Good afternoon. My name is Jean-Pierre Lacroix, and I'm very excited today to have with us Mark Johnson, who is CEO and CMO of Loyalty 360. They're a company that specializes in development and the evaluation of loyalty programs in North America and now in Europe. Mark, thank you very much for joining us. Thank you. Loyalty programs are a key component of how you retain customers. A lot of retailers and marketers have been looking at how do you attract consumers to brands, and now with the need for growth and the challenge for growth, a lot of companies are refocusing their attention to how do we retain those customers, how do we get more transactions and revenue sources from them, and how do we build continuity in those programs so that they sustain over many years versus it being a short-term promotional incentive. So Mark, talk to me a little bit about your company. Loyalty 360 is an association for those who have loyalty
programs. We have an array of brands as well as a number of organizations who we refer to as vendors or sponsors who develop loyalty programs and processes. We have created a clearing house for those who have these programs, bringing best practices, doing research, bringing insight, but also allowing those who have questions, who have needs, to really engage with those who have answers, who have solutions. And that can be another brand who has a successful program, who's done some unique insight around social media, or analytics or modeling. Loyalty programs have become more complex over the last three to four to five years with the proliferation of data, technology. Brands are really challenged to create that unique relationship with the customer. So we have created an association that allows those who have answers to engage with those who need answers and need insight. What would be the biggest mistake retailers would make on the launch of
a loyalty program? Traditionally, loyalty programs were launched as a kind of reactive measure. Their competitors had one. There was a need to launch one. They weren't given a lot of forethought. They weren't benchmarked. They weren't understood with regard to what the customer wanted and needed. And as you mentioned, it's about driving incremental behavior. It's about creating a unique dialogue with a consumer based on reciprocity. The brand gets value from the customers, the customer gets value from the brands. Today's customer, as we all know and we've all heard, is empowered. They're educated. They're finicky. They're emotional. Understanding that is very complex. So having a traditional point-based program based on some sort of threshold no longer works. Truly understanding and listening to your customers is what brands should be doing. But yet brands really do not do it in the way they should, because it's
complex and they're challenged. So developing a program that's not based on that true explicit and implicit understanding of your customers is fraught with perils for the brand, and that's where you see this great change, this landslide in brands who want to change the programs they have or develop programs that really can drive that incremental behavior, create that unique dialogue, and create that reciprocity. And that's what brands are really looking to do. That's great. It's interesting, loyalty programs, to me, I look at them, and I'm limited by the amount of room I have in my-- or space I have in my wallet. And so what dictates an effective loyalty program for me is the ones that stay in my wallet or the ones that I leave in my cupboard at home. Right. And a lot of those incentive programs are driven by retailers who provide significant cash incentives to use them. Any insights on who's doing a great job on
these loyalty programs? We actually just completed our first Loyalty Landscape Report, which was an assessment over 200 brands in both the US and in Europe, and we also just had our first Loyalty 360 Award winners. So what we did is we looked at the landscape as a whole, understood from a qualitative and quantitative perspective what brands were doing, what challenges they had, and then looked at the winners, and these winners were judged by a group of 20 experts in the field, very neutral. We had objective standards. And there's some that are doing well, Best Western, the Society of Montreal, the Transport Department. They do an amazing job of creating a comprehensive program that looks at the social mobile, looks at creating data sets that they can create value for the customer. Best Western, they have programs that go into the voice of the customer, the voice of the employee, and they meld these into a unique program, understanding the needs of the customers, but
also creating advocacy with their consumers as well as their employees to push that incremental dialogue. And using data, not as a banal input, but as a way to create that reciprocity we talked about, to create that mutually beneficial behavior that brands are really struggling for. You look at American Express, where they have great experiences. They have an engagement with their customers that's very unique. You look at even Loblaws up in Canada. What they're doing here is very unique as well. It's not always focused on that discount. It's great experiences with empowered employees that can engage the consumer in unique and meaningful ways. That's true loyalty. Loyalty should not be considered just a point program. It's about the total composite behavior of the consumer. Those programs are doing very well. And I think one thing that's very unique, too, with programs that do very well, they admit when they were wrong. They're not too proud to say, "It was us.
Let's make this right." Win-back situations are very important, and brands traditionally, CMOs, very top-down, very autocratic, I know better than them, they didn't want to say, "I'm sorry we messed up" and capitulate. Now- You see CMOs that say, "That was my mistake. That was our mistake. Let's make this right." And that sense of empowerment for the consumer, for the brand, is huge. Those Windex situations create more advocacy, they create a longer-term engagement than if you had had good experiences all the way through. So being able to say you're wrong, being able to understand the customer's perspective is very unique, but it's still very challenging. And we say that only 7% to 10% of brands truly are doing things that are what the consumer wants. It's great to see that some of these retailers and operators are doing well and are applying the principles. How can branding make a loyalty program effective and successful?
One of the things about branding, too, is it makes it easier for it to be top of mind. As you mentioned, you have five, seven, ten cards in your wallet. Yeah. And whatever's top of mind, and when you look at the emotional attachments the consumer has with that brand, it's very important. So having a unique branding component is very important. Easy rewards, the Best Buy, the Fan Zone program, the Geek Squad. So having a moniker that they can adapt to, that kind of pushes the mission of the loyalty program, the loyalty process, is very important. Just having a point program is not that important. But if you have consistent branding across the program, from the call center to the credit card to the loyalty program itself, with the customer experiences that they can identify with, I'm part of the Geek Squad, I'm part of the Easy Reward program, that is very important to the consumer as well as the employee because it's an identification.
You can have the mission, you can have the charter, you can create a great sense of empowerment. But that's very challenging as well because disparate organizations or disparate silos within the organization have disparate needs. So being very cohesive and being able to pull all that together is very challenging. And as we know, new marketing, loyalty marketing, customer engagement, customer relationship marketing, is more expensive. And one of the things that we saw is no matter what organizations spend on their program, those who are spending more are doing better, but understanding the customer is a challenge. But those who have a consistent message, who have unique branding, have a value proposition that the consumers, the employees, and the organization can buy into, are the ones that are doing better. Call that brand coherence. It's all about making sure that all of the moments of truth that line up with the consumer and the
organization are consistent. Excellent. Correct. To me, the battle of loyalty programs happens in many places. One of them, again, I come back to the analogy of the wallet. How do you differentiate that loyalty program when the average consumer has how many credit cards and how many loyalty program cards? And so, obviously, branding plays an important role at standing out in the wallet or the purse, making sure that that badge value that comes out of- Absolutely ... is the right one that reflects their values. Absolutely. So what would be your advice for a retailer who's considering introducing a loyalty program? I think those who are looking at a greenfield project have to have some benchmarks. They have to have some inputs. They have to have an understanding of their customers. So putting in a program that's just going to give a dollar per point, or buy 10 get nine free, or doesn't take in the disparate data sets from
social or mobile or all these different pieces, you have to understand where you are. We worked a global hotel alliance. They are one of our award winners. Small group of boutique hotels, 25, 27 of them. Very unique, boutique. They realized they had a fixed budget. They realized they can't do everything. So they place bets on areas that they need to improve on. But they do that by listening to the customer. So they've expanded their program. They would like to have a better mobile, a better social presence, a better website presence, but they realize that they can't do everything. So what they do is they engage in a dialogue with the customer to develop the pieces that are most advantageous to the customer. So if you're starting with a greenfield project, having an understanding, hire a consultant, get an outside perspective. Because as we mentioned, the CMOs traditionally have a different
perspective of the customers than the customers have of the CMO in that organization. So I think having an honest appraisal of where your program is, kind of in a bigger program, your marketing processes, the customer processes, what they value. And you don't necessarily have to be able to respond to everything the customer wants. I look at JetBlue. JetBlue does an amazing job. They have a 20,000-person panel they use to develop programs, processes. They actively listen. But what happens? They come to Dave and they say, "We want X. We want Z. We want P." Well, we can't do that. It's not economically feasible. But when you tell the customer, we can't do X and here's why, that's very unique as well. So understanding where you are, being able to listen, and being able to respond. And if there's something you cannot do in a loyalty program, as if you benchmarked it, don't commit to the customer you're going to do that.
Don't tell them you're going to listen. Don't tell them you're going to have an active feedback process. Don't tell them you're going to evolve the program. Set the expectations low, as we know, and meet them, exceed them. Don't set high expectations hoping that three months, four months, five months hence, they're going to forget. Customers don't forget, especially when you tune into that rational piece they want. That's something they'll remember forever. So what you place value on and what I place value on is significantly different than what consumer X may place value on. So set up the program to succeed. Bring in an internal consultant or two or three, look at the branding, look at how the program's positioned, and develop it in a manner that's what the customers want, not what the CMO wants, not what the organization wants. And it's very unique. I talk to J.D. Power quite often. He spoke at our conference in the fall.
I actually spoke with him two weeks ago. Brands still don't listen. They develop programs and processes in a vacuum, and you can't do that anymore. You have to really engage the customer, if you want to be top of mind, if you want to be top of wallet, if you want to be first in that consideration set, but it's hard. Well, that's interesting. You bring up on a couple of occasions the CMO, and it sounds like loyalty programs are not high on everyone's radar screen, especially in the marketing area, and that it's kind of driven by other needs, sales needs, operation needs, versus it being a branding and marketing need. Is that just a perception of myself, or is that the reality out there? I think you have some salient points. Traditionally, branding, we mentioned P&G, I'm from Cincinnati, P&G have a slogan, have an idea, push, push, push. You have an ideation and you push it out. But loyalty programs are different.
A true program is about, we mentioned behavior, and behaviors, as we all know, are very irrational. They're not predicated on rational means necessarily, always. So the challenge to listen is very unique. So you look at a CIO who has data, who has inputs, he's trying to develop pieces for the external audience, and the CMO traditionally has been one, we're looking at branding, we're looking at positioning, but not necessarily taking the inputs, the transactional data, this rich transactional set you get from a loyalty program, from your call center, from response data, from survey data. Taking that is very important. And I think you're seeing a new CMO. You're seeing a new CMO that's part COO, part CIO, part CFO, that is looking to be more open, to being more accessible. One of the things that we saw in our loyalty landscape report, which was very unique, programs that do the best are the ones
that have infused an entrepreneurial spirit in their organizations. They're willing to take risks. We know the return for program X, Y, and Z. There's this other program, it may have return, it may not, but we should probably take a look at that. We know what these returns are. These new media, these new technologies don't all have proven ROI, and that's what we're doing to bring these together. So you talk about the effectiveness of these programs. Any kind of metrics, ROI? So if somebody's looking at launching a loyalty program, obviously there has to be a business sense, a need. There's got to be a return on that need. Any insights here? That's an amazing question. That's one of the things we saw, too, is what is part of a loyalty program? Traditionally, you look at the cost of the rewards, the cost of setting up the program. But as we've seen, the connotative and denotative definitions of what a loyalty program and process
is have expanded exponentially. So the CRM programs, the data sets, the analytics, the modeling, all of those are going into a loyalty program now. So, traditionally, you looked at the cost of the point accrual, you looked at the rewards, you looked at setting up the system to take care of that, the decrements, the increments. But now you see as the definition grows, what loyalty entails is becoming a bigger part of the budget. And I think there's a realization that the siloed approach, the CIO had all the data. He talked to the call center, he talked to the credit card, he talked to the external touchpoints. Those are being allocated to part of the loyalty process, and those who realize that those are now part of, obviously, those are probably why they have 20% more of the spend, it is greater. And we asked that question, too. We asked, is it a chicken or an egg? Are the ones that are spending more,
is it a mindset within an organization? Are they John Deere's? Are they Apple? Are they Amazons? And they don't have traditional loyalty programs, you can exclude Prime. But they're spending more on retention from clubs, communities, that are unique to that customer. We talk about a four or five C's of loyalty, and one of the new things we mentioned, we added a sixth C, and it's confidence. Those organizations who have that commitment, who have that culture, they have a confidence of what they're doing is right. They have a confidence that they can be empowered to develop these new programs. They have a confidence that they're going to drive the behavior. But we asked the same question you did. Is spending 20%, 30%, 40% of your budget on loyalty going to get you there? Have they always spent that? Is that culture? And we don't necessarily have the answer to that. Mm. We're still trying to figure out, are those who are spending more, is it culture?
Do they see the incremental spend? But there are stats that those who are spending more of their budget, they are doing significantly greater than those who are not. So what are the steps a retailer should take to implement a loyalty program? I think we mentioned before, the things that retailers need to do is have an understanding of the customers. If they have a program, understand what is working, what is not working, and do some benchmarking. Look at some of the other programs, programs they like. How are they responding? What are the customer experiences that they get from those programs? If you're open and can truly look at other programs, it's very empowering. Can you give me examples of successful loyalty programs? I think there's, we mentioned Loblaws as unique. We talked about Best Western. We talked about Global Health Alliance. We talked about American Express, and look at some of these programs too, like in
American Express, they have an array of programs. So there's unique complexity in all these programs, but they execute on them. They have a core vision of making everything customer-centric. It's very important. That is the challenge, is understanding what the consumers want and being able to put together the processes that they want, the programs they want. So we talked a lot about successful programs, so give me some examples, some unsuccessful programs for loyalty. First off, people who know me know that I have an issue with Delta. Delta is, and a lot of travel programs are struggled. They're focused on the financial revenues. Delta and other airlines, they consolidate, they merge, they bring in customers. But Delta, at the end of the day- has got their loyalty program considerably wrong. They just made some changes to the program to base the rewards on how much you spend. Coming out and telling a customer, "I'm going to reward you by how much you give
me," is the worst thing a brand can do. So basically, you're disenfranchising, disengaging the 98%. And I think travel programs do that. Travel traditionally has been the number one reward. It's experiential. It's empowering. And then Delta also changed their reward program, so you can't bring your kids or family into the Crown Room. You can only bring one person. So they're limiting their exposure. And it's great. You obviously want to market to the 1% to 2% to 3% that are spending incrementally more in your program, but you do that in a way that doesn't alienate the base. And I think there's others, too. You look at programs that have developed processes that have flawed technology. Sears Shop My Way is another example. They have 60 to 80 million people in the program, but the technology has been kluged. They haven't been able to put it into the processes. And one of the things we talked about before is making sure what you have works,
making sure you're underpromising and over-delivering. And I think some of these programs are trying to do too much, and that's where they fail. And that's the challenge is not listening. As we said before, that is the number one challenge that external people have with brands. They don't listen to me. They don't value my opinion. They don't give any credence to what I say. That is the worst thing you could do because the brands that have the traditional programs, the explicit and the implicit programs, are listening. They're empowering their customers. They want to know their feedback. They may not necessarily address all of it. They may not be able to develop the programs that everyone wants, but they're going to tell them why they can't do it. Listening and empowering the customer is very important, and it's a challenge. So if you look at performance, we talked a little bit about J.D. Power and how they evaluate
and score organizations. Do they take into consideration the loyalty programs and how they're being managed? They do, and you're seeing more and more of that. So how that loyalty program drives financial success, incremental return, and also cost of managing the customer. So you're starting to see a more holistic view, as we mentioned, the shift in spend. So they're looking at the different metrics. They're helping customers and brands, should I say, realize what they should be doing. So they're looking at those different metrics that haven't always been there. So yes. So when you look at the different certain types of affinity programs, can you list them? What are the ones that work the best when you look at formats or approaches for affinity programs? Which ones have the most effectiveness in changing behavior, building loyalty? I think we've mentioned, I think some grocery programs are doing
new things. In our area, that's Kroger. I know Loblaw's is doing some new things. So looking at the product services and whether it's a gas reward or giving rewards for incremental products, or looking at ways to speak to the customer. In our landscape report, the number one challenge brands have was understanding, this is those who are spending 20%, 30% on the programs and those who are not, is understanding what the customers want, understanding the rewards they want. That's a moving target. Hmm. They want instant gratification. They want longer gratification. They want cash back. They want discounts. That is the number one. 40% of brands listed that as the number one challenge of their reward program is understanding how to reward and what rewards should be. So, that's an opportunity. But there again, creating that dialogue helps address that. What tends to be the most effective incentive for these types of affinity programs?
What is working effectively at building that loyalty and that affinity? Is it money? Is it recognition? Is it ability of creating a profile that is proactive in meeting your needs? What is it? I think depending on the industry, you'll see some variance. But we hear about surprise and delight. We hear about great experiences. We hear about that irrational engagement. Those are the ones that are hard to measure, but we see have greater long-term benefits. So, having surprise and delight, being able to have that unique recognition based on who you are. So, travel traditionally has been a very strong intrinsic and extrinsic motivator, whether it's getting points for reward programs, some of the coalition programs you have in Canada from Air Miles and others. Those are very compelling. But I think the surprise and delight issues, the asking someone why they may partake in that brand that day, why are you coming to this restaurant, why are you
coming to this store, and being able to do something with that. Obviously, that's very challenging, but it's the rational, emotional connection that customers have that are the ones that tend to be the strongest. Do you know of any specific loyalty program that supports a retail's private label program? In the States, we see a number of programs doing that. You see Kroger, who has a reward program, where you get incremental fuel points, you get incremental rewards, you get incremental cash back. And Kroger has a pretty comprehensive program from a Visa offering that allows you to achieve gas discounts. And throughout the recession, we've seen that gas discounts have been very compelling. It's that incremental piece that helps drive that emotional attachment to the brand. Kroger also, and Target, they have some community-based reward programs as well. So getting you to buy certain programs or getting products
From Kroger, from a community perspective, is very important. You get rewarded $1 for traditional spend, $2 for in-store spend, $3 for that private label brand. And Target's doing the same thing. So they have their private label offering where they're trying to shift purchases from General Mills to their private label offering. Same thing. You're getting that incremental spend, getting that incremental reward, and those two are doing some very unique things. But it's not all obviously the accrual there, but also they've listened to the customers, and that's what they want. They know there's inherent benefit to shift that behavior, but they're also rewarding them as well to try to push back into redemption for this product. So you get trial of the product, and then you get incremental spend, and then you get an offer to redeem back for that product, creating that behavior. Because private label programs
typically are unfunded, and they use the price gap between the national brand and the private label brand as the incentive. But it's great to see that people like Kroger are looking at that as a vehicle, these affinity programs, at driving more private label sales, which in hence drives more loyalty to their program. Well, one of the things that we saw, too, and we're seeing, is there's a big group out of the UK who helps a number of people with their loyalty programs. But at the end of the day, it's the packaged good company that wants that insight. They want to get more intermediated with the customer. So whether that's a Hershey, whether that's an M&M's, whether that's P&G, they want to have that customer data. But it's always been kind of a shell game for them, from slotting fees, from NCAP fees, to placement fees. It's been very difficult for them to get that consumer data. They want to have that relationship with you, with I.
And what we're seeing right now is people are saying, "Well, we have to find a way to create that dialogue." P&G wants to talk to you. They want to know what your next product offering may be. Sony wants to talk to you. JVC wants to talk to you. And what we're seeing is those traditional loyalty programs based on the freestanding insert in the Sunday paper, based on couponing, they are becoming a dinosaur. Well, Mark, thank you very much for joining us. Thank you. Some great insights on how to retain customers. I call that the next frontier on brand building and market share growth. Absolutely. And there's a phone number at the bottom of your screen. Please call in, we're going to leave the lines open, and ask any question, and we have Mark here who's going to be happy to answer them. Thank you very much for joining us today at "Design Lounge," and we look forward to having you join future presentations. Take care.
