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Loyalty 3.

January 2014

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Loyalty 3.0

The Evolution of Customer loyalty programs have come a marketing, the evolution of loyalty
long way. From the rst retail stamps programs may be divided into three eras.
Loyalty scheme to todays sophisticated, digital
multi-partner alliances across dierent
Loyalty 3.0
industries: The way in which customer Engaging
Interactions
loyalty is approached has been dened
and re-dened over the years. From its Loyalty 2.0
earliest days, businesses, brands and Individualized
Marketing

entire industries have continued to search


for the solution toward rewarding loyalty Loyalty 1.0
Points &
in an eective way. In view of an increasing Rewards

fusion of online and oine loyalty

Loyalty 1.0 More than two decades ago, the rst (e.g. 0,01 per bonus point). Customers
customer loyalty programs started with were now able to collect a currency-like
The era of the possibility to earn and burn a loyalty credit automatically with every transac-
points and currency. tion. Afterwards, this credit could be
rewards At the beginning, companies handed out redeemed for various rewards (e.g. in
stickers or stamps to their customers for online reward shops or in-store).
the transaction generated. The amount of With the introduction of loyalty cards and
stickers or stamps mostly depended on the spreading digitalization of the loyalty
turnover customers made or the route programs, marketers started to
they travelled. After collecting a certain automatically collect customer data and
amount of stickers or stamps, customers communicate with customers in the form
could exchange them for rewards such as of postal letters or email newsletters
promotions, cash vouchers or gifts. promoting special oers exclusively for
In-store redemption was the only option program participants. However, at that
and customers had to pay attention to point in time, these oers were rarely
collect and not lose their stickers or individualized or personalized. Every
stamps. loyalty program member was approached
With emerging digitalization, companies with the very same oer, irrespective of
introduced loyalty cards allowing custom- gender, age, points balance, customer
ers to show these at check-out and earn value, shopping behavior or other
bonus points by simply swiping their cards. segmentation criteria.
Usually, the programs featured an own
loyalty currency such as points or miles
with a dened value for earning (e.g. 1
bonus point per spent) and burning

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Loyalty 3.0

Loyalty 2.0 permissions as possible as a basis for oer


communication.
Focusing on Provided with this additional customer
the individual data and by continually collecting informa-
customer tion on customer shopping preferences on
a transactional basis, marketers, for the
rst time, were in the position to create
customized oers for pre-selected target
groups. Initially, it was only possible to
create dierent target groups per cam-
paign (e.g. dierent email newsletters for
men and women). However, the advent of
advanced campaign tools soon made it
possible to approach several dierent
target groups with customized content,
Soon after the introduction of the rst promotions and incentives in one single
loyalty cards, loyalty program providers newsletter. These tools combined with
began to systematically analyze their customer insight helped to reduce opera-
collected customer data and use these tional direct marketing communication
insights to tailor more individualized oers costs on the loyalty provider side and led
to better respond to customer needs, to a more relevant and personalized
increase relevance and nally achieve less communication with loyalty program
costs in processes and marketing and more members.
revenue. This trend can be considered as
In order to boost sales of specic products
the starting point of Loyalty 2.0.
or services and inuence customer shop-
Marketers and program providers started ping behavior, coupons and promotions
to ask customers for personal data during were created. These targeted campaigns
signup such as postal address, birthday, helped customers accrue additional bonus
email address, phone number and many points or miles. Moreover they created
more optional elds like gender, income incremental sales for the loyalty program
and even personal interests and provider and participating partner compa-
preferences. The most important compo- nies that cooperated with the provider and
nent among customer data set represents oered a wide range of earn possibilities
the newsletter permission. Program for program members. With increasing
members have to explicitly give their maturity of the program, the partner
permission in order to receive newsletters. portfolio of the respective programs has
Without their permission loyalty program been continually expanded. Partner of new
providers must not contact their custom- categories have been added, but also the
ers via email campaigns by law. For that partner portfolio of existing industries has
reason it is essential to attain as many been expanded.

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Loyalty 3.0

In addition, program providers have begun media or websites, now both play signi-
to dierentiate the customer among each cant roles within a successful loyalty
other and to reward valuable customers program. By oering new services and
with exclusive benets and advantages. oers (e.g. a coupon center) via online or
This led to the introduction of status levels mobile channels marketers enable custom-
within which customers could obtain ers to actively engage with the loyalty
additional program benets and thus program at any time and place. An
stand out from other program participants. example of this trend is the coupon center
Besides the reward of valuable customers, of the German bonus program PAYBACK.
the introduction of status levels also Program members can log on to the
managed to deliver the customer an website or the mobile app, access their
incentive for increased collection activities fully personalized coupon center and
and thus generated more sales. activate a coupon whenever and wherever
they want.
Another crucial aspect of Loyalty 2.0 is
multi-channel marketing communication. Loyalty 2.0 can be summarized as a rst
Traditional direct marketing campaigns via step to involve customers as active
push channels such as postal letters or members and encourage them to enroll,
email newsletter, and communication via interact and exchange with the loyalty
pull channels, e.g. mobile devices, social program.

savvy collectors and price-sensitive switch-


Loyalty 3.0 ers. Next generation loyalty programs must
Engaging redene their long-term goals and should
customer reconsider the actual meaning of customer
loyalty in terms of brand loyalty, customer
interactions
engagement and retention. The main idea
of Loyalty 3.0 is to make customers engage
and interact with the loyalty program itself
instead of simply rewarding them for
spending money. In this way the program
provider can get in the spot during the
Loyalty 1.0 and 2.0 have set the stage for whole customer journey in all customer
the future of loyalty programs. Hence, touch points to increase customer
Loyalty 3.0 is built on a clear, new engagement and involvement.
principle: Interactions are the new Given these goals, the integration of social
transactions! networks is very expedient and can lead
In the past, loyalty programs made marketing campaigns into an entirely new
customers focus on discounts, points or domain and dimension. For example,
other types of indirect savings educating customers could be rewarded for sharing

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Loyalty 3.0

program news within their network or points account updates via email right
compete with friends in social media after purchasing by simply dening every
games. There is also the option to combine transaction as a trigger for sending an
customers online and oine interactions. email. In order to avoid "spamming" the
For example, a customer could earn extra customer, the amount of direct communi-
points when sharing news on Facebook, cation a customer receives during a
simultaneously checking in in-store via specic period needs to be dened via
Foursquare and purchasing for a value of contact frequency management. For
at least 20 euro. This oers marketers an example, this guarantees that customers
opportunity to combine "old-fashioned" shopping a few times a day will only
campaign mechanics (basket value) with receive one email in the evening which
digital ones, such as mobile applications or sums up their transactions and bonus
social media functionalities. These new points accrued.
aspects of online engagement such as Additionally, the increasing penetration of
social sharing or check-ins can represent smart phones enables location-based
highly cost-ecient and eective social services. This should be an integral part of
media or word-of-mouth-marketing, any Loyalty 3.0 strategy. Location-based
trigger purchase decisions and generate communication enables marketers to
incremental sales. As a result, customers contact customers with oers or incentives
become valuable co-marketers informing based on their present physical location
their entire social network community and time (e.g. geo location and weather
about events, promotions and shop conditions). Let us assume the following
locations. case: It rains today in London and you, as a
marketer, can send out a mobile coupon
Check In
with extra points for umbrellas or an
invitation to a free hot beverage inside
your nearest store, addressing all your
customers who are located within a certain
radius around your store at the very
moment.
In order to enable this new dimension, real
time selection of individual incentives and
oers is necessary. This, in turn, requires
Another elementary cornerstone of campaign tools to know when to send the
Loyalty 3.0 is real-time communication most relevant incentive to the right
with the customer via digital channels. By customer. Hence, it is no longer sucient
setting up triggered communication, to just create oers and incentives for
customers receive immediate response pre-dened target groups. Instead, every
after almost every action within the loyalty oer or incentive is attached to a couple of
program. For instance, customers are sent dierent criteria to ensure the oer can be

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Loyalty 3.0
matched to a member prole in a exible and time, increasing relevance, engagement
and automated way at the right location and the likelihood of a complete sale.

Loyalty
Loyalty 3.0
Engaging
Interactions
Loyalty 2.0
Individualized
Marketing Two-way, cross-channel
Channel communication including
Multi-channel marketing social media and mobile

Segmentation based on various One-to-one segmentation


Loyalty 1.0
Analytics Points &
standard attributes Highly automated and
Rewards synchronised processes

No differentiation; same burn Differentiation by tier-level Sophisticated tier-level concepts


Burn opportunities for all concepts Individualized burning in
realtime

No differentiation; same earn Individual earning promotions Individualized earning concepts


Earn opportunities for all Rewarding of interactions

Time

Core Enablers In our view there are three core prerequi- customers only with the most relevant
sites to implement next generation content through the most appropriate
for Loyalty 3.0 customer loyalty solutions: Multi-Channel channel. This goal, of course, needs to be
Campaigns, Program Digitalization, and aligned with a marketers perspective of
Continuous Enhancement. In order to set providing content through channels which
up a holistic and successful Loyalty 3.0 imply highest protability.
strategy, each of them needs to be Nevertheless, increased individual commu-
addressed professionally. nication always bears the risk of overload-
ing customers with too much information
Multi-Channel Campaign Management
and making him feel overspammed.
A central thought behind Loyalty 3.0 is
Therefore, a reliable contact frequency
contacting the customer through the right
management is needed, which controls
channel, at the right time with the right
the amount of communication a single
content. To achieve this, a higher amount
customer receives, also with respect to the
of customer communication such as email
priority status of each communication.
newsletters, online news or smart phone
As it is not possible to manage high-vol-
apps is needed. At the same time, the
ume communication manually, an elabo-
communication content needs to become
rate and ecient campaign management
much more individualized and, therefore,
Prediction Engine is an indispensable
relevant for the customer.
support for every Loyalty 3.0 strategy. It
Increasing amount and frequency of should enable the loyalty provider to
communication goes along with more and create a mass of individual communica-
more complex target groups and sophisti- tions very eciently for all available
cated triggers in order to contact channels and should equally feature

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Loyalty 3.0

process, nally allowing the marketer to in a special bonus campaign. For example,
contact the customer quicker, even in extra points are announced for users who

and manage the whole campaign work- Facebook, check in via Foursquare and
nally purchase in-store for a certain
amount of money.
brieng. The main advantage of the tool is
that it analyzes customer behavior on a
self-learning basis and, in this way, auto- Your Loyalty Program

mates and tailors customer communica-


300
extra miles
Register

200
extra miles
Register

Another crucial enabler of Loyalty 3.0 is

is not sucient anymore to focus on print

launch a website.
A Loyalty 3.0 program orchestrates all
relevant customer channels. It is, for
H
online and oine engagement and bears
advantages for program providers as well as
engagement via smart phones. All the for members. The program provider boosts
channels which program members might
eort while the use of social media channels
to be precisely coordinated to support allows approaching new customers through
personal networks of engaging customers
program appearance and pleasant who share content such as oers, events
customer experiences.
Users should be involved via all their
preferred channels to enable easy program
On the other side, program customers can
easily earn more points by conveniently
Member customers can be rewarded for a using everyday channels. In this case it is

Foursquare check-ins at the marketers -

awareness and engagement, these saving handling of all processes.

7
Loyalty 3.0

Continuous Enhancement of Program currency for participating in online or


Attractiveness social media games challenging himself, his
Continuous enhancement of program friends or other program members for the
attractiveness is the third pillar a Loyalty best score. Additionally, loyalty currency
3.0 concept should be based on. Current could be burned within these games, for
earn & burn mechanisms have to be example, for premium versions, higher
extended to new digital channels while status or activation of extra features
user interactions rather than their pure facilitating higher game scores.
transactions should be rewarded. In addition, local partners can be
For activation of low users and younger integrated into the portfolio of partners
target groups, the integration of earn & who oer the customer accrual opportuni-
burn mechanics into approaches of ties in his area of living and hence make
gamication may prove very eective. participation in the program even more
For example, a user could earn loyalty attractive.

Conclusion In conclusion, we see that customer loyalty enablers, we as a company are rmly
programs indeed have come a long way convinced that programs in the market
but still have not reached the peak of oer great potential for optimization
perfection. Having analyzed program regarding customer relevance, cost
evolution, market needs and future eciency and protability.

Let your business Loyalty Partner Solutions is a one-stop Process Outsourcing services and provide
service provider for intelligent customer a holistic Loyalty & CRM approach. We
benefit management. Loyalty Partner Solutions tailor our services and solutions to your
serves as a global powerhouse for individual business goals and the specics
managing customer loyalty including the of your industry.
design, enhancement, development, If you would like to know how next
implementation and management of generation loyalty can benet your
loyalty programs. We deliver state of the business, please feel free to contact us at
art Consulting, Loyalty IT and Business your convenience.

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Loyalty 3.0

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80339 Munich
Germany

+49 (0) 89 96 16 09 - 0

+49 (0) 89 96 16 09 - 2900

@ info@lpsolutions.com

www.lpsolutions.com

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