#508: Loyalty Business Models with Control as the Key Criterion

Paula: Welcome to Let’s Talk Loyalty, an industry podcast for loyalty marketing professionals. I’m Paula Thomas, the founder and CEO of Let’s Talk Loyalty and also Loyalty TV. If you work in loyalty marketing, you can watch our video interviews every Thursday on www. loyalty. tv. And of course, you can listen to our podcasts every Tuesday, every Wednesday, and every Thursday to learn the latest ideas from loyalty experts around the world, today’s episode is part of The Wiser Loyalty series, which is hosted by our partners The Wise Marketer Group. The Wise Marketer Group is a media education and advisory services company, providing resources for loyalty marketers through The Wise Marketer digital publication, and The Loyalty Academy program that offers the certified loyalty marketing professional or CLMP designation. I hope you enjoy this weekly podcast, The Wiser Loyalty Series, brought to you by Let’s Talk Loyalty and the Wise Marketer Group.

Just before we share today’s episode, I want to ask you to sign up to the Let’s Talk Loyalty email newsletter. Our email newsletter is by far the best way for us to keep you up to date with all of the latest incredible loyalty stories we’re sharing each week. It’s also the easiest place for you to find our show notes, with links to everything mentioned in all of the episodes, you can sign up at letstalkloyalty. com.

Aaron: Hi, I’m Aaron Dauphinee, CMO of The Wise Marketer Group. I’m one of two hosts of the Wiser Loyalty Series. For those of you following along the past few weeks, you’ll know that my partner, Bill Hannifin, who is also typically with me as I record this, he is in with our friends at the European Loyalty Association’s inaugural hub meeting in London, England. So he’s not here today. Last week, Bill shared an episode solo as well, and that was without me because I was in South America. But you can expect that for the next two weeks of this month, we’ll join forces again to bring you our thoughts and perspectives jointly. But for today, you’re in my hands.

For those perhaps tuning in for the first time, or simply as a reminder, this series introduces constructs from our Loyalty Academy course curriculum that we find interesting and hope will help listeners to become wiser on loyalty.

Throughout this month, we’re talking about the foundations of loyalty. We review those most foundational elements of The Loyalty Academy courseware and challenge methods of best practices that are qualified as quote unquote strong opinions held closely for decades. In our first segment of the month’s topics focus, Bill ran through a virtual true and false test of how we define loyalty marketing, where it applies and the benefits that it can bring to a business.

He focused primarily on our one on one introduction to loyalty courseware. And today, I’m going to take a shift in gears to our 104 course that covers loyalty program business model constructs. But if I just quickly sum up last week, because it’s pertinent for today’s conversation as well the conclusion was that the originators of the foundational thoughts of a customer loyalty, the OGs, if you will, they really do deserve our respect, but the concepts they created need to evolve, they need to expand, and they need to change.

And they need to change to meet the realities of how people behave in 2024, how they anticipate the ways in which consumers will behave in the future, In particular, when we think about tech developments ahead, such as AI to name just one and also to match what’s now needed to be successful in a truly global market environment.

So in this week’s episode, I’ll top line three traditional models that have been positioned to serve the full spectrum of customer loyalty. They are the proprietary model, the player model, and the coalition model. And then over the next couple of weeks, we’ll dig into whether or not these remain viable or if other models have now been displaced.

Recall last week, Bill thought about a few different constructs that we were held sacrosanct and offered a perspective on whether they were still true today or not. We’re sort of doing something similar over the next few weeks with the specific business models known in loyalty. But for now I’m your setup person.

So think of me that way. And before we dive in and stress test these three models specifically to see if they remain valid or need to be redefined or even replaced or retired. We need to explain them and set up a baseline to compare and contrast from. So let’s take a look at these models in a bit of detail from the OG’s perspective as being central to customer loyalty.

That’ll be our starting point. But before we do that, we should chat a bit more about the criteria used to define these models. And there’s four elements, mostly. The first is ownership. It’s where a brand, a third party, independent. A set of brands or independent partners have control of the organization and the program itself.

There’s operations often you don’t think this goes hands in glove with ownership or sorry, I should say you often you think that this does go hand in glove with ownership but not necessarily as some owners and operators can differ. The third is the value proposition. So what are the benefits to the key stakeholders, whether they’re owners of the program operators, it could be the program members that can be partnering brands.

And the fourth, of course, is a financial liability component, which is oftentimes a really key lever into why one would opt for one model over another in some form. So it’s really the, when it gets down to brass tacks, it’s who’s left carrying the cost of the program, particularly with respect to redemption liability.

Now, the OGs often detail these on a scale of control, and I think that’s an important step to have in your back pocket for today, and I’m not one that generally buries the lead, so the real question we’ll be exploring is whether or not this remains the critical criterion for which to define loyalty business models for today and going forward.

But as I said, we need a starting point or baseline from which change can come, you know, if the model is valid, obviously, then it will remain. But because we’re not in this to how would I put a chain, make a change for change sake, that mindset is just not what we’re going after. We’re only critically evaluating whether things should remain because they hold true that through the test of time.

Or if they need to be adjusted because things have altered and new things have come into place that start to replace them. So, in any case, let’s take a look at those 3. so the proprietary, you know, really is where your brand is the guide for their own journey. There’s the player model, which is your brand is walking in step with another brand who’s actually the guide on your journey.

So you’re more or less writing shotgun. And then the third one is the coalition model, where there is some joint decision making by two or more brands on the journey for the entire group. If I top line each of these by way of introduction for us digging deeper in the coming weeks, let’s take a look first at the proprietary model.

So this model is all about you. You own, you operate, you control the loyalty promise and the value proposition that members will benefit from, and you also carry the financial burdens. So this may come across a bit negative with them talking about the financial burdens, but for true loyalty marketers, you know, we’re savvy enough to know that how very well designed and operated program results in incremental benefit.

Incremental revenues and profitability, if you can measure to that level of detail that the brand typically wouldn’t otherwise have received. No, that’s the premise of why we do loyalty. It’s the most common type of model for many years, particularly in the rise of loyalty programs in core sectors, or for more than the past two decades, I would say.

It’s also very dominant in the United States. It’s well suited for brands that relish the value of their brand and what it stands for in terms of a promise to customers. It’s also well suited for those that are primed for engagement and want to create deeper, more meaningful connections, interaction with their customers in particular through the use of data collected across the channels and environments, and maybe aren’t as quite acquisition focused, but more retention and enhancement focused.

I could rattle off a list of brands, obviously, that programs that would fall into this particular category, but it might be more interesting to understand by relevancy. If I quote a bit of some numbers that I know, I’ll get the exact numbers wrong here, but the order of magnitude is really what I’m trying to tell us a story.

And it’s roughly right. If I think back to my time, with the bond loyalty report and the last study that I read, and admittedly I haven’t read the most recent but across most global markets, this effect is pretty much true. So, let’s just use it with some kid gloves around that and qualifiers but most consumers are enrolled in about 13 to 14 programs.

They’re active, and by way of active, we mean one transaction or purchase within a 12 month period, which Bond will tell you is a very loose definition. And sorry, they’re active in only 6 to 8 programs, and of course that varies by country, so that’s why I’m giving you the range. If you were to remove 1 to 2 as credit card programs and potentially 1 for coalition, then really, proprietary programs are the lion’s share of about 4 to 5 programs where customers are active on an annual basis.

And now in fairness that overlaps into the next model, which is the player model. But here, this is where your brand is entering into an agreement with another brand to access and utilize the other brand’s currency so that you can provide it to your own customers. Most of the control is with the program owner operator brand, and you’re just enabling access to the currency on the spend and interactions that they have with your brand.

The good news here, of course, is that the program operating costs and reward liability remains with that other brand. And you’re simply purchasing the currency from them. So, the cost of currency is really the major outlay for you. And again, I could list a number of programs that are taking on the player model.

Most often they’re found in airline and hotel frequent travel programs. Where others can, you know, can play as well. But certainly since COVID, we’ve seen the rise of partnership models, as we call them. It’s a bit of a spin here and which is and really quite frankly, no pun intended, a play on the player model, where both have their own currency.

So they’re both proprietary programs, but the member can then choose to earn one currency over the other, or they can make exchanges between the program to the currency that is of most benefit to them. So, if you’re seeing a pattern here emerging around whether control is the best criterion to define a business model you know, what if value to the member was the key criterion?

Perhaps it’s a key concept to hold on to as we go through the next little bit here today, and then also into the coming weeks. Irrespective, I do want to say Emirates, I think is a great example of providing a player platform for others to participate in. And in particularly for small business owners or mom and pop shops they’ve got a partner portal that allows brands and companies to apply they provide all the legal requirements to get them approved and set up on financial controls.

Before the individual mom and pop shop can utilize a marketing campaign platform, all told the customer earned skywards miles through prebuilt campaigns that the players have access to and are easily set up to deploy. They also have the ability to create a customized campaign again, where members are in skywards miles on spend at these more local retailers.

Last but not least is a model that I’m really not that familiar with and that, if for anyone who doesn’t know, is a quick introduction to Canadian sarcasm. I say this because I’ve actually had the good fortune to be in organizations for the majority of my loyalty career over the past 25 years in, that have owned and operated coalition models.

They also did proprietary programs for brands as well, but the hero rewards programs were either coalition or frequent flyer programs that were with a souped up credit card and a bunch of partners earning a common currency which is now doing a dance between what we define as player versus coalition.

When you think about it. And in case my point is that I grew up in the loyalty in this particular loyalty model. I’ve watched it evolve and I happen to be in one of the world’s leading markets for the traditional coalition model, aka air miles or air mills or Air Canada’s Aeroplan, pardon me. And unfortunately I’ve witnessed the Canadian consumer’s appetite towards the more evolved coalition models that we’re seeing today.

You know, whether it’s the Scene Rewards Program with Scotiabank, Sobeys, which is our second largest grocery here in the country and Cineplex, an entertainment movies provider. Plus other partners or if it’s Loblaws’, which is actually our largest closure and largest drugstore chain under the PC Optimum Program that offers one currency again, across these two major spend categories, plus they have their own credit cards. They’ve got their own private label apparel, travel insurance that people can earn the currency on. And then they’ve also have key partners in retail fields around that everyday category spent. You know, this last one doesn’t make the traditional definition clearly, but it certainly feels coalition esque if we think about, you know, the value to the member of a common currency earned across multiple spend categories.

But, you know, I digress here a little bit in terms of what our goal was today, which is, you know, what’s in a coalition then by OG standards? Well, share and share alike where you’re sharing the pool of costs required to operate the program across a number of brands. It’s often operated by a 3rd party traditionally.

The key element is that the program members are earning a faster earn velocity because of the common currency across the network of partners, obviously. Some would say, if you can argue that green point stamps was a form of early coalition prior to the scheme that we know, which is most often accredited to Sir Keith Mills.

But I think there were other individuals that Mills, Smith & Partners who created the concept that would ultimately become air miles in the UK in the late 1988. And then Most commonly, this is the recognized form of coalition and the originators of the coalition construct, which typically looked at traditional partner pillars in the coalition under grocery, retail fuel or petrol, department store, thinking back that far, and credit card.

And even in the 2000s, this was starting to evolve from these foundational pillars as coalition partners. As new program started to enter into new markets or attempted to enter like the USA. I won’t get into that just now. But or evolved in markets like Canada, which I’ve talked about where primarily, you know, the evolution became that these core retail spend categories weren’t the only ones that could provide the frequency of earn that was needed.

In particular, I think about the UK where Nectar was born and certainly Germany with its Payback model, as well as other programs around the world, Smiles, Dots, etc. There’s a number that we can list.

My point is this. The coalition model is a valid model still today. It’s very much doing the, I’m not quite dead yet, you know, from Monty Python.

And that’s hitting it over the head because it doesn’t meet the criterion of how to define loyalty business models isn’t the right solution. The reality is that it’s evolved and morphed. Just as the player model has risen up and also adjusted to be more beneficial to members with choice. And I think that’s the key word choice, and I haven’t even touched yet on new models like subscription oriented models or those that don’t even carry currency with them. If we think about the origins of Amazon Prime, I won’t get into the debate of Amazon Prime is a little program or not, but certainly it’s a customer program, but where’s all this leading in terms of thoughts for today? Well, it’s leading to where we’ll be taking you over the next 2 weeks, which is to start to respectfully challenge these models and to do so by asking whether or not the criterion of control is what should be utilized to define these business models.

So join Bill and I next time as we get into the nitty gritty on this. Now that we have baselines to compare from, we’ll be able to give a more constructed viewpoint in terms of what models should be pertinent for today and for the future. So have a good day, everyone. Be well.

Paula: This show is sponsored by Wise Marketer Group, publisher of the WiseMarketer, the premier digital customer loyalty marketing resource for industry relevant news, insights, and research. Wise Marketer Group also offers loyalty education and training globally through its Loyalty Academy which has certified nearly 900 marketeers and executives in 49 countries as certified loyalty marketing professionals.

For global coverage of customer engagement and loyalty, check out thewisemarketer.com and become a Wiser Marketer or subscriber. Learn more about global loyalty education for individuals or corporate training programs at loyaltyacademy.org.

Thank you so much for listening to this episode of Let’s Talk Loyalty. If you’d like us to send you the latest shows each week, simply sign up for the Let’s Talk Loyalty newsletter on letstalkloyalty.com. And we’ll send our best episodes straight to your inbox. And don’t forget that you can follow Let’s Talk Loyalty on any of your favorite podcast platforms. And of course, we’d love for you to share your feedback and reviews. Thanks again for supporting the show.

And of course, we’d love for you to share your feedback and reviews. Thanks again for supporting the show.