Divided Loyalty

With the proliferation of loyalty programmes, it’s hard to find steadfast customers who will stick with you through price hikes, tough competition and varying expectations. However, there is more to loyalty than stamps and seat upgrades. Cherisse Beh, Marcus Chhan and Rayana Pandey met up with loyalty veterans and marketers who have done a splendid job of managing their customers to see what sets them apart from their rivals.

The Loyalists
Marketers see them as a necessary evil, consumers demand them as their right, and everyone agrees there are too many of them, so what is the real value of loyalty programs? Allan J. Katz, author of several books on the topic, says “loyalty marketing is dead”.

“The average American has four frequent buyer cards from competing companies. They shop frequent buyer programmes like discount coupons,” he says. On the other hand, Tony Lim, who is MD for Discover the World Marketing, said, “Most of the time, conferring prestige and status to your customers and having a loyalty campaign is a necessary evil.”

To make it more complicated, StarHub’s head of marketing Iris Wee says, “There is no ‘one size fits all’ loyalty programme. As customers are becoming more affl uent and demanding, we see the trend moving towards identifying potentially high-value customers, and providing them with differentiated services and rewards.”

Katz, who has The Loyalty Coach in his job title at the Loyalty Marketing Institute in Memphis adds, “It is imperative for companies to still have them to stay competitive but they no longer hold an advantage over a competitor unless you’re in a very tight niche market where you have little competition.”

He says, “There is only one way today to build loyalty among existing customers and that is to offer them exceptional, not just good, customer service.”

Loyalty sweeteners
When you speak to marketers in the loyalty and customer relationship management (CRM) fields, you are bound to hear universal grumblings about the amount of incentive driven-only programmes out there in the market. These programmes are commonly mistaken for – and diminish the value of – a loyalty marketer’s work. Michael Whittaker, who is president and CEO for global retail loyalty marketing specialist Visible Results says there is “no question” loyalty fatigue is real.

“But customers are loyal to brands if they are treated with respect and if at the end of the day, there is an exchange of value.” He adds, “Unless it’s a management strategy, unless it’s a strategic plan, unless the most senior level management in the company really believes they are building an investment, you’re going to continue to see a lot of these low-level, incentive-based loyalty programmes which really are an insult to CRM. They are not CRM programmes, they are just incentive marketing programmes and shouldn’t be called loyalty programmes.”

Too often these incentive-driven programmes are very short-term focused in approach. It’s rather straightforward to decipher this methodology and reveal its lack of any long-term planning and there is little use in identifying who your loyal customers are and how to retain them should their loyalty start to wane. Whittaker says the perception loyalty is all about incentives is one of the fundamental issues for the proliferation of loyalty programmes, but also the low level and lack of sophistication which is behind them.

“Incentive is a component of loyalty programmes – but loyalty programmes are about the exchange of value between the retailer and the customer. When we start working with good companies they see loyalty marketing as a profit centre [and not a cost centre]. They see an ability to make more money out of their customers and they invest in it. A lot of companies which are running fairly poor loyalty programmes think it’s about costs, and driving it down. They might as well not be doing it,” he says.

The teleco sector is no exception. StarHub’s HubClub, SingTel’s red reward and M1’s SunPerks may be popular, but experts say they are not really loyalty programmes. “While telcos have the most potential, it is least utilised in execution,” says Tom Hannigan, GM for Tequila Singapore. As OgilvyOne Worldwide’s lead consultant Lucy McCabe puts it, “Even as the HubClub rewards you for subscribing to all three services – TV, Internet and phone – as a consumer I don’t get one bill. Moreover, there is no visible benefit for subscribers who are also frequent travellers when it comes to roaming charges. Even if it’s only about giving consumers a better choice, they have much more to do.”

Loyalty programmes, although part of the overall marketing mix, differ from brand marketing in that it’s a tangible approach as opposed to an emotionally driven approach. Inevitably there’s an overlap because emotional benefits are also driven by tangible results. According to Lee Kuok Ming, who is MD for online marketing specialist 8RewardsRoad.com, the more competitive the market, the more effective the loyalty marketing programme has to be.

“It requires companies to have a different mindset. It doesn’t matter if it’s not initially profitable because in the long term it will be,” he says. What loyalty marketing tries to do is use data to drive the lifetime value of a customer. This is where the sweetener can come in handy for marketers who need information from customers who do not normally divulge it during everyday transactions and communications with the brand. Additionally, traditional methods that have succeeded in one country or market won’t always work in another. Starwood Asia Pacific Hotels & Resorts’s director for loyalty and partnership marketing Lisa Miller says, “You really need to understand the psyche of each culture before you can implement a solid and appealing loyalty programme. For example in a market like China, think as a Chinese National and not try to second guess what they want. Marketers have to conduct research groups and focus groups to understand the true customer.”

Gimme gimme
Whether we’d like to admit it or not, as consumers we are giving away incredulous amounts of personal data to companies everytime we communicate with them. We do this generally without giving much thought to how the company is using our information. The trade-off between our personal information and the services we are trying to procure, usually means we don’t put up too much of a fight if, for example, American Express asks how much you earn in a year. So does this give companies like American Express a head start to achieving loyalty marketing success?

Shailesh Baidwan, VP, card and lending, international consumer and small business payments & financial services (ICSS) for American Express International doesn’t think so. “It’s not the lack of data or the quantum of data you have which makes loyalty relevant, it’s what you do with it. How do you create value? Whether it be the points programme or the Platinum Series, it’s about knowing what customer needs are,” he says.

Commenting on card-based rewards systems which help the marketer get the required information, Arc Worldwide’s MD, Nick Handel says, “A points programme is just a tactic within the mix. It is just the beginning of the relationship and has a nice value – we give them a card-based rewards system in return for collecting their data [which is essential to make loyalty marketing work]. But there is a big divide between those marketers who simply use it on a transactional level and not using it to foster a long term relationship.”

But Baidwan says Amex approaches loyalty not as a “gimmick” but as a “long term tool”. The ‘Member Since’ printed on the Amex card is symbolic of this – “We’re a global brand and card members stay with us for years,” he says.

Amex recently launched a series of Platinum cards and the new Platinum Reserve Credit Card in Singapore to grow and evolve with its target audience and tailor to diverse needs. Benefits for these cards include stays at villas, use of yachts at discount rates, exclusive access to country clubs, fine wines.

“We’re constantly doing research to see what the trends are in the customer’s space and we have a very well established ‘inside’ in the affluent space platform,” Baidwan adds.

Great expectations
American Airlines launched the first full-scale loyalty marketing program of the modern era in 1981 with its AAdvantage frequent flyer programme. It was a big hit and since those bright early days of loyalty marketing, the aviation industry and the hospitality industry are considered the leaders in sophisticated loyalty marketing programmes. Sure, the airlines have airport lounges and free drive loyalty from customers but as a consequence, expectations are high. “They have become so commonplace and expected that when the airline or hotel begins to limit access, the customer complains that they are not giving them enough rewards,” Katz says.

But reward expectations are relative. As SingTel’s director of customer management, Diana Tan explains that while driving loyalty and engagement may be a common goal, revenue from customers differ. “One generally gets enrolled into priority passenger service in the aviation industry with a spending of at least S$25,000 per year. Our customers are enrolled into Red Prestige for spending S$250 on average a month. Expectations of the reward quantum one gets must be viewed in relation to customers’ spending,” she says. Don’t believe her? Well, if you think
some of the Amex rewards mentioned earlier were high-end, spare a thought for what Rolls-Royce Motor Car does to keep up with customer expectation. The company’s marketing and events manager for APAC, Brenda Pek tells Marketing, “We find that augmented services or products such as helicopter rides or yacht time are not relevant to our customers, particularly as they are likely to own or have access to these services themselves.”

“Rolls-Royce operates a 24-hour global after-sales service which involves highly skilled technicians who will fly worldwide in the rare event of a serious problem with a car. Special customer requests are not uncommon – in one case, we flew a Rolls-Royce craftsman to paint a coachline on a car,” she says. Even though a company like Rolls-Royce is über-luxury in classification, the core principle of loyalty marketing still applies here. Marketers here still need to determine who their VIP customers are, determine what they want before they ask for it, and engage. “Loyalty marketing is a continuous activity for us, and the expectations for our brand are high. Even as we develop new models, we will maintain the exclusivity of our cars in many ways. We hand-build our cars in limited numbers and offer a bespoke programme which allows a customer to have virtually anything they want on a Rolls-Royce, as long as it meets existing regulations,” Pek says.

Perfect strangers
When American Airlines successfully pioneered its AAdvantage loyalty programme, it leveraged on the travel boom and started segmenting its customers, identifying those that repeated their flying experience and rewarded them with miles (which were already part of their inventory anyway). Then airlines began tying their programmes with related industries like banking & finance, hospitality and eventually even retail. This spawned a whole army of new entrants into the loyalty market as they too saw the beauty of affiliation.

Partner programmes are lucrative. Some have succeeded phenomenally, with customers moving on to advocate status, campaigning for more benefi ts. In fact with some companies like Delta and Air Canada doing so well, they have now progressed to gaining status as independent business units and sometimes even ensuring that their parent companies stay afloat.

However, The Brand Union‘s client services director Graham Hitchmough admits that “it is rare that you will get an exclusive relationship between customer and brands these days. And it is not all about building loyalty and obedience, but rather on customers developing a preference for the brand. Often, loyalty is still seen as a separate part of the communications mix and even further from brand building, experience and CRM. It is still often placed in a silo simply because there are different requirements when it comes to data management which is wrong. It should be tied in with brand experience as this would entice customers and eventually build brand loyalty.”

He adds, “Every loyalty programme works on the principle that there is a possibility there are some points that will never be redeemed. It works like a checks and balances system with a safety net so that there will only be a certain amount of points available to be redeemed at any one time.

Extending the shelf life of points or giving customers an alternative choice and prior warning would be one quick way to ensure a loyalty programme works.” The Freddies awards are like the Oscars for brands that have entered the mile-high club of Frequent Flier programmes. Brands which have repeatedly topped the global, US and APAC charts include hotelier Starwood, and UAE’s flagship carrier Etihad Airways. Etihad had the unique chance to start a programme on a blank sheet of paper. Etihad’s EVP of marketing and product Peter Baumgartner says, “The first step to managing a relationship is to determine the life of the customer with the brand – from acquisition to retention to recognising the value of the customer that he brings to the relationship, and winning him back if anything goes wrong.”

Baumgartner wants to change the definition of CRM to CMR – customer-managed relationship. The Etihad travel experience to him is to give customers the power in the relationship to tell the airline what they want rather than the airline dictating what the customers should have and what it can offer. One of the solutions Etihad came up with addressed the “blackout periods” by not diluting the value of guest seats. This involved a transparent calculation of mileage based on the market rate that is not affected by inflation and deflation.

The flexibility of its slide tool gives its customers the choice of using a mix of cash and miles – the moment one mile is clocked into their accounts no minimal level has to be reached to start using the reward. Transparency, however, might not always be a good thing. Tim Webb, GM of ICLP Singapore, says publishing the full benefits available for all members in a loyalty programme might not necessarily be the smartest idea. “Tiering your members and segmenting them into groups doesn’t have to be published. Engagement, understanding a relationship, rewarding and recognising them and awarding them with additional benefits also does not need to be wholly announced. This gives the marketer the opportunity to pleasantly surprise their members, and it also adds to it an aspirational aspect to the programme," Webb says.

The devil is in the retail
The proliferation of loyalty programmes in the region has certainly led to an influx of incentive driven initiatives. However, it would be unfair to say the retail sector is the biggest offender of such unsophisticated loyalty schemes – the F&B sector hasn’t exactly done much better either. But as Katz explains, each industry has its own sales life cycle and loyalty marketing has to reflect this. “A car is bought every two to four years, whereas groceries are bought every week. So the loyalty marketing has to be geared toward the time and frequency of purchase based on industry averages and guidelines. The key identifier is segmenting by buying habits and a higher level of customer care based on
spending,” he says.

Visible Results’ Whittaker says the retail space is probably the more dynamic area of loyalty marketing. “It’s a lot more reactionary than say banking or airlines. Retailers have a lot more visible competition and therefore they tend to react more tactically whereas banks and airlines tend to be more strategic in their thinking of loyalty,” he says.

His argument progresses beyond concentrating on just loyalty marketing tactics, saying it should be “complementary to what all retailers offer in terms of their ATL marketing and their in-store service, in terms of their loyalty programmes which they run – all part of the overall strategy.

The customer wants to go and feel good about shopping at a retailer, and so what retailers can’t lose sight of is how a loyalty programme is part of the overall shopping experience.” Rapp Collins MD Huw Hopkin, who was part of the original Tesco Clubcard Loyalty Programme team which established a global benchmark for the CRM industry adds, “Many brands still see loyalty marketing as a way of rewarding customers only, but there are more powerful uses such as growing consumer value, building loyalty, merchandising and lapsed customer recovery.” Working on the Tesco business, Hopkin managed a 14-million-member database and launched the Tesco Personal Finance programme, which 10 months from inception managed to sign up over a million
members.

He says, “Some of the best programmes deliver the brand experience. I call it walking the talk.”

Tesco has now moved on to an online approach when communicating to its members and has since bought Dunnhumby, which helped it embark on its loyalty marketing initiative. Hopkin remembers when Tesco’s strategy was presented internally, and a senior manager who was in awe commented, “You’ve shown me more in 30 minutes than I knew in 30 years.”

“It is hard to replicate that culture of testing and statistical excellence which goes into their retail formula. We rely on gut feel when we don’t have solid numbers but when the numbers show us the way, we can then use gut feel to validate the statistics and results are more powerful,” Hopkin says.

The Tesco case was undoubtedly a success, but that was then and this is now. How do retail marketers of today stay ahead in the loyalty game? Katz says because there are so many stores which have gift card programmes and rewards programmes, “it is difficult to differentiate
between them”.

According to Katz, the smaller independent stores, which need the loyalty programmes to remain competitive, usually don’t have the resources to compete with the rewards programmes of major chains.

Even though smaller stores give much more personalised service, “This service then becomes the differentiator between keeping a loyal customer who is willing to pay more for value and service, than a customer who is just looking for a discount. Therefore retailers and service companies must look at what they consider their “perfect” customer and target them, using rewards and discounts as an incentive to join their ‘family’ then continuing to wow them with exceptional customer service.”

Instant me and instant you
We want everything and we want it now – instant everything. Instant information, instant messages, instant food, instant education, instant wealth, instant beauty, instant travel, instant cures. Now, now, now. Technology was supposed to make our lives easier but while email, the internet, and microwaveable takeaway might actually be doing this, do marketers now have the technology to be able to develop programmes capable of creating instant loyalty for a brand amongst consumers? Well, no.

Going forward, Visible Results’ Whittaker says, “A big constraining factor for loyalty in the APAC region is there’s a severe lack of loyalty practitioners. Most CRM managers have not grown up in this space and have tended to come from traditional ATL backgrounds.”

He adds, “A traditional marketing team will never be as successful as a dedicated CRM marketing
team.”

Loyalty, it seems, has to be earned. Marketers may fantasize about playing out the scenario in the movie Minority Report where Tom Cruise’s character goes into a Gap store and is greeted by a hologram/ digital sales person who happens to instantaneously know his buying habits and preferences – but that’s just a fantasy. Until then, we’re just going to have to accept and work with what we have available.