STRATEGIC LOYALTY TIME TO START AT THE TOP, NOT THE BOTTOM. Manu Sarna, Vice President, Loyalty Strategy and Analytics

Transcription

1 STRATEGIC LOYALTY TIME TO START AT THE TOP, NOT THE BOTTOM Manu Sarna, Vice President, Loyalty Strategy and Analytics Today, marketers are driven to develop loyalty programs for many tactical reasons, foremost among them being: Pressure to implement low-cost mobile-centric technologies; To show use of big data; and, To keep up with competitors. Unfortunately, these forces have resulted in a proliferation of ineffective cookie-cutter, me-too programs. However, by avoiding pitfalls and conducting a critical analysis of what loyalty can truly do for a business, loyalty can be deployed as a sustainable differentiator and source of competitive advantage even in today s crowded marketplace. Today almost anyone can design and launch a loyalty program. Review top competitor programs, make a few minor changes, and your new program is designed. Now, deploy it on any one of several new-to-market start-up platforms. Voilà! Your loyalty program is up and running. While this method certainly checks the box for a loyalty program on a list of tactics, it invariably fails to capitalize on the opportunity that strategic loyalty represents for businesses. Nevertheless, the plug- n -play approach to loyalty is pervasive. The trend is driven by three factors: The availability of low-cost (mobile) technology The race to harness the potential of big data The need to achieve parity with competitors Though these factors do logically indicate adoption of loyalty marketing initiatives, one must consider that loyalty and strategic loyalty are two different things. Businesses driven only to check the box end up with cookie-cutter programs that do little to deliver on business strategy or drive differentiation. Let s take a look at what tends to characterize loyalty programs borne of these factors: > The availability of low-cost (mobile) technology has encouraged businesses to implement DIY loyalty platforms that can be quickly set up at almost no infrastructure cost. However lack of care in program design tends to result in economically unsustainable programs and/or un-scalable platform infrastructures. Loyalty marketing is like home ownership it is a long-term commitment that demands a more sober, committed approach but such investments pay off exponentially for smart clients over the longer term. > The race for big data has pushed businesses to design programs that collect and store reams of customer data data which the programs are not able to act on. CMOs and big data are thus a bit like dogs chasing cars once they catch it, what do they do? To be sure, loyalty is a prime deliverer of big data. It can provide transactional, behavioral, demographic and attitudinal information that can be linked directly back to a named individual. But CMOs must understand that data collection is only a first step; to harness its power, it must be mated to programs that deliver relevant personalized omni-channel information and offers. It is only then that loyalty can deliver the lift and shift for which it strives. > The need to achieve parity with competitors is also a major driver of program creation and evolution. For example many airlines have moved to an earning model based on dollars spent rather than miles travelled. But the question is: who among these is doing so successfully? Just because a competitor is offering a loyalty program, or a new program wrinkle, doesn t mean it is effective. Strategic loyalty seeks to use loyalty to achieve competitive advantage. Sure, the building process needs to consider things like How do I leverage low-cost technologies?, What kind of data and analytics will the program help me achieve? and What are my competitors doing?, but it also needs to think further. This essay seeks to define Strategic Loyalty Program Design and illustrate how only it can deliver competitive advantage.

2 THREE DEADLY SINS OF PROGRAM DESIGN Continuing the home-building theme... as the architects of more than a dozen world-class loyalty programs in the last 18 months, we have had the privilege of building on greenfield sites or, more often, demolishing an outmoded program and building it anew. In this we have witnessed the outcome of botch jobs from DIY constructionists and fly by-night builders, initiatives that left owners saddled with dwellings they had to live in for years before they could marshal the resources (and courage) necessary to rebuild. These are the three deadly sins that lead to such situations: 1. Starting the design with technology first. Many programs today are constrained by either legacy technology, or worse, by building technology platforms before the program design is complete. The first may simply be unfortunate, but the latter is downright negligent. We know a $1B company that began building a loyalty technology solution in-house before deciding whether it was even going to design a loyalty program! Pouring the foundations before the blueprints are done is definitely asking for trouble. 2. Designing too tactically. Too many programs are designed for either short term gain or for the benefit of only one entity within the organization. One specialty retailer routinely reduced its points expiration to juice short-term profits until finally it had become a mere husk of its former self. Another entertainment company had seven (!) program currencies. One currency was dedicated to just one part of the business for one period in the calendar year. Loyalty done correctly should be for the long-term (the word loyalty does, after all, imply this) and for the mutual optimal benefit of both the business and the consumer. 3. Using what customers want as the primary input to design. Consumer research and executive points-of-view should absolutely be considered in the design process. However the vast majority of loyalty design firms, particularly small ones, tend to over-focus on what people think. Recall two on-the-money comments from Henry Ford and Steve Jobs: If I d have asked consumers what they wanted, they d have said a faster horse (Ford) and Consumers don t know what they want until they see it (Jobs). One retailer s first attempt at designing a program was to do incredibly sophisticated research on five potential program constructs which were a simple distillation of executive brainstorming. The research methodology was impeccable, with plenty of advanced statistical methodologies testing the validity of the five program constructs. Which design won? The one that offered the most cash-back to customers, of course. Not only were the constructs tested incredibly vanilla, there was no semblance of balancing the value created for both the customer and the business. In the end, the executives scrapped the program design entirely and brought in Aimia to help find the right balance. SIN #1 STARTING THE DESIGN WITH TECHNOLOGY FIRST SIN #2 DESIGNING TOO TACTICALLY SIN #3 USING WHAT CUSTOMERS WANT AS THE PRIMARY INPUT TO DESIGN Strategic Loyalty / 2

3 Strategic Loyalty / 3 FOR STRATEGIC LOYALTY, A DIFFERENT APPROACH IS NEEDED While this article cannot provide our detailed methodology, we can describe it generally. This is the five step process to develop strategic loyalty for competitive advantage: 1. IDENTIFY SUSTAINABLE UNIQUE ASSETS 2. ARTICULATE BUSINESS OBJECTIVES 3. DESIGN TO EXPLOIT ASSETS 4. GET STRATEGIC BUY-IN 5. REFINE THE ECONOMICS RESULT: LOYALTY PROGRAM DESIGN FOR COMPETITIVE ADVANTAGE 1. What are your sustainable unique assets? Not what you wish they are, nor what you think they might be, but what they actually are. Genuine assessment and careful reflection are required to come up with the real answer. Additionally, the list of unique assets must be relevant to a future program. The chart below illustrates how transformative this exercise truly is. Unfortunately there is no easy way to identify which sustainable unique assets can be considered relevant for loyalty. Intuition and global experience help Aimia quickly sniff out these for our clients. Industry What was first identified as sustainable unique assets What was finally agreed as being sustainable unique assets for loyalty Big-box retailer Customer awareness Unparalleled mix of small business owners and consumers Travel company Lowest prices Technology ownership to drive higher incremental spend Category-killer retailer Brand strength Consumer-engaged digital assets vs. other market share leader Entertainment company Brand strength Un-replicable consumer experiences; portfolio of >$1B entertainment assets Healthcare company Product quality vs. competition Distribution network and best-in-class margins Specialty retailer Consumer awareness and customer relationships High fixed cost categories in-store with low utilization 2. What business problem are we trying to solve? Bigger baskets ( Lift ). More customers ( Shift ). These are two of the first and most common responses to this question. But those aren t business problems per se. It is critically important to articulate a few key, customer-centric metrics (KPI) for where your company is today and what you re trying to get to in the future. For example, we worked with one travel company to recognize that customer lifetime value was disproportionately low vs. its peers. Clearly articulating the specific business challenge at hand focuses efforts and removes the threat of executives trying to use loyalty as a panacea for all business issues.

4 WE HAVE A CLEAR DEFINITION OF LOYALTY Strategic Loyalty / 4 It defines the scope of what loyalty is solving for us How can we design a profitable revenue-generating customer membership program That overcomes > Poor view of customer > Crowded market > Limited engage opp > External: rep for ops > Small network > Internal: execution And exploits > Market potential > Direct customer rel. > Growth position > Partnership value > Quick distribution > Monetization opps To drive and sustain consideration and demand, improve customer lifetime value, and meet all pre-set objectives Pre-set objectives > Acquire XX customers into program annually through 2016, XX by 2018 > Increase frequency in the rate of transaction by XX% by 2018 > Achieve customer retention level of XX% by 2018 > Increase customer average transaction spend by XX% by 2018 > Establish $XX in partner revenue by 2018 The goal is to articulate SMART objectives for loyalty on a single piece of paper that explicitly addresses business challenges. Avoid (mis)interpretation by using metrics to force the definition. And ensure metrics collectively tie to the desired outcome in the sanitized client example above the pre-set objectives collectively roll-up to customer lifetime value. 3. Ask yourself: What program construct will best exploit our assets? Only now do we begin to generate hypotheses for what a program construct should be. The word hypotheses is critical it confers a top-down approach to be later validated and refined by customer research. These hypotheses are generated from a variety of means, all within the boundaries of the loyalty definition above: > Global experience and knowledge > Best practices from other industries > Emerging niche loyalty programs This is the point where art meets science. There is no template, algorithm, formula or workbook that spits out an optimal program design for any given client. There are only guiding principles which, coupled with expertise in loyalty, form the basis of a program design hypothesis. Once program hypotheses are in place, customer research can be leveraged to test and validate them. Insights derived from customer research can and should also drive assumptions within a chosen program s economic model. Will this program impact customer trips, basket size, cross-brand purchases, etc.? By what percentage will each of these metrics lift? Thoughtfully designed research can help answer these questions, but it is critical that the research design go about solving for these in an indirect and analytical way. Too many surveys fail to provide meaningful insight because they ask direct questions that customers either don t know how to answer or answer dishonestly. 4. Get strategic buy in Strategic Loyalty Program Design does not start and end with just the design. The best execution of loyalty is from companies who embed loyalty within the wider organization. The worst are those who view it as a marketing tactic only. Very few companies achieve the former. Why? Because of the lack of change management required up front to bring the organization along. Operations, finance, marketing, technology and leadership must all be brought along from the outset. Ensure you have a body of executives who convene and make active decisions at least three times during the design process. Many decisions will be easy, but every loyalty program reaches a point requiring trade-offs to be made. Unless these can be framed crisply like any good change management process you risk doing a disservice to your company in the long term. There is no end to the variety of questions that will need to be framed up. In our experience many of these involve trade-offs between: > Outstanding liability on the books vs. customer engagement > Mono-brand vs. multi-brand (with many banners or brands within a company portfolio) > Rollout of all features at launch vs. staged (test n learn) rollout of features > Short-term success metrics vs. long-term success metrics... And so on. Getting the buy in you need takes time, effort and expertise. Don t underestimate what it takes to get the organization bought into a strategy which sets new levels of customer expectations (you cannot withdraw or easily change a loyalty program once it is out there) and new levels of internal expectations (outstanding results are like putting your foot on the gas pedal it takes time for the car to get to full speed).

5 5. Refine the economics Ultimately loyalty comes down to economics. Modeling a future state requires extreme diligence given the number of inputs and outputs. Sensible, considered Strategic Loyalty Program Design requires a number of iterations to refine or modify the program construct. However, because this process involved a top down approach based on unique assets, the framework within which a construct can be made is tight. This is why our process works so well. We ve never flung spaghetti at a wall to see what sticks. That s not the kind of chefs we are. Every recipe Strategic Loyalty / 5 takes time to perfect a little more salt and a little less basil. Being able to make those changes quickly and understand the true financial impact is where the skill lies. So what now? You re probably reading this because you re asking yourself one of three questions; 90 percent of inquiries we receive can be restated as follows, depending on an organization s readiness to walk the loyalty path. The Aimia team has a robust and detailed process for each of these questions. At a high level, this is how we answer each: LEVEL 1: What could loyalty/engagement improve for my organization? At a basic level, it s important to clearly define what loyalty is and what it can achieve for your organization, identify best practices across different industries, analyze competitors programs and strategically position yourself against them, and outline basic program inputs and KPIs. LEVEL 2: What is the right loyalty/engagement program concept for my organization? Once you ve identified what loyalty can do for your organization, it s time to start diving into the specifics of program design: e.g., what construct provides the most value to the business and customers, what are the resulting technology requirements, and what is the business case. LEVEL 3: What is the right loyalty/engagement program for my enterprise and what is the implementation roadmap? Once a program design has been agreed upon, there are still a whole host of other items that need to be considered before the program can be launched. Successful loyalty programs will all include strategic marketing and communications plans, and must be tightly intertwined with robust analytics. The program must also consider financial management, monetization, org structure optimization, go-to-market strategy and detailed program costs and more before go-live. In summary, while many do begin program design driven by technology, big data, or competitors, we recommend taking a deep breath first. If there is one takeaway it is this: start with truly identifying your unique assets. It is the only sure source from which a program that delivers differentiated sustainable competitive advantage can come. As a global leader in strategic loyalty design, Aimia is well-positioned to help clients answer and plan for all of these questions and more. Wherever your company is today on the loyalty journey, we can help you avoid pitfalls and leverage loyalty for competitive advantage. Contact us at customer-loyalty.us@aimia.com to learn more. START WITH TRULY IDENTIFYING YOUR UNIQUE ASSETS

6 ABOUT THE AUTHOR Manu Sarna, Vice President, Loyalty Strategy and Analytics Manu leads the US Strategy and Analytics team. He joined Aimia in 2011 to run the retail business for Aeroplan s nearly five million member coalition. He learned his strategic consulting craft with The Boston Consulting Group before building a large retail analytics consulting firm in Toronto. He has been quoted on loyalty in multiple different publications including Canadian Retail, The Globe and Mail, Strategy magazine, Star Tribune, National Post, Canadian Grocer and others. Aimia Inc. (TSX: AIM) is a data-driven marketing and loyalty analytics company. We provide our clients with the customer insights they need to make smarter business decisions and build relevant, rewarding and long-term one-to-one relationships, evolving the value exchange to the mutual benefit of both our clients and consumers. With close to 4,000 employees in 20 countries, Aimia partners with groups of companies (coalitions) and individual companies to help generate, collect and analyze customer data and build actionable insights. We do this through our own coalition loyalty programs such as Aeroplan in Canada and Nectar in the UK, and through provision of loyalty strategy, program development, implementation and management services underpinned by leading products and technology platforms such as the Aimia Loyalty Platform and Smart Button, and through our analytics and insights business, including Intelligent Shopper Solutions. In other markets, we own stakes in loyalty programs, such as Club Premier in Mexico, Air Miles Middle East and Think Big, a partnership with Air Asia and Tune Group. Our clients are diverse, and we have industry-leading expertise in the fast-moving consumer goods, retail, financial services, and travel and airline industries globally to deliver against their unique needs. For a full list of our partnerships and investments, and more information about Aimia, visit aimia.com.