed above are missed. Celebrate —Always celebrate your successes. Achieving stretch goals should be a big deal. Reinforce a positive outcome and get people excited about tackling the next challenge. Adding these elements to your incentive program will increase the likelihood of success and future growth. L

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BEST BUSINESS PRACTICES

EMPLOYEE INCENTIVE PROGRAM PROFILE:

The Pyramid of Prizes
by Bob Branson – Tack-USA

When we asked readers to share their experience with employee incentives we received a HUGE response. Bob Brason, President at Tack-USA, was kind enough to share the details of his program’s success…
During my 30 year professional career I have tried dozens [of programs]. Cash, points for something, gifts, stock options, profit sharing, trips, rich ones, not so rich, bigger raises, you name it. The problem is, unless the incentive is so lucrative that in the employees mind, not getting it is unacceptable, most employees simply say “thanks” if they get it but rarely change their behavior to do so. However, I will share one that worked incredibly well and that I used scores of times. I will also explain why it worked in case my example doesn’t work in your circumstances.

“I had employees jokingly put stickers on the top prize like, ‘this is mine!’ Competition would set in…”

[My program] is called, “The Pyramid of Prizes”. In each district office, we built a pyramid of cool gifts, valued high to low. First winner each quarter got first pick, second place got second, etc., all the way down to the coffee mug and until everyone has something.

The reason it worked was the visibility. Most incentives are out of site and out of mind. People have stresses all day and trust me, when they are taking actions they aren’t thinking of the stock option award that may be available. With the pyramid, they see it all the time. I had employees jokingly put stickers on the top prize like “this is mine!” Competition would set in. Then, on the day they are awarded, everyone gets together and recognition and applause occurs. It is a big event at the normal employee meeting. We achieved tens of millions of dollars in incremental revenue from these incentives. I would give you the actual figure, but some people would think I was exaggerating. Visibility, top of mind and recognition. It works. By the way, my rule of thumb for incentives… Find something that you don’t have but want. Then provide incentives until you get it. Once behaviors are changed, find something else you want but don’t have. Some may be repeatable. Just a rule of thumb. L

Emloyee incentive program intiatves have generated quite a bit of interest! Loyalty Management is looking to highlight YOUR program as a feature in our next issue. If you run a B2B or Employee Incentive program, we want to hear from you! What works? What doesn’t? How does your program run? If you are interested in sharing your expertise… Contact us at: mailbag@loyaltymanagment.com

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BEST BUSINESS PRACTICES: Your Voice

We asked:

Do employee incentive programs really work?
Does the program motivate your team to further excel?
T CONCERNS ME when I see these sorts of statements. As a business person, I don’t have to motivate the people who work for me because they love what they do. They are paid well and I ensure that they are the ‘right’ people for the job in the first place. Having to motivate people to work for me seems to me to be an oxymoron and perhaps organizations should spend a lot more time getting the ‘right’ people in the first place and then ensure that they have work that is interesting and relevant. Merydith Willoughby Author OST INCENTIVES FAIL because of unintended consequences. For many years, top management has commented on the struggle to meet Wall Street expectations for short term revenue gains. This chasing of revenue has led to all sorts of unintended consequences. A lot of those unintended consequences are headlines today. For so long we’ve designed the plans to have employees chase revenue. It would be interesting to see what would happen if we decided to chase value creation instead… Denise Cooper Executive Coach

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AREFuLLY CRAFTED AND measured incentive programs for employees and customers advance businesses and drive deeper business relationships… A well designed and delivered incentive program is an effective tool that pays for itself many times over in customer/ employee loyalty and increased revenues… The key to designing an effective program is first understanding the objective, the culture and the audience; insuring that the behavior and criteria is measurable; communicating well and often with your audience; and delivering above and beyond expectation. In economic times like this, businesses need to utilize every tool at their disposal to maintain and expand their customer base, retain top talent and increase revenues. Targeted incentives are an effective and measurable tool that achieve bottom line results. Mimi Almeida President , RA Performance Group

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NCENTIVES ARE REWARDS for doing a great job. The success of these programs depends on the ‘motive’ for doing it. As a sales person, the greatest incentive I have ever had, beyond the dollars, was a once a year gathering of the top ten sellers, along with their spouses, and the CEO and family, to go on a cruise. Those of us who experienced this once, never failed to qualify. It was an honor, and a great time. On board a ship, relationships and friendships are born, and hobnobbing with the boss was a treat, as well. Shari Greer Professional Marketing and Sales

“Employees will love the company for the perks they get. The example SAS shows, even if you pay below average, people will like to work there for things like free drinks, a free gym, a kindergarten, etc…”
Hans Brueggemann Director Product & Test Engineering at Qimonda

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“I think they can work but we must first identify what motivates EACH individual. People are motivated by different things and if we expect for a bonus to motivate a person looking for recognition...we might be left scratching our heads...”
Jason Jacobus Sales/Consulting at Champion Education Resources

HAT DOESN’T WORK? Employee of the Month. What does work? Performance rewards that are linked directly to the behaviors/actions that drive a company’s business goals. Individual AND team benchmarks, and company-wide eligibility. Multiple studies suggest that a company must spend 3-5X more in cash incentives than on a travel or merchandise incentive program. In this economy, that’s money in the bank. Kurt McDowell People Performance Specialist HOuGHT OF AS “Reward and Recognition” it’s often the latter that has more of an impact… The key to a successful program is 1) fairness, i.e. lack of disputes 2) ease of administration 3) most importantly, communication. These schemes only work when people can influence the outcome and measure their performance against others. Tom Warwick Business Leader

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BELIEVE A COMPANY needs to decide whether they want long-term sustainable growth or short-term hit the target to get my incentive growth. Employees that have the opportunity to work in an environment that they enjoy, develop as an individual, grow within the company, and feel valued/recognized by their organization will more than likely produce results year in year out. Those that turn up for work to achieve their incentive.... well, in an extreme case, look at the financial markets in the uS and Europe for your answer. Incentives can work if they motivate individuals and teams to go above and beyond but if they are just a part of the job numerous problems will arise. Jeff Peter Experienced Sales Management & Capability Development Professional OME MANAGERS GET caught up thinking commissions are the best and only way to motivate sales people. When we surveyed sales people worldwide we actually found many preferred unique “non-cash” programs that gave them an opportunity to win a tangible items. In many cases sales representatives also reported bonuses and/or incentives got lost in the regular payout thus never really giving them the feeling of achievement. By the way, you can also include other departments (marketing, customer service etc.) in these programs creating a real team approach Lastly, if you plan correctly and with proper coaching you can come up with some really creative programs that will cost an organization less what you would spend for cash payouts… Want to motivate your team? Think outside the box. Steven Duddy Pres./ CEO, Strategic Direction Inc.

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“As a reward for good work I bought my lead developer a return trip from New Zealand to Malaysia to see her family and friends. But she never came back! These things don’t always work!”
Mark Thomas Business Owner FEEL INCENTIVE PROGRAMS do motivate not just sales staff but support staff as well. It is always a good thing when you reward individuals who are internally motivated to go above and beyond. It gives them not just a challenge, but also a sense of making a difference in the bottom line of a business. John De La Cruz Financial Professional T IS THE recognition that is powerful, and leaders who understand this are able to effectively integrate incentive programs into their sales compensation strategy. unfortunately, many shortsighted leaders and companies use or allow incentive programs to replace recognition, which ultimately leads to failure in the program, wasted money, and turnover. Nothing replaces a pat on the back for a job well done—especially for salespeople. It is the combination of incentives and recognition of achievement that make a program compelling and successful. Jeb Blount Publisher, SalesGravy.com
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BEST BUSINESS PRACTICES

LOYALTY PROGRAM PROFILE:

Southwest Airlines Rapid Rewards
ENROLLMENT ExPERIENCE:
Online enrollment is simple and quick. However, I did not receive a card with my number on it. You may want to print the page and keep it in a safe place. You will also need to keep your password safe because, this cannot be reset by calling customer service.

OUTSIDE THE PROGRAM:
Reservations You can book YOUR flight online or via a toll free number. Their call center staff is friendly, helpful and knowledgeable. They go above and beyond to get you what you need in the most affordable way and they don’t seem to be watching the clock, which is great—you feel you can ask your questions without feeling like a burden. The online reservation experience is a breeze. You get to choose what you want, when you want. Then when you purchase you have a variety of options. For example if you have a ticket that you didn’t use, you can use that full ticket as a credit to your new reservation (without a change fee!). Check-in Unlike other airlines, there is no first class nor are there seating assignments. In recent years, Southwest has changed their check-in structure. One major change is their Business Select product. For an additional fee you can secure one of the first 25 seating reservations and additional “award” credits. This ensures that you get the seat of your choice. For the rest of us, we need to set our alarms for checkin exactly 24 hours prior to our flights to ensure that we get a “good” seating group / number. Be careful, being even an hour late on some flights can cost you a B seat assignment. Flight Once you get on the plane you’re greeted by happy, funny and engaging staff. They go above and beyond to make you feel comfortable, even providing restaurant and attraction information at your destination (just ask!). If you’d like a cocktail and haven’t yet earned your free drink coupons, you will need a credit card. Southwest is now a cashless system. But the good news, you still get a good snack on every flight. Finally, Southwest is remarkably reliable! How wonderful it is to get to your destination on time.

PROGRAM BASICS:*
n After eight (8) roundtrips (in 24 consecutive months), you receive a free roundtrip “Standard Award”. Standard Awards are not always available during peak periods or for last minute travel. However, you can “cash in” two Standard Awards for one “Freedom Award”. This award allows you a seat on any flight where there’s availability (few blackout dates may apply). C  omment: Being a first time user of these rewards, the process was confusing. The website mentions the various awards, but the ability (or how) to convert standard to freedom was not clear. It took a good 20 minutes to figure it out. n In addition to receiving your Standard Award, you also receive 4 free drink coupons. This is a nice benefit for those long flights after a long day. n Business Select ticket purchases do result in additional Standard Award earnings. Bonus earnings vary by itinerary, so check the website to know for sure. n For you frequent flyers, after 32 flight segments during a 12 month period (not calendar year— bonus, yeah!) you earn an A-List membership. This membership allows you an automatic seating assignment on all your flights for the next 12 months (again, not calendar year!). n To accelerate your Award earnings, you can sign up for the Southwest Airlines, Rapid Rewards Visa card. After your first purchase you earn 8 flight credits. You’ll also earn additional credits for balance transfers and for your card anniversary.

OVERALL TAKE:
While you need to be “trained” on the system, to learn how to make the most of the benefits and travel experience, the staff, timeliness, ease of booking and making changes has made me a happy convert.

RECOMMENDATION: Give it a try!
Each issue we’ll be sending our secret shopper out to experience a particular brand first hand. Our shopper will sign up for the loyalty program, if one is available, and interact with the company at least 3 times, then share their experience with all of us. Your suggestions for the next brand review are welcomed: email your suggestions to mailbag@loyaltymanagement.com.
*Visit www.southwest.com/rapid_rewards for full program details.
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Building relationships, one person at a time.
Carlson Marketing knows how to take care of your customers. We have unparalleled experience launching and managing relationship marketing programs. Our deep understanding of customer data translates into insight – and value – for you. Our full suite of services, creativity, strategy, execution, end-to-end operational excellence and enthusiasm all combine to make us the perfect marketing partner. When you’re looking for direction on how you can turn customer engagement into organizational value, contact us. Let our experience work for you. carlsonmarketing.com | 763.212.4520

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EXPO 2009 PREVIEW


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LOYALTY EXPO 2009 PREVIEW
Inside-out Loyalty:
Understanding the Psyche of Today’s Loyal Consumer
Presented by Dave Tambling, CEO, and Connie Chesner, VP – brandMIND Group A presentation filled with first-hand perspectives on loyalty in 2009, incorporating real voice of the customer clips (audio & video) including market thoughts on everything from current memberships, programs, and affiliation to key drivers of participation, decisions, and motivation. This primary research presentation uses one-to-one conversations with a diverse cross-section of consumers to dig into the current customer loyalty landscape from an “on the street” perspective, offering frank insights and customer talk about programs and participation. This data, presented for the first time ever at the Loyalty Expo, offers attendees a unique opportunity to stay ahead of the competition through deep insights into what customers are thinking right now in 2009. Insights from interviews are presented and core themes are revealed regarding trends every loyalty program should watch and incorporate into their strategies for survival in a tough economy.

From Price to Advice:
Driving Sustainable Advantage in B2B Markets
Presented by Blaise James , Principal – Gallup Consulting How healthy are your customer relationships in this turbulent economy? New Gallup research shows only 13% of business-to-business customers are fully engaged — that is, rationally and emotionally loyal to their suppliers, vendors or partners. That means a typical B2B company has what would be considered an optimal relationship with less than one in seven of its customers. How can you ensure your customers stay loyal? The conventional wisdom in B2B markets is to bolster customer relationships through rational components like price, speed and efficiency. While these are important, Gallup has found emotional components of the relationship are better indicators of loyalty. They also provide a more effective “early warning system” for at-risk accounts than typical B2B measures like customer satisfaction, revenue, or profitability alone. B2B companies can secure customer engagement by instilling a sense of confidence, demonstrating integrity, and creating pride and passion around their brands and product/service offerings. In B2B markets across every industry, this is achieved by shifting the focus from price to advice — from transactional selling to providing value — to create client impact. After this presentation, you’ll understand: n How customer engagement in B2B is driven by client impact n he three key components that create client impact T n ow to create an “early warning” score for your H customers n he five intervention zones used to address your T “red-flag” accounts

Dave Tambling: More than twenty years of building relationships with consumers across a broad spectrum of B:C and B:B brands serving categories from pet food to apparel and banking to healthcare. Dave’s Customer Loyalty Philosophy: While loyalty is a two-way street, it is the responsibility of the marketer to actively monitor and nurture the relationship. Connie Chesner: Close to a decade of experience transforming a deep understanding of market motivations and drivers to communication strategy, study, and transformation in industries spanning from national non-profits and the US military to retail and financial services. Customer Loyalty Philosophy: Loyalty inspires deeply, moves consistently and spans beyond logical associations. Driving loyalty therefore drives our sustainable bottom line in more powerful ways than any other persuit.

Blaise James Principal Gallup Consulting Blaise James is a Principal at Gallup Consulting. He inspires audiences to turn customer insights into actionable, measurable brand loyalty strategies. Blaise has built successful customer loyalty platforms at multinational brands across most industries, including overnight shipping, financial, technology, retail, Internet, food and beverage, telecommunications and non-profit.

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LOYALTY EXPO 2009 PREVIEW
Optimizing Consumer Engagement with Your Brand
Presented by Bob Fetter, Senior Vice President – Pluris In today’s economy, it is important for marketers to stimulate consumer purchase behavior and capture a larger share of wallet than ever before. With most companies suffering through precipitous sales drops, marketing budgets are being slashed at a time when it is more important than ever to continually market to consumers in a relevant and engaging way. In this session, we will show how to: n Leverage digital messaging and the latest technologies, embedded with data and analytics, to optimize every consumer touch, inbound or outbound n Stimulate greater consumer engagement with the brand with an optimized offer and/or message n Supplement an existing loyalty program and drive participation in that program n Formulate key considerations in designing a new loyalty program to support maximum uptake of that program, as well as consumer involvement with the program This advanced session with key statistical and technological concepts is very detailed in the how-to guidance that it provides to participants.

What can we learn from the Grocer about Customer Loyalty?
What is the glue that makes the finicky grocery shopper stick?
Presented by Steve Babick, President and CEO – MetroSplash Systems Group, Inc. While it may disputed who was the first retailer to offer a loyalty program no one can deny that grocery merchants have been offering loyalty programs for over a century. As one of the consumer’s most frequent spends, the Grocer’s customer lifecycle moves quickly and frequently with heavy interference from competition from all types of retailers. Grocers have mastered the ability to attract new customers and were among the first to promote loyalty through consumer programs, now they’ve found the secret to retention with a powerful incentive. Hear from the country’s second largest grocery wholesaler, Nash Finch Company, as they share the secret on why Fuel is an ideal incentive to not only attract new customers, but to also retain that consumer’s loyalty. Steve Babick, President and CEO of MetroSplash Systems Group, Inc. will also share his successes with FuelLinks, a powerful loyalty solution within the grocery industry and more. Gas is the glue that makes loyal consumers stick.

Bob Fetter Senior Vice President Pluris An insightful industry veteran, Bob Fetter is known for his innate ability to quickly identify opportunities for brands to better engage their audience to improve their sales and marketing results, Bob has helped design more than 150 multi-channel marketing programs for major business-to-consumer and business-to-business companies in catalog, retail, healthcare, media and financial services industries.

Steve Babick President and CEO MetroSplash Systems Group, Inc. Mr. Babick brings 20+ years of progressive, growthoriented experience within the Enterprise Software industry. He is responsible for executing on the company’s vision and go-to-market strategy, in addition to all compliance and investor relations activities. He came to MetroSplash from i2 Technologies, where he was VP of Global Field Operations.

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LOYALTY EXPO 2009 PREVIEW
The New 4 P’s of New-Era Customer Engagement Marketing
Presented by Marti Beller, President – Affinion Loyalty Group ALG will offer nearly 30 years of unparalleled experience on behavioral incentives and affinity marketing strategies to define and reinforce our view of customer engagement and the role it should play during these difficult economic times. We will identity the new 4 P’s of this marketing era to help readers gain a foothold on what is necessary to truly achieve the ever-elusive “customer engagement” goal. Perspective Use your data. Affinion will provide case studies to help illustrate the power of customer data , and how it can provide a new way of analyzing unseen truths within organizations. Pairing this data with today’s altered perspectives can help generate new marketing strategies in an accelerated fashion. Purpose Know your brand. During times of extreme uncertainty, it’s important to understand and promote your brand to your most loyal customers. Start by understanding the brand promise resonating loudest with the most attractive segments of your customer base. Then, capitalize upon that information to support optimized customer behavior(s). Path Identify your new direction. The luxury of endless competing marketing strategies is cast aside in this new era of customer engagement marketing. In a sea of uncontrollable variables, know the path you’re going to follow and understand the importance of measuring against goals along the way. Set a clear bar by which to measure success and develop marketing and product strategies that reinforce those areas of measurement. Proliferation Test and learn. Yesterday’s overachieving results may become today’s control amidst a new demand for more stringent metrics. Analyze results prudently and continue to view your findings back through the lenses of customer understanding and optimization; delivery of your brand promise; and customer satisfaction and engagement.

Marti Beller, President – Affinion Loyalty Group A veteran in the loyalty industry with more than 14 years of experience developing and managing loyalty programs for some of the most recognizable brands, Marti is considered a visionary throughout Affinion as well as the industry.

Introducing a Better Metric for Loyalty and Relationship Marketing: Comp CustomersTM
Presented by Phil Rubin, CEO and President – rDialogue Measuring customer loyalty and relationship marketing is far more complex than counting revenue, especially the way so many companies do, using “comp sales” aka “samestore” sales. Phil Rubin will introduce you to a better way to measure customer management and effectiveness of your loyalty and relationship marketing initiatives. More importantly, this approach not only measures performance, it will be an invaluable guide to achieving better results and organic growth. With Comp CustomersTM, you’ll gain new insight into customer loyalty and a new way of assessing loyalty marketing opportunities that fit well within your business strategy. You’ll also explore how to acquire more business from your existing customer base—without high acquisition costs—by ensuring that your brand, messages and offers are relevant, engaging and, most importantly, effective. Join Phil as he takes you through real-world examples and illustrations for companies with and without loyalty programs that are relevant to any industry.

Phil Rubin, CEO and President – rDialogue Phil has nearly 20 years of strategic marketing experience with an emphasis on loyalty and relationship marketing, integrated communications, partnership development, promotions and program development.

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knowledge. deliver y. results. how mot ivatin g.
Let us motivate you.
At A nion Loyalty Group (ALG), we o er ways to drive pro table behaviors among your customers using any means possible: points, miles, rewards, incentives, enhancements. Our years of experience ensure we acknowledge, understand and anticipate marketplace and consumer trends, helping us design programs to motivate your customers’ behavior. Some of the most recognizable brands have employed our services to develop loyalty solutions to meet their pro tability goals. We believe loyalty should be a business strategy with a positive ROI. And our proven loyalty solutions repeatedly result in pro tability for our clients. about yalty Visit us at www.a nionloyalty.com/loyalty or call 800.622.4863 to le n more about our loyalty our lo ar learn marketing services and how we can help create loyalty between you and your customers.

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LOYALTY EXPO 2009 PREVIEW
Reward Business Models— Should Program Sponsors Really Earn on Rewards?
Workshop to be led by Dominic Hofer, Chief Executive Officer – Loylogic

Why Guess When You Can Know?
Creative ways to measure loyalty programs
Presented by Wayde Fleener, Director Decision Sciences – Carlson Marketing When determining your measurement plan for any type of a relationship building effort, there are all kinds of business challenges to drive how you will choose the appropriate measurement treatment or approach. In this exciting session, you will hear about the traditional ways to measure your relationship building effort and the obstacles that can get in the way. But most important, we will highlight two innovative ways to measure your relationship marketing effort to help inform the best way to build stronger relationships. Key takeaways: n A review of the traditional ways to measure relationship building programs n A discussion of the obstacles that get in the way n An exploration of two innovative ways to measure your relationship building program Wayde Fleener Director Decision Sciences Carlson Marketing Wayde Fleener ensures the right measurement and analytics are in place for Carlson Marketing’s clients, and then uses the data to design programs that will drive maximum value.

Hands-on workshop session! Sign up at LoyaltyExpo.com
Topic: Reward Business Models Detail: Loylogic is a reward services provider to airlines, hotels and credit card loyalty programs. Rewards are the biggest cost factor of any loyalty program. Therefore deciding on the ‘right’ reward business model is critical to success for the program. The Loylogic session at the LoyaltyExpo2009 will provide an opportunity to learn about how reward fulfillment models have evolved from traditional mail-order delivery to on-demand services in the digital age. It will also focus on how such models drive member engagement and satisfaction. The discussion will address questions such as: n How do traditional reward models compare to new, digital models? n Which model delivers the best value to program sponsors and members? n What are the underlying financial models that can be applied (service fee based, transaction fee based)? n How can program sponsors control reward cost and steer their loyalty investments towards the most valuable customers? Covering the various business models and their financial implications, Loylogic will work with the audience on the pros and cons of the discussed models, and provide insight on reward success factors for any loyalty program. Dominic Hofer Chief Executive Officer Loylogic Dominic is a seasoned loyalty expert. Previous experience has included EVP of Sales and Business Development at Qualiflyer Loyalty (now ICLP) in Zurich, Switzerland. In this role he was instrumental in the development of the Swiss TravelClub, SN Brussels Privilege and TAP Victoria frequent flyer programs. Dominic has also worked with Lufthansa Miles & More in Frankfurt, Germany.

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LOYALTY EXPO 2009 PREVIEW
Extending the Dialog— Loyalty for CPG
Presented by David Rosen, Senior Vice President of Strategy and Channel Development – Loyalty Lab Consumer packaged goods (CPG) companies are aggressively implementing campaigns to collect names of their consumers, but once the campaign is over, continuing the dialog with consumers requires a different value proposition, benefits, engagement frameworks and empowering technologies. Rather than mourn the death of the one-off campaign, marketers must look forward to how loyalty best practices and tools can lead them to a new level of consumer engagement and profitability. In this session, David Rosen , Loyalty Lab’s senior vice president of Strategy and Channel Development will moderate a panel of CPG marketers and social media, loyalty, and interactive marketing experts to show how loyalty concepts are changing the way CPGs develop relationships with end customers. Attendees will learn: n Strategies that enhance individual campaigns to drive long term relationships n Methods for collecting data and engaging customers in many channels n Ideas for incorporating social media in measurable and meaningful ways David Rosen Senior Vice President of Strategy and Channel Development Loyalty Lab David leads the company’s loyalty strategy and analytics teams, and has designed innovative loyalty programs for more than three dozen top national brands in the multi-channel retail, consumer goods and travel industries. Tim Houlne Chief Executive Officer Working Solutions As CEO, Tim’s primary focus is driving brand strategy, top-line revenue and business growth through back office call center sales, support and transaction processing, utilizing remote home-based agents. Tim has more than 20 years experience in call center services, technical support and warranty management industries.

Leverage Your Contact Center to Improve Customer Engagement and Loyalty
Presented by Tim Houlne,Chief Executive Officer – Working Solutions Forward-thinking executives are changing the way they look at the contact center. Although historically the contact center has been viewed as nothing more than a necessary expense, today’s executives realize that it may be the only point of contact for some customers. Tim Houlne discusses ways to take advantage of your company’s contact center to help improve customer engagement and loyalty. Key points that Tim will cover are: n Identifying the right agent for sales and support n Aligning business objectives of the company with the agent for seamless communication and engagement n Using contact center transactions as touch points to improve customer engagement and loyalty n Improving the customer experience by simplifying the contact center process

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Loyalty Travel Fulfillment

Redefined

Let our experts put the pieces together for you.
Loyalty Travel Fulfillment
Your Currency Points • Points + Cash • Miles • Cash Your Rewards Fixed • Dynamic • Tiered • Zoned World-Class COPC Contact Centers Consultative Approach Concierge PCI Compliant Data Center • Call Centers

Ask us how your program can pay for itself.
Online Self Serve Redemption • Purchase Exclusive Loyalty Rates Dynamic Packaging Air • Car • Hotel Cruise • Tour Insurance • Attractions
Visit us at Loyalty Exp Booth # o 409!

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www.CLTSLoyalty.com 6442 City West Pkwy | Eden Prairie | MN 55344-3245 Loyalty Management

LOYALTY EXPO 2009 PREVIEW
Global Loyalty: Challenges of International Loyalty Programs
Presented by Derk Möller, Managing Director – Rewards Arvato Services and Scott Richardson, Global Key Account, Travel & Tourism – Arvato More and more, global loyalty programs are becoming the normality/standard rather than the exception in today’s loyalty market. Nowadays consumers — informed by the internet and empowered by their mobile devices — are actively engaged in the way their favorite brands or companies behave in the marketplace. This allows the consumers, and with this, the world of loyalty to grow together. Cross-country and even global loyalty programs such as Miles & More and The Emirates High Street (present in 62 countries) are wide-spread. Research has shown that 80% of a rewards portfolio in such a global loyalty program can be designed to meet global wants and needs. However, 20% of the rewards still cater to the very individual country-specific taste of the consumer. This presentation will provide insights into how to manage and compile a global rewards portfolio, review the opportunities and risks involved in setting-up and managing a global loyalty program and explain how to anticipate and fulfill the desires of your potential global customer today. Derk Möller Managing Director Rewards Arvato Services Derk Moller has more than 10 years experience in the marketing, services and loyalty industries. Since 2004, he has been the Managing Director of Europe’s largest rewards solutions company and Vice President of Arvato Services. Scott Richardson Global Key Account, Travel & Tourism Arvato Scott Richardson is responsible for the development, implementation and management of global loyalty rewards solutions for clients in the travel industry including airlines, hotels and car rental companies. The primary focus is on international solutions covering multiple functional areas from product sourcing and fulfillment through IT and customer service.

Building Engagement with Millennials
Presented by Bill Hanifin, Managing Director – Hanifin Loyalty LLC with Bjorn Larson, Founder and Executive VP – Edhance We know who they are and understand their general make-up. The challenge remains to create and execute strategies to engage the Millennial generation in our Loyalty programs. Effective communication is a challenge, as Generation Y spans an age range that deserves to be addressed in three or more distinct segments. The myriad of emerging social media tools remain unfamiliar to many marketers and complicates the task. Join Bill Hanifin, Hanifin Loyalty LLC, and Bjorn Larsen, CEO Edhance, Inc. to share the experience of seasoned marketers who are actively involved in engaging and building loyalty across the three segments of Generation Y – Teens, University age, and Career Starters. In addition to other panelists, a leading Social Media expert will share insight into how social networks and micro-blogging tools can be incorporated into communication plans to drive engagement and build loyalty. Long term brand loyalty is dependent on a successful first step—engagement. Don’t miss this session if you want to be in touch with this increasingly powerful consumer group of over 80 Million people. Bill Hanifin Managing Director Hanifin Loyalty LLC Bill Hanifin, a recognized leader in the areas of loyalty marketing, payment systems, and technology with an impressive history of developing and implementing loyalty and customer strategies for leading organizations around the world. Bjorn Larson Founder and Executive VP Edhance Bjorn has helped build some of the most successful student discount businesses in the world. Bjorn is also a board member for Mecenat, an organization offering thousands of discounts to more than a million Swedish students through a partnership with the Swedish government.

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LOYALTY EXPO 2009 PREVIEW WORKSHOP PREVIEW
The Gamification of Loyalty:
Driving Deeper Customer Engagement Through the Power of Play
Workshop to be led by Bary Kirk and Bob Konsewicz, Maritz Loyalty Marketing
To hear that 97% of teens are either casual or avid video game players is not a shocking statistic. But what’s going on when 53% of adults also identify as active gamers, with 20% of them professing to play on a daily basis? The gaming market has seen explosive growth in recent years as game designers have become experts at creating experiences that drive deep and sustained consumer engagement. These experiences create tremendous consumer commitment because they effectively employ powerful “game mechanics” that are proven to feed our psychological desire for fun and accomplishment. What if our loyalty programs could capture even a fraction of the level of engagement driven by these games? We play games because they promise a payoff for our effort—loyalty marketers have always known and employed this simple premise in their programs, but how many have ever looked at those programs as games? How would your loyalty strategy change tomorrow if you started to view your program as a “game” and your members as “players”? This workshop will explore the idea of how adopting a game-centric view of your loyalty initiative can bring a whole new perspective to the most effective way to engage consumers, with a particular focus on creating awareness and understanding of proven game mechanics and how to use them to drive better program design.

Sign up for Loyalty Expo “Hands On” Workshop Sessions!
Workshop: Sunday, May 31, 2009 www.loyaltyexpo.com

Economic Downturns: Is Loyalty Dead?
Workshop to be led by Todd Nelson, Senior Vice President – Loyalty Marketing Services and John Bartold, Vice President – Loyalty Solutions at Epsilon
Consumers aren’t enrolling at the same rate and members are not transacting as much, revenue is down and executives want to know if the loyalty effort is really worth it. These metrics don’t signal that loyalty is dead. We need to accept we are in a very different period and the metrics we’ve traditionally used to validate our efforts are not the right set under the stress test of a recessionary period. This session will provide: n An understanding of economic business cycles n What we have seen and learned from past economic downturns n Why typical loyalty measures provide false information on loyalty activity n How to define and position the right set of measures n How to act on those measures and continue to drive your loyalty effort

Todd Nelson Senior Vice President Loyalty Marketing Services
Over the past 12 years, Mr. Nelson has been a member of Epsilon’s Loyalty Marketing Services. Todd brings a wealth of experience in loyalty marketing systems, marketing tool and digital marketing implementations in a variety of industries, including financial services, retail, fundraising, hospitality and travel.

Barry Kirk Director of Strategic Marketing Maritz Loyalty Marketing
A self-described “geek marketer,” Barry brings his two passions—marketing and technology—together in his work in the loyalty space.

Bob Konsewicz Senior Marketing Consultant Maritz Loyalty Marketing
As a former database marketing analyst, Bob works with his clients to evaluate the results of marketing campaigns, provide insights and make strategic recommendations for future initiatives.

John Bartold Vice President Loyalty Solutions at Epsilon
Mr. Bartold specializes in developing marketing initiatives to build relationships and alter customer behavior for increased profitability and reduced churn. John is a frequently requested speaker on the subject of marketing and management at conferences throughout the US.

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Build true loyalty by building better relationships.
A more strategic, data driven approach can help you move to the next level of loyalty. With genuine insights into the needs and expectations of your customers, you can talk with, treat, and reward different customers in unique ways. This is what we call true loyalty.

Bring this approach to life with comprehensive services from Maritz. It's our business to understand what matters most to people. Enable them with knowledge and tools. And motivate them to change behaviors. To start working on your relationships, stop by booth #100 at the Loyalty Expo. Ready to learn more now? Visit maritz.com or call (877) 4 MARITZ.

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