Paula: Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals.
Paula: I’m your host, Paula Thomas, and if you work in loyalty marketing, join me every week to learn the latest ideas from loyalty specialists around the world.
Paula: This episode is brought to you by Epsilon and their People Cloud Loyalty Solution, which is a powerful platform that boasts over 50 years supercharging customer experiences.
Paula: Epsilon technology and services operate at the core of the publicist group worldwide, powering brands such as Dell and Walgreens.
Paula: And their platform is designed to give all of their clients the power and flexibility to create one-of-a-kind emotional connections with their customers.
Paula: The Epsilon People Cloud Loyalty Solution is an award-winning platform, and it is in fact the only company that has been named a leader in both the loyalty technology platforms and loyalty service providers, Forrester Waves, in 2019.
Paula: As you can imagine, I’m delighted to be working with Epsilon and creating awareness of their People Cloud Loyalty Solution.
Paula: So if you want more information, visit emea.epsilon.com forward slash Let’s Talk Loyalty or drop me an email and I’ll put you in touch.
Paula: Now, let’s get on with today’s interview.
Paula: So welcome to episode 37 of Let’s Talk Loyalty.
Paula: And before we get into today’s interview, I first wanted to celebrate a milestone for the show.
Paula: And many of you are connected with me on LinkedIn.
Paula: So you might have already seen this.
Paula: But I just wanted to mention for anybody who hasn’t heard that we have had now over 10,000 downloads for Let’s Talk Loyalty.
Paula: So really wanted to thank everybody for your support and listenership over the last six or eight months.
Paula: I’m not sure how many months it’s been, but certainly a very exciting time for me.
Paula: And we’re going from strength to strength.
Paula: So with that said, today we’re getting into my favorite subject, I think, within loyalty.
Paula: And I think it really gets to the heart of what we all do and why we all do it.
Paula: Because what we’re going to talk about today is essentially measuring the relationship between loyalty and profitability, which I think is something that the vast majority of people in this industry really do struggle with and probably really never get to the heart of the answer of that question.
Paula: So I have two gentlemen who are going to be joining me in this discussion.
Paula: Tim Tyler and Adam Schaffer are both co-founders of a company called Ellipsis based in Australia.
Paula: And they have formed a very intriguing approach to customer loyalty, which we’re going to talk about today.
Paula: So before we get into all of the various discussions, can I first of all say welcome to Tim and Adam from Ellipsis Australia.
Adam: Thanks for having us.
Paula: Great stuff.
Paula: Now, when we had our conversation before we started recording, I did have to ask you to remind me what an ellipsis actually is.
Paula: So for the sake of our listeners, I’m going to just go through the explanation I found again on your website.
Paula: I think an ellipsis is a gorgeous word.
Paula: It’s a gorgeous concept.
Paula: And essentially an ellipsis is described as the three dots that indicate an unfinished thought in a conversation or in writing.
Paula: And basically you guys have said that you’re using this concept in order to help clients with their unfinished understanding of their customer.
Paula: So I think you have to tell me who came up with this great name.
Tim: Our other partner, who isn’t on this call, Dave Parsons.
Tim: There’s three of us founded the company and Dave’s family business is publishing.
Tim: So he was very familiar with what the word ellipsis meant and it was his idea.
Paula: Okay, fantastic.
Tim: And we loved it.
Paula: Of course.
Paula: Yes.
Paula: Well, three dots, three co-founders.
Paula: So made sense on all levels.
Paula: Great stuff.
Paula: So listen, before we get into even your backgrounds and all of the work that you guys are doing, as you know, we always start the show talking about our favorite loyalty statistics.
Paula: So which of you wants to first of all tell me your favorite loyalty statistic?
Adam: Well, mine’s more of a factoid, I guess, than a statistic.
Adam: But what we often find is that when you look at the way value is distributed within a loyalty base or a customer base, you intuitively think that you’re going to get the most return out of your mid value customers, because that’s where all the headroom is.
Adam: So you think, well, if we market to the mid value, we’ll see the most growth.
Adam: But actually, what we see time and time again, is that the best ROI actually comes from your high value customers.
Adam: So just when you think that you can’t get any more out of these best customers, it turns out they’re the ones that give you the actual ROI, they give you the return.
Adam: And we see that in our pharmacy clients, in homewares clients, in beauty clients, time and time again, we see the same thing.
Adam: It’s always a bit counterintuitive, but it always seems to hold true.
Paula: Fantastic, Adam.
Paula: Thank you for that.
Paula: And actually, again, just from reading on your website, what I was really being struck by was, yes, we all measure exactly what’s happening within our own customer base as best we can.
Paula: But what we don’t generally have visibility on is spend with competitors.
Paula: So, again, I know you guys have done lots of work in that space, and we’ll definitely talk about that.
Paula: But before we get into any more, Tim, tell me, what is your favorite loyalty statistic?
Tim: My all-time favorite is lifetime value.
Paula: OK.
Tim: I despair a little when people take a one-year view of the impact of a loyalty program or a loyalty initiative.
Tim: When the word loyalty itself implies long term.
Tim: So lifetime value, the net present value of future cashflow from customers is probably the best way to register and manage the effect you’re having on the loyalty of your customers.
Paula: Brilliant.
Paula: That’s very true, Tim.
Paula: And in your experience with clients, do most of them calculate the lifetime value or do they understand the concept when you guys are brought in or is it something that requires more education, do you think?
Tim: A little more education.
Tim: We have some people who have come to us and asked for it.
Tim: They’ve already convinced themselves it’s the right measure.
Tim: We’ve got two of those clients right now.
Tim: But generally, we’re, Evangeline, just trying to sell the concept and explain why this is a pretty critical measure.
Paula: Absolutely.
Paula: And I’m certainly not strongest in the mathematical side of things, Tim, but I remember loving that formula because it’s actually not that complicated and it does just require somebody to sit down, as you said, first of all, accept that it is the right formula and plug in the number.
Paula: So really good to hear that.
Paula: So Tim, I’d love to just kind of get your loyalty background, actually, before we get into the company and what Ellipsis does.
Paula: So tell us what you’ve done in the loyalty field.
Tim: I guess the most relevant experience was with Peppers & Rogers in Asia.
Tim: I headed up that practice and Peppers & Rogers are the people who invented the concept of one-to-one marketing.
Paula: Okay.
Tim: I had a watershed book back in the mid to late 90s, and they were talking about personalization and the anti-mass catalog type marketing.
Tim: To say, let’s start using tech to understand customers better and treat different customers differently.
Tim: I worked with them for many years, and then got involved with Carlson Marketing, who acquired that company.
Tim: Carlson Marketing became Amia, and that’s where I met and worked with Adam.
Paula: Great stuff.
Paula: You’re based in Sydney, Australia, yes?
Tim: That’s correct.
Paula: Great stuff, Tim.
Paula: Adam, tell us, you’re based in Melbourne, so tell us your, I suppose, credentials on loyalty.
Adam: Sure, so I mean, I started back at Bain & Company, strategy consulting many moons ago, then went over into the loyalty world, joining Nectar in the UK.
Adam: And then when I moved down to Australia, stayed with Nectar’s parent company, Amia, which was where I met Tim and Dave.
Adam: And yeah, around about 60 years ago now, we founded Ellipsis.
Paula: And what was the root of the idea?
Paula: Like, why did you guys, obviously, Amia is an incredible company to work for.
Paula: But obviously, you were hearing something that was needed on the client side.
Paula: So where did the idea for Ellipsis come from?
Adam: I think more and more clients were coming to us at Amia, not wanting to necessarily start a program, but asking more fundamental questions around whether they should run a program, where the value was in their customer base, what a successful program should look like, was their program working?
Adam: And we found that those were the really interesting questions to tackle.
Adam: And so we thought it was worth carving out Ellipsis as a specialist firm to really focus on answering those strategic data-driven questions.
Paula: Yeah, excellent.
Paula: And as I said, I mean, I hear these problems all over the world, with clients that I’ve worked with, and I’ve never been able to answer most of those strategic questions to my own satisfaction.
Paula: So I’m dying to hear how you do it.
Paula: I know you have some, I suppose, proprietary concepts.
Paula: And again, listeners to the show will probably remember that in episode 31, we talked with Simon Rose about the concept of return on loyalty.
Paula: So tell us about this entire concept that you have created about the return on loyalty.
Paula: And what exactly is it that you guys measure, monitor, and how do you do it?
Tim: Okay, the challenge in accurately measuring return on investment in the loyalty world is that the customers most likely to join your program are the customers who are already committed to buying from you.
Tim: It’s a very rational decision.
Tim: If I intend to buy from this brand a lot, may have a loyalty program, I’ll join the program because I’m going to get something back.
Tim: What that means is that plus the fact that we really exclude people from joining the program, so we don’t say to customers, you can’t join because you’re my control group.
Tim: It doesn’t go down very well.
Paula: Yes, I would love to know how you manage that, Tim.
Tim: Well, we’ve got what could have ways, but mostly what happens when you try to then measure return on investment from the program by looking at members versus non-member value.
Tim: Yes.
Tim: It’s a circular argument because your members are more valuable.
Tim: That’s why they’re in the program.
Tim: They’re not more valuable because they’re in the program.
Paula: Absolutely.
Tim: And so when you look at the difference in value between members and non-members, you’re not measuring incremental value generated by the program.
Tim: It’s self-fulfilling prophecy that valuable customers are more likely to join.
Tim: And that’s called self-selection bias.
Tim: So we’re understood by statisticians.
Tim: But it makes it extremely difficult to hand on heart say, this is the value of this program investment actually generated.
Tim: Versus we spending more on business people who already have got.
Tim: So solving that problem, making sure that we can do apples to apples comparisons and isolate the effect of the loyalty spend is the part we call return on loyalty.
Paula: Amazing.
Paula: So if I understand correctly, Tim, just so I can clarify for listeners, what you’re basically understanding or isolating is the difference between there’s a correlation, obviously, as you said, people self-select into the loyalty program, but that doesn’t mean it’s the causation of that increased value with those members.
Paula: So it’s really to split it out and not to confuse those two concepts.
Tim: Absolutely correct.
Tim: Correlation doesn’t mean causation.
Tim: We know that.
Tim: But we see it all the time when people quote, my members spend five times more than my non-members.
Paula: Yeah, of course they do.
Paula: Absolutely.
Paula: Yeah.
Paula: And again, I’ve been sitting in front of so many meetings going, yeah, I can’t tell you any more than that.
Paula: So clearly you guys can tell us more than that.
Paula: So how do you get beyond the problem of self-selection?
Paula: So as we’ve said, if I’m fond of a brand and I know I’m going to spend, I’m going to join the loyalty program.
Paula: I appreciate those logistical difficulties telling people you can’t join the loyalty program, but I do understand that that is exactly how you get around this measurement problem.
Paula: So tell us exactly how you start to measure return on loyalty.
Adam: So what we’re looking for really is a measure of member engagement in the program.
Adam: And we want a really consistent methodology because one of the key benefits of return on loyalty is the consistency in the method, which allows us to benchmark across different brands, across different regions, across different timeframes, and also then really helps you to pinpoint what are the flaws and also the strengths in the program performance.
Adam: So that’s what we look for.
Adam: We look for that consistent measure of member engagement.
Adam: Typically, it might be something like redemption, for example, but we use that as a basis for creating a control group that allows a consistent approach.
Paula: And you mentioned earlier, Adam, that you’re often brought in to really understand, is this program working?
Paula: And I know what you’ve said is very often, particularly I think from the financial side of a loyalty program, the costs are very evident, but the behavior benefits are not.
Paula: So do you find that there’s a lot of cynicism, dare I say, with the, let’s say, the financial people versus the marketing people, like just to even get to bring you guys in?
Adam: That’s a good question.
Paula: Because I’m hoping the financial people are the ones already bought into it, but my sense is they’re not.
Paula: And exactly for this reason, because we have this back and forth argument, the circular argument that Tim talked about, which is we can’t prove anything just because they’re members of the loyalty program.
Adam: Certainly, I think what you see is something like loyalty tends to start as a well-intentioned initiative within the marketing department.
Adam: Let’s do something to grow customer value.
Adam: And it ends up hitting the buffers of the finance department, who view it as a cost center.
Adam: So something like return on loyalty is actually really important for bridging that gap and showing the performance of the program in a reliable, repeatable, robust way.
Adam: And in the clients where we do it year after year after year, those metrics become really important.
Adam: They become really important ways of the marketing team, communicating with the finance team, to continually improve the program.
Paula: Great.
Paula: So what I’m hearing, Adam, is there is obviously, well, first of all, an awareness of the long term importance of doing these measurements consistently.
Paula: So do you think there is usually more urgency around trying to get quicker answers and quick fixes from loyalty programs?
Adam: There often can be.
Adam: One of the clients we worked with, we were able to identify key issues that were driving up the cost of the program at the same time as where the benefit was coming from.
Adam: And then we could phase our recommendations into some quick wins and some more medium to long term strategic initiatives so that they could quickly identify and reduce some of the costs and have a more strategic long term plan for program improvement.
Adam: And I think that’s very important, because often you’ve got to show some quick wins to get by in a cross organisation.
Adam: But it’s not just about quick wins.
Adam: Often there are more fundamental things where you can make improvements.
Paula: For sure.
Paula: And what I’d love to get a sense of as well is, and Simon referred to this, is what is a good return on loyalty in a particular sector?
Paula: So you’ve done research across, I know, lots of different, I think in fact, 90 different programmes was the number you told me.
Paula: And I know that’s not just in Australia.
Paula: You do work in Europe.
Paula: You do work internationally as well.
Paula: So tell us what is a good return on loyalty in some of the sectors that you are familiar with?
Adam: Maybe I’ll give a few examples.
Adam: It’s hard to give numbers specifically, obviously, for specific clients.
Paula: Yeah.
Adam: But I’ll give you some examples of how we use the process.
Adam: And then we can give some ranges.
Adam: But for example, we work with MAC, the cosmetics brand.
Adam: And for them, it produces a really strong positive return.
Adam: And the methodology allows us to understand what’s driving that.
Adam: So we can see that’s coming from things like the good use of tiers, the fact that rewards are quite cost effective, and the fact the program is really designed to add value to the customer experience.
Adam: And we see a similar thing with their sister brand Clinique, where again, the right positioning of the tiers and the right design of the rewards manages the costs on one side of the equation and drives the revenue growth on the other side of the equation.
Adam: And even locally, we work with Priceline.
Adam: And because we can use the same methodology, we can identify the right cost drivers in their sister club program and also the right value drivers.
Adam: And we can benchmark those metrics to really identify how far off you are from optimal performance and the kinds of things you want to change in the customer base and in the program design to achieve the outcomes that you want.
Adam: And typically, you’re looking for, I’d say, 100%, 200% return on your program.
Adam: That would be a good performance.
Adam: But there’s a lot of things that can affect that.
Adam: Your underlying gross margin can affect that.
Adam: The richness of the program can affect that.
Adam: And even things like, what levers do I have to grow spend?
Adam: For example, in the insurance space, very hard to grow basket size, because you can’t buy more apples or buy more lades of bread like you care.
Adam: So your levers are limited.
Adam: And therefore, there’s less upside on the revenue side of things.
Adam: For example, in the airline space, the rewards can be quite cost effective because you’re playing with items that have a low fixed cost.
Adam: So all of these things go into the mix to determine the appropriate cost level for the program.
Adam: What’s a good up?
Adam: What’s a good revenue increase for the program?
Adam: And therefore, where’s a good range for your ROI or ROL, as we would call it, to land?
Tim: It is safe to say that we normally find that return on investment is very competitive to any other places.
Tim: Customers could invest their funds.
Tim: So some of the numbers are scintillating and CFOs find them hard to believe.
Tim: But when you think about it, the only source of income for a company is customers.
Tim: So if you do a good job for the customers and you’re managing the investment effectively, the returns can be quite impressive.
Paula: Absolutely.
Paula: And I suppose the global industry standard at the risk of oversimplifying things would be Net Promoter Score or NPS.
Paula: So I’d love to ask, what is your view on NPS as a measure of success within loyalty in an organization?
Paula: And I think, Tim, you have some qualifications around measuring NPS.
Paula: So tell us a bit about that.
Tim: I went through the certification process early in the piece when NPS first became popular with Mr.
Tim: Reichelt and SAP Metrics, and we’ve done many, many voice of customer programs.
Tim: Most of them use NPS as the metric.
Tim: I think we distinguish between NPS as a driver of customer experience and direct investment in loyalty.
Tim: The objective is the same, but the mechanisms and the levers are quite different.
Tim: NPS as a metric, if I sat down and said, let’s design a metric that’s an index and at 11 point scale, I probably wouldn’t have done NPS, but it’s got to be a simpler way.
Tim: But it’s a rallying cry for most of the industry now.
Tim: It’s a simple number that people can understand.
Tim: It’s done a good job in uniting people around the question of how do I listen to my customers?
Tim: Companies in the early 2000s, for some reason, were scared of their customers.
Tim: Companies became scared of their customers, so they weren’t willing to listen to them.
Tim: They were frightened they’re going to get criticism.
Tim: I think that attitude has changed because of NPS, that people now aggressively solicit and seek feedback.
Tim: But NPS as a number doesn’t have any meaning at all unless you actually do something with it.
Paula: Of course, yes.
Paula: And the same is true for loyalty data, and we’ve often talked about that on the show as well.
Paula: There’s no point collecting data that you’re not planning to use, so it’s a very good point.
Paula: And I like what you said there, Tim, about the simplicity of NPS and uniting a company around a particular objective.
Paula: And I’d love to just understand when you say companies were scared to ask their customers, do you think that maybe coincided?
Paula: I’m guessing now you can tell me if you think this is true.
Paula: Do you think that was because of the power of social media and the public nature of capturing customer feedback in a way that was, I guess, out of the company’s control maybe for the first time?
Tim: Absolutely.
Tim: And in the old days when call centers were in, you could hide bad publicity, hide bad service experience.
Tim: When social media exploded, it was just not possible.
Tim: So people had to either run at it to embrace it or they had to pretend and suffer accordingly from the public gaze.
Tim: But the NPS score itself isn’t enough.
Tim: If you’re going to actually action the voice-to-customer program, you’ve also got to ask questions about key drivers.
Tim: What is it that’s driving the score up and down?
Tim: So the survey is never as simple as one question.
Tim: You’ve got to find out what do I have to fix to get the score to go up and what am I doing wrong to make it go down?
Tim: So there’s always a careful selection of the key driver questions that go along with the NPS question.
Paula: Okay.
Paula: And then, sorry, go on, Adam, yeah?
Adam: Yeah, I think that’s what Return on Loyalty and NPS have got in common is that on their own, they’re just numbers.
Adam: And yes, you can compare NPS across companies and you can compare ROL across companies.
Adam: But where they’re most powerful is when you use them to understand the drivers behind them.
Adam: So in the same way that you might take an NPS score and want to understand is this score being driven by the store experience?
Adam: Is it being driven by price or product?
Adam: You can take the ROL score and what you really want to understand is is that performance being driven by the program lift?
Adam: Is it being driven by the underlying cost base?
Adam: Is it being driven by the attractiveness of the rewards or the marketing communications journeys that we have in place?
Adam: And that’s when these things become powerful.
Adam: They’re powerful when they’re used as magnifying glasses to understand what’s going on under the hood.
Adam: And I think that when they’re misused, hey, it’s just a number and that number’s gone up and that number’s gone down.
Adam: Isn’t that great?
Adam: When you use them well, you can really understand what’s going on and then turn that into a real strategic roadmap to improve performance.
Paula: Yeah, it’s a really good point, Adam, and the magnifying glass is essential.
Paula: And given that there are so many people listening who haven’t had the benefit of Ellipsis coming in with the magnifying glass, tell us what kind of approach people you think should be taking just really to get behind those particular drivers.
Paula: Because again, I think everybody is very bought into.
Paula: We want to do a good job here and have a great program.
Paula: But it sounds like a complex process to calculate the return on loyalty.
Paula: So what do you suggest loyalty program managers should do in terms of getting into some real insights?
Adam: It’s a good question.
Adam: There’s many avenues you could go down.
Adam: But I’d suggest the simplest thing is actually to start with your objectives.
Adam: What is your loyalty program trying to achieve?
Adam: Is your loyalty program trying to simply delight customers for a minimum cost?
Adam: Is your program trying to improve retention?
Adam: Is it trying to drive cross-sell?
Adam: Are you trying to have larger baskets?
Adam: Are you targeting specific customer segments and not others?
Adam: Once you can actually crystallize those objectives, you’ll at least know which questions you need to ask.
Adam: And when you know which questions you need to ask, that then leads into, well, which data do we need to collect to try and answer some of those questions.
Adam: But I think the challenges we find is not so much a lack of analysis or a lack of data collection.
Adam: It’s more a lack of having that strategic direction in the first place, having a clear alignment across the business of what this program is trying to achieve.
Adam: And a great example of that is a retailer that we worked with, where, to Tim’s point earlier, they were fixated on member versus non-member.
Adam: And when they spoke about the performance of their program, they would always talk about basket size.
Adam: And they would always look at how does our basket size of members compare with our non-member basket size.
Adam: And we looked at what drove customer value.
Adam: And it was abundantly clear in the data that the drivers of value was really frequency.
Adam: Basket size didn’t really come into it that much.
Adam: And so fundamentally, the objectives of the program were misaligned because they were using this customer database.
Adam: And they were building marketing journeys all around growing basket size, when really what they should have been doing was driving frequency.
Adam: And so that’s something that goes on to that more of that medium to long term map.
Adam: How do we fundamentally turn the ship around to move from basket size to frequency?
Adam: But I think defining that objective is fundamentally important for the long term success and performance of the program.
Paula: And I’m just imagining, Adam, you guys coming in and explaining that on a program.
Paula: If I was working on it, I don’t know whether I would laugh or cry.
Paula: It’s great news, but holy Lord, you know, where do you start to turn a ship with that kind of insight?
Paula: Yeah, no, it’s a really good one.
Paula: And can I ask then, Adam, just to continue on from that, do you think that those objectives do evolve over time or should they evolve over time?
Paula: Because I think what we’ve seen and certainly in my experience is, you know, there is peaks and troughs in terms of the internal enthusiasm, let’s say, for the customer loyalty program.
Paula: So where do you think the objectives should lie in terms of their evolution?
Adam: Oh, absolutely, they have to keep evolving because customers don’t stay the same.
Adam: And if your customers don’t stay the same, then your program and your strategy can’t stay the same.
Adam: So we see this in programs who we’ve worked with over multiple years.
Adam: Take Mac, for example, where we’ve worked with them over a significant time period.
Adam: We see that in every time period, we see different elements changing within the customer base that leads to different strategies.
Adam: So certainly what happens at the beginning of the program is not what’s going to happen in year two, year three, year four.
Adam: You constantly got to be re-evaluating.
Paula: And you used a great term actually, Adam, when we spoke before that in the six to nine months after you launch your loyalty program, perhaps for the first time, there’s so much joy and delight about the response and everything that’s coming through.
Paula: But it is a bit like fishing in a barrel.
Paula: So it’s probably premature to pat yourself in the back too soon.
Adam: Well, Tim, you wrote a white paper on this, right?
Adam: That looked at the age of a program and why the age of a program is so important.
Paula: Tell us about that, Tim.
Tim: When you launch a program, your best customer is joined first, because they’re engaged with your brand and they’ve actually noticed you’ve launched a program.
Tim: So when you market to a young program, the customer base is full of brand advocates.
Paula: Okay, of course.
Tim: So everything works.
Tim: Everything works.
Tim: Over time, though, the membership starts to more closely resemble your customer base generally.
Tim: So you get more light buyers that dilute the heavy buyers.
Tim: And so as the program gets older, your marketing becomes less effective and you can’t work out why.
Tim: It’s because you’re no longer fishing in a rain barrel, right?
Tim: It’s because you’ve now got a mix of customers.
Tim: So that’s where it comes even more important.
Tim: You use that data you’ve collected to be smarter.
Tim: And we’ve got, I guess, the heart of ROL is this idea that not every member is influenced by the program.
Tim: Some members will be signed up and just completely ignore the program and its benefits.
Tim: They’re disengaged, but they’re still members.
Tim: And so they form the basis of a good control group against which you can look for causality between what lift are we getting from engaged members when compared to disengaged members?
Tim: That’s a lift against control in the classic sense.
Tim: That’s the heart of the thinking behind ROL.
Paula: Wonderful.
Paula: And I know, Tim, as well, you also used the term that relationships inevitably decay, which also, again, makes perfect sense.
Paula: And I guess our job as loyalty managers and consultants and statisticians, dare I say it, is to nurture that and make sure that we minimize the decay.
Paula: So it sounds like you guys pay a lot of attention to what stage is this relationship at, independently, I guess, of what’s the internal buy-in at this point.
Paula: How exactly are the individual members responding at this particular point in time?
Tim: You’ve got to take a lifetime view.
Tim: That’s just why the interest in that metric.
Tim: So for individual members, if they’re higher value, look longitudinally, where are they in the relationship with you as a brand?
Tim: And the longer they’ve been there, the higher risk is that they’re decaying their connection.
Tim: And the more important is to keep them, because if they’ve been long-term tenured advocates, then their word of mouth value is quite high.
Tim: And so we’re looking at, we’re taking longitudinal views of segments of customers based on their tenure in the program.
Tim: And mixing it up, doing things to refresh the relationship, if you like.
Paula: Nice.
Tim: Start up date nights again.
Paula: That’s a very good analogy.
Paula: Excellent.
Paula: Date nights with members.
Paula: Brilliant.
Paula: And I guess I suppose now is a particularly important time, you know, with the COVID-19.
Paula: We can’t not comment on it.
Paula: Do you see any, I suppose, different approach in terms of the industry, in terms of how they’re using data now?
Paula: Are they asking different questions, do you think?
Paula: Are they coming up with different ways to manage those relationships, given that obviously members just can’t really spend and aren’t spending?
Tim: We’ve noticed that in most of the points-based programs and initiatives, there’s a run on the currency.
Tim: As customers hunker down and preserve their cash, they’re more likely to spend their loyalty currency.
Tim: And our advice would be to all those operators out there, don’t hunker down and stop redemptions, the way some of our operators have done.
Tim: Make it really easy to spend those points.
Tim: Customers will remember how generous you were when times aren’t so tough and they reward you with renewing their spending with you.
Tim: Don’t make it hard to spend the points, make it easy.
Paula: Absolutely.
Paula: And don’t penalize them for behavior.
Paula: I suppose they can’t really control.
Paula: And I’m sure you guys also do a lot of analysis on the upside, the upsell or the improved relationship post-redemption.
Paula: Is that something that I guess probably forms a core part of all of the work that you do?
Adam: Yes, certainly.
Adam: We’re big believers in the loyalty cycle and the fact that redemption is that closing activity, if you like, which strengthens the cycle.
Adam: And so, you know, whilst it’s true to say that every program needs a little bit of breakage in there for the financial benefit of the program, you really want redemptions to be happening.
Adam: You know, you want people to be making redemptions soon to feel that reciprocity with your brand.
Adam: There’s strong evidence in growth in customer value after a redemption event happens.
Adam: You want people to understand the value that’s available to them so they can access that value.
Adam: And so, yeah, fundamentally, redemptions is the key event in an engagement cycle within a loyalty program.
Adam: And if you don’t have the, you know, the first clue that you’re going to get a poor return on loyalty is when you see poor redemption.
Paula: Okay, interesting.
Paula: And do you think clients still need to be educated around that, Adam?
Paula: Are they still, you know, resisting the redemption because of the cost incurred?
Adam: I don’t think clients are resisting the redemption, but I think sometimes clients struggle to achieve the levels of redemption that they would like.
Adam: And there’s many factors behind that.
Adam: It could be the suite of rewards that are available.
Adam: It could be the customer journeys that they are or aren’t building within their automation suites that make customers aware of the value that’s available to them.
Adam: It could be these and sees that prevent clients from accessing value.
Adam: So all of these things play a part in the customer’s understanding of what value is on the table and the activity that they take and the actions they take in order to access that value.
Paula: Yeah, fantastic.
Paula: And I know we talked as well, both of you, I guess, around emerging models of loyalty.
Paula: One I’m particularly interested in is the subscription model.
Paula: There’s also, I think, a tendency towards more multi-partner programs.
Paula: So what kind of trends are you guys seeing in terms of, you know, where are the best ideas and strategies for loyalty program managers that might be looking to do something new like that?
Adam: Tim, do you want to take the multi-brand subscription?
Adam: I’ll do multi-brand.
Tim: There’s been quite a revolution in the coalition business, the multi-brand program that’s run by an independent operator on behalf of a collection of partners.
Tim: Those programs were always anchored by either an airline or a grocer.
Tim: And what we’re seeing is a change to the model that where the proposition from the operator was, the tech is difficult and the infrastructure is expensive to establish.
Tim: That to us will cut your costs by leveraging it across multiple partners, so that this economy is of scale.
Tim: We’ll run the program and our business model says we’ll take a slice of each transaction to pay for ourselves.
Tim: I think that model is fast disappearing as the cloud, the technology makes it quite easy for larger brands to bring all of that tech stack in-house.
Tim: So there’s no longer an economy of scale to outsource that stuff.
Tim: And so we see Nectar bought by the grocer.
Tim: We see Aeroplan bought by the airline because there’s no longer a technical impediment or infrastructure impediment.
Tim: But the fact is, customers really love what we call the ubiquity of earn.
Tim: They can earn your points anywhere and everywhere.
Tim: Customers really like that idea and then spend them anywhere and everywhere.
Tim: So the value proposition is still really favored.
Tim: But what we’re seeing is that those coalitions now, with maybe the exception of Payback, in Germany, is being anchored by the key operator and the key beneficiary of the program, either a gross or an airline.
Tim: And they’re still multi-partner, but they’re not the classic independent coalitions that we saw in the early 2000s.
Paula: OK.
Paula: But the concept, I love that word ubiquity of earn.
Paula: That’s something that you would advocate drives more loyalty for consumers, is it?
Tim: Correct.
Tim: That’s why the airline Frequent Fly programs typically have hundreds of hundreds of partners.
Paula: Yeah.
Tim: Because there is a network effect.
Tim: So the little merchant down the end of the supply chain gets a benefit from the big airline and the big banks and the big grocers that are also buying currency in the program.
Paula: And it’s almost like that lovely benefit of you get the halo effect of the airline, which is a lovely brand value for particularly a small merchant, but also then the local relevance, I guess, which is a lovely concept.
Adam: Yeah.
Adam: And we see activity in that space still continuing.
Adam: So I don’t know if you spotted, but even this week, Uber in their Uber Awards program in Australia changed their Ts and Cs that would enable them to support third party earn.
Adam: Medibank, one of the large health insurers here, they recently rolled out a health and wellness program that has earn and burn at third parties.
Adam: And even in the Qantas vs.
Adam: Velocity Tussle, BP, the petrol car, has recently switched their allegiances from Velocity over to Qantas.
Adam: So there’s still a lot of activity in that space.
Adam: And as Tim said, the proposition of the ubiquity of earn is still alive and well.
Paula: Love it.
Paula: And my own background actually is very much in the partnerships space within loyalty, although it wasn’t a currency based partnership approach.
Paula: But what I’m hearing is that there is going to be an increasing demand around the world to figure out these mutually beneficial partnerships in order to give members that flexibility, I guess.
Paula: Yeah.
Tim: It’s the same driver behind the airline alliances, One World and Star Alliance, that the whole idea of a free interchange of currency and value across a wider range of channels is quite attractive to flyers and shoppers.
Paula: Of course.
Paula: And I quoted something in last week’s show.
Paula: In fact, I just did an interview with Rakuten Rewards, which in the US is a cashback program.
Paula: But in Japan, where it was formed, it’s incredibly successful.
Paula: And in the book, actually, that the founder wrote, he mentions that there are 600,000 merchants in Japan that you can use your Rakuten points.
Paula: And I was just blown away by that.
Paula: But yeah, it definitely sounds like an emerging trend and one you’re seeing and one we’re hearing more and more about.
Paula: So tell me then about the subscription model.
Paula: What are you seeing either in Australia or around the world in that trend?
Adam: Well, we’re seeing that frequency and value are still as important as they always were.
Adam: And subscription models fundamentally just use different psychological levers to achieve those outcomes.
Adam: So in your typical loyalty program, your points program, it’s really a loss aversion lever.
Adam: I have lots of stored value.
Adam: I don’t want to lose that value.
Adam: So I’m going to make sure I make a redemption and that closes that loyalty cycle that we spoke about before.
Adam: Subscriptions flip that and they use a sunk cost lever where you pay a fee upfront.
Adam: You have a sunk cost through paying that fee and therefore you want to get as much value as possible.
Adam: And therefore you keep returning to them to get the value out of your sunk cost.
Adam: But I think where there’s a similarity is that much like in traditional programs where you can’t just create a points currency and hope for the best, it’s the same here.
Adam: You can’t just say, hey, Amazon Prime is in town.
Adam: They’re doing subscriptions.
Adam: I guess we’ll just do the same thing and just copy the competition.
Adam: Whether it’s a loyalty program in the traditional sense of points and prizes or it’s a subscription program a la Amazon Prime, you still need to have a strong CVP.
Adam: You still need to go back to those objectives we spoke about earlier, understand what you’re trying to achieve.
Adam: And just kind of saying, hey, we’ll do free delivery for a fee because that’s what Amazon are doing.
Adam: It’s just as bad, really.
Adam: You’re saying we’ll just do points and prizes because that’s what the other guys are doing.
Paula: Good one.
Paula: And I like the understanding of the psychology, Adam.
Paula: So loss aversion versus sunk cost.
Paula: I’m going to incorporate that into my terminology now for a subscription conversation.
Paula: So that’s brilliant.
Paula: So listen, I think we’re coming up towards the end of I suppose the questions I wanted to ask.
Paula: I will say there’s some amazing white papers that you guys have written.
Paula: I think Tim writes most of those.
Paula: So we’ll certainly make sure within the show notes that we’ll link to articles you guys have written and also ones that you mentioned within the industry that I hadn’t seen before.
Paula: I know there was one I particularly liked called Mismanagement of Customer Loyalty, which goes back 18 years with the Harvard Business Review, but I certainly found that quite insightful and I could see it feeding into your expertise and where Ellipsis is going.
Paula: So just from my side, are there any, I suppose, other case studies around return on loyalty that you wanted to highlight or particularly good experiences that you’ve seen or things that you wanted to mention on the show?
Adam: I guess I’d say at a high level, we’re often asked the question, when does loyalty work best with an organization?
Paula: Yeah.
Adam: And our perspective is really that loyalty works best when it’s kind of not put in the loyalty corner.
Adam: It’s not a points and prices program run by the loyalty manager to the exclusion of the rest of the customer strategy.
Adam: Loyalty works best when loyalty is part of how you think about how to engage your customer.
Adam: It’s part of your customer engagement roadmap.
Adam: It’s part of your communication and how you speak to the customer.
Adam: And it’s part of how you build a long-term relationship with the customer.
Adam: And you look at guys that do it well, like the airlines, it’s fundamental to their whole proposition.
Adam: Same with the grocers, where they use that loyalty data to create personalized communications.
Adam: Then I think when you can do that and when your loyalty team is part of your customer strategy team, that’s when you get the best results.
Adam: I’d say.
Paula: Love it, Adam.
Paula: Brilliant.
Paula: Great.
Paula: Yeah.
Tim: I’d just like to put my hand up for customer variability as well.
Tim: Customers have a different propensity to loyalty, depending on your category.
Tim: So if you’re selling baby products or pet products, it’s really easy to get engaged customers.
Paula: I’m a pet owner.
Paula: Yeah, cat mom right here.
Paula: Totally get that.
Tim: So in that situation, a program would be structured to reinforce mutual interest in the category and to educate as well as to reward.
Tim: But if you’re selling a commodity, customers just aren’t emotionally attached.
Tim: And so in that situation, because of the difference in the customers, the strategy should be different and you should aim for efficiency and effectiveness and lack of friction.
Tim: It might be really easy to do business with because you’re not going to get them to love you.
Tim: They don’t love your category.
Tim: So I think it’s important to have a good honest look at who your customers are and how engaged are they with what you sell, either your product or your service, and adjust your strategy accordingly.
Paula: That’s a very good approach, Tim.
Paula: Yes, a good honest look at what’s possible if I am.
Paula: And I’ve done lots of work in categories which are literally ubiquitous.
Paula: So, you know, telcos are a good example.
Paula: It’s very hard to grow the brand love there.
Paula: So, yeah, very good advice.
Paula: Great stuff, guys.
Paula: Well, listen, I think we’ve had a really insightful conversation today.
Paula: Was there anything else you wanted to comment before we wrap up?
Tim: Not from me, not from my side.
Adam: No, I think that’s all good.
Paula: Wonderfully exciting.
Paula: I love the concept of return on loyalty.
Paula: I love the concept of, you know, the unfinished thought of Ellipsis and the unfinished understanding.
Paula: So I just want to say thank you so much for talking to Let’s Talk Loyalty.
Tim: Thank you, Paula.
Paula: This show is sponsored by The Wise Marketeer, the world’s most popular source of loyalty marketing news, insights and research.
Paula: The Wise Marketeer also offers loyalty marketing training both online and in workshops around the world through its loyalty academy, which has already certified over 150 executives in 18 countries as certified loyalty marketing professionals.
Paula: For more information, check out www.thewisemarketeer.com and www.loyaltyacademy.org.
Paula: Thanks so much for listening to this episode of Let’s Talk Loyalty.
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