‘Loyalty marketers failed to innovate fast enough'

Since the launch of a Canadian Air Miles coalition loyalty programme in 1992, LoyaltyOne Rewards has come a long way. And since 1990, Colloquy (now a LoyaltyOne company), has been in the business of research, publishing and education on loyalty. Jim Sullivan, Partner, Colloquy, made his maiden trip to India this year - one he was keenly looking forward to.

In conversation with BrandLine, Sullivan discussed findings from a Cross Cultural Loyalty Study across six markets – three emerging (India, Brazil, China) and three developed (Australia, Canada, US). His trip and the report precede the launch of a coalition loyalty programme in India slated for 2012, following up on 26 per cent stake LoyaltyOne picked up in Direxions Marketing Solutions the year before. Excerpts:

From the study, what is the difference in consumer sentiment in developed and developing markets?

The economic optimism – outlook for the next 10 years – is very strong in the three emerging markets. This optimism translates into interesting consumption data. For example, acceptability of credit card use in emerging economies is much higher. Only three per cent of Canadians say it is acceptable to buy things that you can't afford now - the numbers are at 17 to 20 per cent in emerging economies.

Is there correlation between loyalty programmes and economic sentiment?

I am not sure it is a causation, but there seems to be the same dampened attitude on the part of consumers in the developed economies.

Loyalty marketers have failed to innovate fast enough and exceed rising consumer expectations. It's difficult to do that in any case. But in a recessionary environment where every dollar you spend is being questioned by the CFO, it may be even more difficult to hand soft benefits that do not have an immediate, measured payback.

Points and rewards are more concrete. But if it's the same ‘earn and burn' program, consumers don't have anything new to get excited about.

In a slowdown, shouldn't spends be more on loyalty?

Our analysis shows that loyalty programmes deliver much better in recessionary environments.

When the times get good again, you have occasional customers coming in and buying and they have a tendency to distract the marketer's attention. Loyal customers stay steady during those times, but they really come to the fore when the occasional customers leave. In every bit of analytical work I've done in over 20 years in the business, it's always the case. In fact, for no other reason, your best customers become even better during a recession.

There is a view that loyalty programmes are treated as tactical rather than strategic …

Those who treat this as a tactical approach have failed. The programmes fail to reduce churn, fail to interest consumers. They add to the cost of doing business without the lift of revenues or profits.

Programmes that succeed ask consumers to enter into a different value exchange, by getting closer to them through the use of transaction and other interaction data. And for the trouble of carrying that card and giving us access to that data, customers are rewarded overtly with the programme.

The data should be used to deliver our base brands in a strategic change programme. The end result would be to become more preferred by customers, gain market share and retain them longer. It's a series of small moves tailored to the customer experience that locks them in.

Most travellers with a million or more miles aren't looking for more free trips. Airlines that get it best are the ones that have the most luxurious and customised value-added services around the flight. And that's a result of understanding their customers individually.

Within airlines, there are budget carriers where cost is the pull, and therefore loyalty is close to nil. Does loyalty work better in premium categories?

No. Virgin Atlantic is an airline that has committed itself to loyalty but is a discount airline. If the core brand is strong, and seeks to become stronger in a competitively advantageous way - in other words, if it wants to embrace customer intimacy as its strategy, alter its service delivery perception on the part of its customers - you could be either a premium or a discount airline and loyalty would work.

SouthWest Airlines has its frequent flyer programme that has its proper place. But that brand and the operational genius that they have brought to it is the centre of gravity.

Senior corporate leaders may forget that just because they have a loyalty programme, they may not have loyalty. If you are not using the data and insights from the loyalty programme to alter your service towards your best customers, you are missing the point.

You mention the coalition loyalty model will work better in India. Why?

In the coalition loyalty model, we will partner with multiple brands in multiple categories of ‘everyday purchases'. With everyday purchases, attainability (of rewards) increases.

It is typical of a standalone loyalty programme to relegate occasional or low spend customers to the bottom in terms of segmentation. Segmentation is essentially a resource allocation idea, so it has the tendency to pull marketing dollars away from such people and put them where the best customers are.

In India, as incomes rise and the bottom of the pyramid becomes much more able to transact, any one standalone retailer's loyalty programme still provides them this doubt that they are ever going to get to a reward, because they just don't have the heft.

But if participation in a coalition programme accounts for petrol spends, banking and groceries, consumers accumulate points a lot faster and earn meaningful rewards.

The average redemption ratios (of rewards) in India are at 8 to 10 per cent; in the US, it is never less than 50 per cent. Here, any programme with redemption of over 20 per cent is seen as great. The coalition model is designed for redemption far higher than 55 to 60 per cent.

Also, on your single store card, you don't know the number of points you have or when they lapse or what you can redeem them for. We will actively reach out to inform customers about points earned and what they can be redeemed for.

Can stickiness be an outcome of rewards? What should the objectives of a loyalty programme be?

Retention or stickiness is one of many objectives of loyalty programmes. Objectives include attracting people to the programme and the brand (shift), increasing transaction frequency or spend per transaction or both (lift), and, of course, retention benefits that extend the tenure of the customer.

I'd add an emerging factor there – advocacy. With social media, we're seeing some early patterns in the data that suggest very strongly that those who are willing and able to advocate strongly for your brand are already your loyalty programme members.

The trick there would be to wake up and solicit them to share their member number online on social media, so that you have a map back to their transaction. I see that as an emerging best practice – to track the sentiment, and leading back to transaction.

We're looking at a study right now about emotional loyalty stages and its correlation to transactional volume and frequency. It's a complicated analysis, but it can be done.

gokul.k@thehindu.co.in

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