Driving better returns from retention dollars

M1 Telecom - Singapore's smallest telco lost more customers this year than last year - 33% more customers to be precise (their customer churn rate increased from 1.2% per month to 1.6% per month). This on the back of a retention budget that increases 12% in 2008. Not the kind of result they were likely expecting.

Customer retention expenditure needs to be focused and disciplined. Sutowu of Carlson Marketing Asia Pacific has outlined a disciplined investment taxonomy for retention dollar investment.

Our man Sutowo is based in Singapore - he's responsible for our Decision Science Services in Singapore, Malaysia, India, Japan and Hong Kong.

Published in the Marketing Institute of Singapore's April journal issue, Sutowu's model relies on 3 pillars :

1. Customers need to be targeted at the right time
2. The right customers must be selected in the targeting
3. They must receive the right offer or value (which in our business is often driven through a loyalty programme)

All of this is underpinned by frequent Test and Learn programmes.

Sutowo's full article is available here.

Gamification - what loyalty programmes should have been delivering?

The gamification of everything is afoot. Gamification (also known as Funware) is about integrating game mechanics, such as say leader-boards, into non-game environments such as marketing campaigns and health care.

Gamification definition care of Strategic Synergy

The movement is largely lead by professional game designers from the video and online games industries. One of the first industries they've latched onto as examples of games outside of the video game industry are loyalty programmes. These programmes have "points" to keep score with, members can "level up" to more exclusive tiers and pick up "powers" such as airline lounge access while redeeming for rewards along the way.

Gabe Zichermann's view on loyalty systems

But according to these game designers - loyalty and frequent flyer programmes are not always particularly well designed games. They don't do a good job of engaging members on the journey towards redeeming a reward. Gabe Zichermann is one of gamification's leading gurus and he proposes a fifth P be added to the marketing mix - Pleasure. He describes marketing's task today as "creating a long-term engagement with the consumer that moves them along what we call, ‘the player journey’ – the long-term emotional engagement of the user with the brand.”

In Zichermann's motivational hierarchy gamers are after four things in decreasing order of importance and notably for programme operators, increasing order of cost to the provider:

1. Status
2. Access
3. Power
4. Stuff

Status, access and power are areas that frequent flyer programmes excel in. Higher status members can clearly be seen accessing the faster queues, priority check-in and better lounges. Status is only status if it's visible to others. At the same time - most airline frequent flyer programmes offer only elite status and "leveling up" for their very top members. If they were to offer a member early and multiple opportunities to climb through status tiers, they'd be more like games and, according to Zichermann, more engaging.

Stuff in all loyalty programmes are the rewards offered in exchange for points which have a hard cost to the loyalty programme provider. Stuff though is only accessed at the end of the loyalty cycle after much accrual and its impact is trumped by status, access and power.

It's hard to imagine a loyalty programme that reduced the value of the stuff on offer in exchange for more status but one has just launched in the hotel sector. The Global Hotel Alliance is offering a loyalty programme without points but with very clear status, access and power. They have Gold (1 night stay), Platinum (10 nights) and Black (30 nights) tiers to enable early and easy leveling up. Each tier provides progressively better access from free internet at 1 night to surf lessons or helicopter tours for Black.

A well gamified loyalty programme would become a reward in itself. According to Zichermann "It’s the system that’s engaging, not the reward” he says. “That’s what game designers know really well, and this is what gamification is unveiling to the marketing world.”

1 COMMENTS:

Jeremy Sweetman said...

Thank you Simon for your informative article.

Coming from a long heritage of digital communications and (more recently) game design, I'm excited to see the evolution of gamifying one's brand becoming popularized within the media.

As a practitioner, I was lucky enough to attend one of Gabe Zichermann's talks recently and, unquestionably, the concept of gamification couldn't ask for a better advocate. Obviously Gabe isn't alone in his promotion; personalities from both gaming & marketing circles are starting to validate the process of gamifying both brands and experiences.

Honestly, as marketing professionals, the concept of changing (customer) behaviour through 'fun' activity is not new, although despite 'The Horizon Report - 2011' predicting 2-3 years before the concept becomes mainstream thinking (particularly in education), I believe pioneering in this area will ultimately return significant gains and deliver better experiences all round.

Simon, as a leading practitioner within your field, I'm curious how you would evaluate whether brands would be suitable candidates for a gamified experience - beyond the currently accepted loyalty paradigm?

In addition, I'm conscious that circumstances could exist where a gamified experience could ultimately over-shadow the value of the 'thing' being sold e.g. Jet Blue and (in my opinion) Nike+. Hence are interested on your thoughts surrounding this potential scenario?

Thanks in advance for your insight.

Jeremy Sweetman

MARCH 17, 2011 4:47 PM

February 10th - We present international mobile marketing case studies at Auckland's AmCham

We at Carlson Marketing count ourselves fortunate to have been trusted by our international clients to mobilise their businesses through apps, smartphones and mobile sites over the last few years. We'll be sharing some of our key learnings at the American Chamber of Commerce in Auckland on February the 10th.

Doug Rozen (our Senior VP Creative, Interactive, Media & Mobile based in the USA) will present a working model built up through his hands-on operational experience. He'l specifically discuss case studies from our clients:

• AT&T - a leading USA based Telco
• Coca-Cola - their new direct to customer strategies
• Amtrack - a leading US rail network
• The UK’s Nectar loyalty programme (Nectar is our sister company).

He’s a frequent speaker at mobile marketing events and most recently presented at ad:tech in New York.

Doug Rozen presenting at last year's loyalty conference in India

According to Doug "Around the world there is significant consideration and investment being placed in mobile marketing. The mobile channel offers not only a means to distribute marketing messages to customers on the go but also provides a litany of tactics. While many marketers are focused on the technological marvels that can be achieve through apps, there is a rising opportunity and more importantly a customer demand to add mobile as part of multi-channel CRM initiatives".

Doug Rozen interviewed at ad:tech in New York in November 2010

Date : Thursday the 10th February

Place : The University of Otago House, Street Level, 385 Queen Street Auckland

Time : Registration 3:45 pm

Presentation 4:00 pm

Refreshments 5:00 pm

Concludes 6:30 pm

If you would like to be our guest at this event please email me at simon.rowles@carlsonmarketing.co.nz or call on (09) 524 1122

Rick Ferguson leaves Colloquy and joins our family

Rick Ferguson, most recently Editorial Director of Colloquy has joined our parent Groupe Aeroplan as Vice President Knowledge Development.

Rick picks up a role as thought leader for our group. If you've been to any of the key loyalty conferences in the Asia region or further afield including the USA, Europe and Canada - you'll likely have heard Rick speak. You've probably also read his analysis of our loyalty industry in the weightier publications such as the Wall Street Journal, Forbes, Fast Company and others where he is quoted as a loyalty marketing expert.

There's two major trends we've seen developing in our market that Rick has recognised and analysed on the global stage.

The first is the struggle that travel loyalty programs had in retaining both members and their engagement during the recession (while the opposite has been proving true in other industries, especially retail) . We saw Airline Frequent Flyer and Hotel Frequent Stayer Programs, along with the capital intensive industries they represent, struggle in 2008 and 2009 (and even into 2010). Quoted in AdWeek , Rick commented that “The disparity between travel and the other two industries featured in our latest research mirrors the shift in consumer spending away from the travel sector, in which both business and leisure travel have seen cutbacks, and toward retail categories, particularly in the everyday spend categories of grocery and fuel.”

Rick has also contributed some excellent analysis on another key trend that's evolving and beginning to mature in our market : the targeting and engagement of brand advocates through Word of Mouth. We define Word of Mouth as the output from a brand advocate. It's the opposite of Amway. Customers will recommend a product or service to friends and family not because they get a reward (or more sales as they would in Amway) but because they believe it's the best product or service. (The Net Promoter Score is a good way of determining who is a likely WOM candidate). Rick commented in Adweek that marketers “should find brand champions buried within their program memberships, and build relationships that reward them for positive word-of-mouth activity.”

Rick's thought leadership and deep experience is going to be let loose on a (now) very wide range of our metrics, data, experience and learnings.

Code-On-Pack loyalty programme success for Coke and P&G

New Zealanders have long been keen collectors of loyalty points for everything from their retail shopping to credit card use and airline flights. The success of these programmes has seen them quickly added to the arsenal of FMCG marketing professionals. But it’s not just entrepreneurial grocery brands at the bleeding edge of the new wave that are adopting loyalty programmes; the core of the FMCG market has recognised their value, with two multinational companies, Coca-Cola and Procter & Gamble, leading the charge. Both are our clients.

So what makes these programmes so valuable for those implementing them? It all boils down to data— actual customer transaction information on who bought what, when, where and for how much—that can then be used to determine which people might be enticed to buy next, and craft one-to one communications to get that sale.

From Flat to Fizzing

Many soft-drink brands are caught in the feast-or famine cycle of traditional promotion marketing. And the indiscriminate impact of these promotions leads to unpredictable market share lifts and losses across key segments. In both Britain and the US, Coca-Cola found itself in a cycle of price promotions with no increase in sales revenue or customer loyalty. What’s more, those programmes became increasingly expensive to plan and execute.

In the UK, Coke dealt to this with one of the best customer loyalty programmes of its type. The aim was to keep customers engaged between promotions to keep sales buoyed. We were able to leverage the Coca-Cola brand equity along with a large customer database to secure some enticing reward offers. Its customer loyalty programme, Coke Zone, is a real-world equivalent of click-throughs.

Unique codes are printed inside the labels of all Coke bottles and multi-packs. Consumers enter these online or via text and, in doing so, create a continuous transaction history and picture of who they are. Coke can then tailor its marketing and offers accordingly. The result was increased volume year-over-year, with loyalty communication offers rising to an open rate of 49% and a click-through rate of 71%.

Coke has redefined how a loyalty programme website should work. So many consumers are now entering codes that Coke Zone is the most visited FMCG website in the UK. It has eight times more visitors than Pepsi and they spend ten times longer on the Coke site than its rival’s portal.

Redefining Online Rewards

Coca-Cola faced a similar situation in the US. Its existing points-based programme was expensive and lacked a sound rewards and communications strategy. The My Coke Rewards ‘build-it-and they- will come’ approach to consumer engagement was more than just a bad assumption—its old rewards strategy was not financially sustainable.

The programme was reworked and its re-energized version saw a 16.8% increase in code entry online. Logins to mycokerewards.com increased their open rate by more than 220%, indicating multiple logins, and the rise in code-entries-per member reached 108% over the control group.

A more refined approach

For another of our clients, Proctor & Gamble in the USA, refining its already effective customer-loyalty strategy delivered better results. The manufacturers of Pampers nappies, Proctor & Gamble had tested loyalty marketing and knew the strategy would work. Again, customers went online to enter unique codes printed inside each Pampers pack. The challenge was to refine the strategy and improve the programme. Using data already gathered allowed P&G to intervene at vulnerable switch points where a customer might be tempted to move to a competitor’s brand, and also at key points in their relationship with the Pampers brand. Because Pampers products are only relevant to consumers for a short period of time, the aim was to maximise that timeframe and build a relationship with parents. Carlson’s solution took the best of what airlines and credit card companies had already learned and applied it to the technology platform, consumer experience, rewards, partners, segmentation and trigger communications. The outcome has been improved results for Pampers on all fronts. Active participation among consumers has increased by 20%. The efficiency of the programme’s rewards budget improved by 10 percent and the overall ROI rose by 12.5%.

Our results for our CPG clients:

1. 21% increase in share amongst participating consumers
2. 12.5% volume increase year on year
3. Revenues from strategic partnerships

[First published in New Zealand Marketing Magazine in December 2010]

RESPONSES

1 COMMENTS:

Phil Hawkins said...

So the question is, are product-specific programs such as Coke Zone sustainable in this neck of the woods? I can only presume that lack of scale has prevented Coke undertaking anything similar to date in Australia or New Zealand? There are a few eyes in Australia on the recently launched
Nescafe Cup of Rewards program. It will be interesting to see if the average household's instant coffee consumption is enough to garner interest in the program, discussed further here.

DECEMBER 16, 2010 4:13 PM

Air New Zealand's Airpoints innovations (again)

Air New Zealand has recently delivered a comprehensive renewal of the Airpoints Dollars Frequent Flyer scheme. While it follows similar actions by Qantas Frequent Flyer in Australia it is a very Kiwi and innovative solution.

First mover - Qantas in Australia

Air New Zealand's new innovations follow moves in Australia by Qantas over the last 3 years. Qantas first signaled a partial listing of it's 5 million member Frequent Flyer Programme in 2008 which could have fetched it AU$1.5billion (for many airlines there's more money made in the frequent flyer scheme than in flying planes). The listing strategy was based in large part on Carlson Marketing's parent Groupe Aeroplan's success in Canada according to Simon Hickey - boss of Qantas Frequent Flyer in 2008. Qantas changed tack, held onto ownership of the Frequent Flyer programme, (which produces more profit than subsidiary Jetstar) and took it on an aggressive expansion drive.

Most frequent flyer programmes struggle with too many points being issued (typically by partners such as credit card companies and at a a compound annual growth rate of 10%) and not enough seats being available to redeem them (new planes add only 5% more seats to the global fleet per annum).

Qantas first addressed the redemption options from difficult-to-find-free-flights to include an online store stocked with merchandise and gift cards (full disclosure - we deliver this service for Qantas) and an any-seat, any-Qantas-flight redemption options. It then required all banks who were offering Qantas Frequent Flyer points on their credit cards along with other rewards to offer cards with Qantas Frequent Flyer points only (know as Direct Earn credit cards) - or not at all. Then last year it struck a deal with Woolworths Australia in which Woolies offered Qantas points to its shoppers and along the way added 700,000 new Qantas Frequent Flyer members.

The result? Depending on who you talk to either Qantas or FlyBuys is now the biggest and best loyalty programme in Australia. Either way - FlyBuys has a new attacker. And for Qantas it's a big earner : in the year to June 30, it generated underlying EBIT of A$328 million and now has a base of 7 million members.

Air New Zealand's strategy here

Air New Zealand didn't face the issues of limited seats being available for redemption in its Airpoints programme. In fact it could be argued that anything that got passengers onto it's planes was positive with the Centre For Aviation describing them as a "small airline getting smaller". The world first Airpoints Dollars innovation introduced a few years ago means any seat on any Air New Zealand flight could be bought with Airpoints (rather than the roughly 3%-5% of seats reserved per plane in other classic frequent flyer schemes).

Air New Zealand's advance in 6 steps

1. Flying on Air New Zealand flights had always gave customers Airpoints Dollars which could be redeemed for..
2. ...more Air New Zealand flights.
3. BNZ had long issued the GlobalPlus credit card on which customers earned even more Airpoints Dollars. ANZ (our client), Kiwibank and American Express have all issued new Airpoints Dollars credit cards over the last year.
4. Then recently - Air New Zealand enabled Fly Buys customers too to convert their Fly Buys points to Air New Zealand flights.
5. The really interesting piece has been the issuing of a new Airpoints membership card last month which is co-branded with Fly Buys by Air New Zealand. With this Airpoints card customers can now earn even more Airpoints Dollars (earned instead of Fly Buys points) at any of the Fly Buys merchants. This is a significant innovation and not one we've seen elsewhere. It's a collaborative local solution which is in contrast to the development of Qantas's programme in Australia.
6. The unexpected piece has been last week's release of an online Airpoints gift store. Airpoints Dollars can be used to buy goods and gifts from a $50 digital camera up to a $1,670 high end camera. Some goods are delivered in the same fashion as Fly Buys such as the new iPod Nano which must be picked up in store from Noel Leeming.

There are strong arguments in Australia to support the primacy of either Qantas Frequent Flyer or FlyBuys. In New Zealand - it looks like Air New Zealand's trumped them all.

New generation fuel rewards - the Smart new orange card

While we're all now used to fuel dockets in New Zealand we may soon have a better alternative available to us. It's the result of solid Kiwi entrepreneurship together with some solid marketing discipline.

Australia - 1

Woolworths Australia (who own Countdown and the rest of the Progressive Enterprises stable here) were offering fuel dockets (as we currently have here in New Zealand) successfully in 2005. At the Caltex Woolworths sites there was an average 80% increase in petrol sales. When the offer was 12 cents per litre, sales went "through the roof ". Also - sales appeared to be up in grocery competitor Coles who also offered fuel dockets - maybe as much as 3.8%.

Woolworths Australia have since progressed to offering an orange card which collects the various cents/litre discounts (doing away with the paper dockets) in 2007, launching an online community the same year, partnering with Qantas Frequent Flyer in 2009 and then this week launching a Woolworths Everyday Rewards Qantas Frequent Flyer credit card -with fuel discounts. Pretty impressive customer strategies.

New Zealand - 1 up?

Smartfuel is a Kiwi startup running a pilot programme in Palmerston North. Like Woolworths Australia it offers an orange card that collects fuel discounts. Unlike the Australian example these discounts can be earned at an array of retailers who print the running total of the discount at the bottom of the till slip. They also accumulate into a single large cents/litre discount which can then be used at the next fuel purchase . And there's two major chains participating : fuel discounts can be redeemed at either Mobil or Caltex.

Scott Fitchett (owner of the Caltex in Palmerston North) is the Smartfuel inventor. Ian Sutcliffe is the experienced marketer (previously head of marketing at McDonalds and Westpac and a past 1to 1 Customer Champion). The offer to customers is pretty compelling. So too is the offer to the participating retailers. While they pay for the discount at time of purchase - they don't pay for discounts which aren't used by the customer. These unused portions are credited back to the retailer.

Fuel discounts are not materially costly for the retailers who offer them (maybe a 1% to 2% discount equivalent) but they drive an out sized customer behaviour change. When fuel dockets first became popular one analyst noted that "The discount is worth $1.60. You wouldn't stop in the street to pick up $1.60 but customers are changing retailers for it."