High-Value Reward Programs: Keeping High-Spenders Happy

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1 Programs: Keeping August 26, 2010 Issue The loyalty market is undergoing segmentation, as operators evolve exclusive clubs to coddle and retain their very highest-spend customers. Although still relatively rare, loyalty campaigns which recognize high-spenders in the consumer market have gained in profile over the last year, with a new emphasis on support differentiation, early device upgrade privileges and after-sales care. This advisory report surveys ten of the highest-profile programs for high-spend telecommunication consumers in Europe, with recommendations. Emma Mohr-McClune Current Analysis Research Director, Consumer Services Europe Current Perspective A (Mostly) Mobile-Only Affair Most high-value loyalty programs in the European consumer services market today are mobile-centric. They typically target high-spend mobile handset customers, with qualification linked to either a minimum number of points accrued or average monthly mobile voice, text, MMS and mobile data spend accounted to a single SIM. To be sure, exceptions exist, and we believe the inclusion of fixed as well as mobile service spend is the future of the high-value loyalty club market, as operators realize the importance of rewarding their highest-spend, multi-service customers. Some programs are already there. Both SFR s Le Pacte Premium in France and Telefonica O2 Germany s O2 Premium provide early examples of this integrated approach. In both cases, the spend qualification level is linked to the customer account number, rather than an individual mobile SIM, and both programs cite mobile benefits alongside fixed, such as free defective DSL router exchange (O2 Premium), inclusive femtocell hardware, inclusive computer training and online services support (SFR Le Pacte Premium). Still, even in the mobile-only category, most high-value programs link qualification to mobile spend from a single SIM. In such cases, customers which take both a mobile handset and mobile PC (mobile broadband) subscription are not allowed to aggregate spend to qualify for premium status. By linking spend to an account number, integrated programs such as O2 Premium and SFR Le Pacte Premium side-step that issue nicely another reason for operators to consider widening the target of their programs. Two Distinct Models: Tiered Versus Standalone Programs In Europe today, most high-value loyalty programs are based on one of two models; tiered or standalone. The tiered loyalty program model is typically open to all customers, both low and high-spend, and frequently structured along silver, gold and platinum status bands, or equivalent. Customers are encouraged to aspire to the highest status to gain access to a wider selection and higher-value advantages Europe +33 (0) Or visit our Web site: 1

2 and discounts, but may also lose status if their spend, or point accumulation score, falls under a specified level over a certain timeframe. Examples of high-value programs as an adjunct to a wider, tiered model include O2 UK Priority List Platinum, Vodafone Germany Stars Platinum, Vodafone Italy Top Club, MilleunaTIM Club Premium (now ended) and Proximus Club Gold. The second model is a standalone exclusive club, entirely separate from any other loyalty program initiative in the operator s portfolio. As will be discussed later, both the tiered and standalone model provide a different set of strengths and weaknesses. And Two Different Qualification Methods Qualification for high-value loyalty programs both tiered and standalone require consumers to accumulate a minimum number of points (the points-based system) or demonstrate a minimum average spend across a defined period (the spend system). In general but not exclusively tiered loyalty programs in Europe are points-based, with qualification to the upper status band defined by the accumulation of a minimum number of points in a given period. Examples of this include Proximus Club Gold in Belgium and Vodafone Italy Top Club. However, some points-based programs qualify customers for the upper status programs by average spend; Vodafone Germany Stars is one example of this hybrid approach. Conversely, most standalone premium program qualify members on the basis of average spend. Examples of this include Telefonica O2 Germany s O2 Premium and T-Mobile Germany s T-Mobile Diamant. For more detail on model types and qualification criteria, see Table 1 below. The Points-based, Spend-uptick Incentive As discussed above, most tiered loyalty programs in Europe today are classic points-for-prizes propositions. To attain the highest, premium status, customers must first collect a minimum number of points, after which the points/spend exchange gets more attractive. The Proximus Club structure provides a good example of this. To attain Proximus Club Gold status, registrants are first required to surpass 7,500 points within a calendar year. As Gold status registrants, customers can look forward to receiving five points for every euro spent on Proximus mobile services, as opposed to just four within the Silver band or three within the entry-level Welcome band. Since the points can be redeemed against Proximus mobile voice credit or a new mobile handset, as well as discounts with Proximus Club partners (such as Citibank and the Resto.be restaurant chain), Gold status essentially allows qualifying members access to higher-value advantages. In this and most other examples of tiered, points-based programs, the highest-status band allows the user to retain all the advantages of lower-status bands, with the addition of a few additional bonuses and credit options. In the case of Proximus Club, for example, Gold status registrants have access to the same kind of benefits as the entry-level Welcome and Silver band customers, with an additional discount on online purchases and the option of receiving a birthday gift, as opposed to a birthday bonus credit. All operators deploy direct mailing and other communication tools to help communicate the benefits of going one step up the status roster, and to this end the model can be used to incentivize spend among the loyalty club registrants. The Points-based Customer Engagement Tool The points-for-prizes model also allows operators a broad, creative customer engagement channel, as best showcased by TIM in Italy. The MilleunaTIM promotion was characterized by its extra bonus promotional frequency, in which TIM encourages users to increase their moon points total (and thereby improve their status) by signing up to Milleuna-branded promotions. These promotions are often short-term and seasonal, allowing customers to try out a new service with minimum obligation, such as a one-month, national mobile Internet or MMS roaming credit. This not only creates an additional ARPU-uptick for the operator, but also strengthens the customer relationship; keeping consumers interested and engaged in credit programs is one of the toughest challenges in the loyalty market. Another strength of this model especially important in the prepaid-dominant Europe +33 (0) Or visit our Web site: 2

3 Italian market is its access and attractiveness to prepaid users. Points-based programs are also more closely aligned with qualitative, contextual features of loyalty (e.g., customer longevity and relationship) than spend-qualified models. It is not unusual to see points-based programs award customer longevity by issuing a point bonus as the customer chalks up another year s anniversary (e.g., Vodafone Germany Stars), or even point bonuses linked to the customer s own birthday (e.g., Proximus Club). Points-based programs also commonly offer experience rewards concert, cinema and event tickets which is another way to forge an emotional bond between operator brand and customer. The points-based system is also particularly well adapted as a promotional tool, helping encourage customer engagement. The MilleunaTIM program (now ended) was designed in such a way that customers are practically obliged to react to MilleunaTIM promotions if they re to have any hope of ever qualifying for the premium status. MilleunaTIM awarded customers two moons (points) for every EUR 1 spent on TIM-branded mobile services, but premium status was only given to those who collected over 3,000 moons over a four-month period. Without the promotion credit boosts, TIM customers would have needed to spend an average EUR 350 per month to achieve premium status an impossibly high spend goal by any market standard. In this context, MilleunaTIM Premium Club members were not necessarily the highest-spend mobile consumers in Italy, but the most responsive to promotions. However, one key disadvantage of the tiered, points-based model is that the incentive for achieving premium status is less distinct and compelling for the more price-elastic end of the market: high-spend postpaid customers looking for exclusive, priority support and service-related benefits rather than mere service and product discounts. In many cases, the advantages listed for the upper, premium class status can be interpreted as simply more of the same : greater product discounts, a higher point exchange and a larger catalogue of prizes. Many of the advantages are duplicated across the bands (in the UK, for example, free Bluebook back-up is included across all the tiered status bands of the O2 Priority List program, from the entry-level to Platinum). Given this extendand-duplicate system of tiered advantages, the incentive for qualifying for the premium band is often diluted. With a tiered, points-based model, operators are less able to reach out to, and meet the higher service expectations of, the quality segment. This is where standalone programs which more directly link status to spend excel. Standalone, High-value Loyalty Programs One key advantage of a standalone program for high-value customers is its structural and rewardscheme independence from existing loyalty initiatives within the operator s portfolio. In this sense, operators are relieved from the duty of aligning the premium program with legacy program principles and credit models, and they can start from scratch, designing a unique proposition with an entirely differentiated marketing style, qualification condition and reward proposition. In practice, this has produced a heavier emphasis on quality support and after-sales support, as well as a marketing style which more closely resembles the club exclusivity message of loyalty programs in the airline industry. The Loyalty/Reward Multi-program Opportunity In some markets, operators are now starting to investigate the value of having multiple loyalty and reward incentives in the consumer market, leveraging standalone programs for different segments and using a mix of points-based and spend-qualification models where most appropriate. In Germany, for example, T-Mobile s currently markets a spend-qualified premium Diamant program, as well as a points-based Xtra Bonus program for its prepaid customers and a combine and save discount proposition for customers of both fixed and mobile services, Telekom-Vorteil. In all three cases, the qualification method is distinct to the segment targeted, as are the advantages accrued to each program. Whereas the benefits of both Xtra Bonus and Telekom-Vorteil target customers are squarely related to discounts, T-Mobile Diamant s advantages are more support-centric (advantages Europe +33 (0) Or visit our Web site: 3

4 include a free, 48-hour faulty device replacement and priority hotline response). The marketing style and language deployed in all three programs, furthermore, is both segment-appropriate and distinctive. It is near-impossible for operators offering a single, tiered loyalty program to achieve this level of differentiation and benefits for the various segments; as discussed earlier, most tiered programs offer roughly the same benefits to the status classes more of the same. Standalone high-value programs, unrelated to existing programs for lower-spend customers, are therefore more effective in allowing operators to investigate and exploit customer satisfaction opportunities within the different segments. Table 1: Spend Qualifications Defining High-spend Establishing a precise definition of a high-value customer is difficult for points-based programs. This model, as already discussed above, is more attuned to rewarding the more qualitative features of loyalty customer responsiveness to promotional bonuses, engagement in loyalty program, customer longevity etc. and therefore less directly spend-defined. Standalone, spend-qualified programs, in which qualification is directly linked to average customer spend over a specific timeframe, provide a much clearer indication. Market Program Model Qualification Value Germany Vodafone Stars Platinum Tiered, points-based program, with spend qualifi cation Minimum aggregate spend of EUR 3,000 over preceding 12 months EUR 250/month average T-Mobile Diamant Standalone Minimum spend of EUR 150 for last three successive mobile contract invoices EUR 150/month UK Italy Telefonica O2 Premium Standalone Minimum monthly contract value of EUR 90 for last six successive invoices; multiple services aggregated E-Plus Exklusiv Standalone Offered on a discretionary basis to customers with 12-month existing relationship and E-Plus Gold customers (EUR 150/month) Telefonica O2 Priority List MilleunaTIM Club Premium (now ended) Vodafone Top Club Tiered program with spend qualifi cation Tiered, points-based with minimum points qualifi cation for Premium status Premium version of Vodafone One tiered program, minimum points qualifi cation for Premium status GBP 80 mobile spend per month 3,000 moons (points) over four month period. EUR 1 mobile spend/2 moons, excluding bonus point award promotions EUR 90/month In several instances, operators will proactively inform customers when their average spend or corresponding profile reaches that of attaining premium program status, but in most cases registrants are left to apply for the benefits themselves. A further element of the qualification criteria is length of custom; many programs insist that customers first demonstrate a minimum term with the operator (six months or 12 months is common) before they can access the program. In select N/A GBP 80/month N/A 400 points over four months N/A Belgium Proximus Club Gold Tiered, points-based program 7,500 points over a calendar year N/A France SFR Le Pacte Premium Tiered, spend-based qualifi cation Vaguely defi ned: subscription to minimum three-hour monthly Forfait package, or higher. Last six monthly invoices have to place customer in highest spend bracket N/A Czech Republic T-Mobile O2 Top Program Telefonica O2 Extra - VIP Standalone Maintaining minimum spend of CZK 4,000 per month, per SIM; qualifying customers are automatically notifi ed. Tiered loyalty program Minimum of CZK 2,500 over the previous six month invoices or monthly spend CZK 4,000 per month, per SIM CZK 2,500 per month Europe +33 (0) Or visit our Web site: 4

5 cases, operators refuse to give a precise definition of the qualification for high-value programs. E-Plus Exklusiv in Germany and the SFR Le Pacte Premium are examples of cases in which the qualification criteria are deliberately left vague, and the operator identifies appropriate candidates on a discretionary basis. A Better Level of Support Within all premium programs, a higher level of support and service is a common and increasingly important benefit. Dedicated, after-sales support, with priority call-centre response, is now fairly standard, as is free faulty handset replacement within a guaranteed period (generally 48- hour). Of the ten high-value customer programs surveyed for this report, eight featured priority response as an advantage, with dedicated customer care and a special hotline referenced as additional benefits in many cases. Free faulty handset replacement features in six of the ten premium programs. Some go further. In France, SFR Le Pacte Qualité not only provides priority call centre response, but also guarantees on hold waiting time (no more than 30 seconds to talk to a support agent) and problem resolution (80% on first call). To be sure, this is almost certainly a response to the PR attention given to particularly poor customer support in France; such granular guarantees in the consumer market are almost unheard of elsewhere. Handset Privileges For High-value Customers As expected, handset upgrade and discount privileges are a common element of all the high-value loyalty programs surveyed for this report. The structure of the privilege differs from program to program, but advantages such as x% handset discount at contract renewal and ability to upgrade to new handset x months earlier than contractually indicated are typical. Inclusive handset insurance also features in select premium programs, as does faulty handset replacement guarantees (discussed above). Advantages such as free replacement and cancellation of a lost or stolen SIM are also commonly cited. Predicting The Future of High-value Loyalty Programs We believe European operators will move away from offering tiered, points-based programs to create distinct exclusive clubs for their highest-spend customers within the consumer market. Operators could also look to include service spend from a range of fixed and mobile services within the spend qualification criteria going forward (as SFR Le Pacte Premium and Telefonica O2 Premium already do) and include more fixed-line benefits in the program benefits roster, such as exclusive IP TV content and value-added services. We also believe operators will start to include data management as a more prominent benefit of high-value programs, particularly free back-up of content and contacts across a range of devices and access technologies. Recommended Vendor Actions Integrated operators should consider spinning out an entirely separate high-spend loyalty program which includes spend from both fixed and mobile services, linked to a customer account number, rather than an individual SIM. Operators which currently run a mobile-only high-value loyalty program should ask themselves how well this is serving their retention interests among their broadband and TV base. Quality, priority service should be a feature of all high-value loyalty programs, and operators should look to see if they can furnish such advantages with QoS-type guarantees, such as SFR has done in France. There is still a lot of work that can be done in this area, particularly in the mobile market, where such guarantees are all but unknown. Operators currently marketing a single, tiered loyalty program should consider taking a more multi-brand program approach, as T-Mobile Germany has done. The ability to offer distinctive Europe +33 (0) Or visit our Web site: 5

6 programs for different sub-segments is certainly a more costly approach to customer retention, but it does allow the operator to fashion the benefits of each program more precisely to each segment s special needs and expectations. Programs which simply up the value of the bonuses and discounts on offer within the higher-status bands are at risk of appearing to offer just more of the same. Operators looking to offset smartphone churn from their customer base should look at the way several high-spend loyalty programs today allow higher-status registrants to upgrade to a new handset early. This could be especially relevant in markets with high iphone reseller penetration. The Vodafone Group should give more thought to aligning data management benefits with its higher-value loyalty programs. Vodafone has done more work than most in this area, but this is not clear from the advantages cited in programs such as Vodafone Stars in Germany and Vodafone Top Club. Orange should be aware that many of the quality support and service elements offered within its premium Orange Care program are increasingly offered for free as benefits of competing loyalty programs for high-value customers. Orange will need to keep innovating in this area, as well as adding to the benefits of Orange Care, to justify the premium price tag going forward. Europe +33 (0) Or visit our Web site: 6