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Loyalty Presentation
    for the Institute of Direct
                      Marketing




By Wanda Goldwag
of Goldwag Empson and Otitoju
Agenda for 1st half
   My background
   Global trends
   Customer ownership and what they
    expect
   The Strategic situation
   Loyalty schemes in general and what
    makes a good one
03/07/09         Goldwag Empson Otitoju   2
My background

              Yves Rocher
              Fidelity Unit Trust
              Direct Marketing Agency WWAV
              Thorn EMI
              Thomas Cook
              DM Agency Smith Bundy
              AIR MILES
              Smedvig Venture Capital, GEO and
               6 others
03/07/09              Goldwag Empson Otitoju      3
Apparently, I’m now a
Marketing Guru
              “a revered instructor,
               mentor or pundit” The
               Chambers Dictionary
              Someone who having
               made most of the
               mistakes possible, can
               give advice to others on
               how not to repeat them


03/07/09   Goldwag Empson Otitoju         4
My World
            Cu
                s to
                     m
                               A f f in it y
             Lo
           P ro  ya l e r      m a rk e ti          C u s to
                     t                                         m
                g ra y
             me       m           ng                    e r
                  s                                 Lo y a l
                                    it y                     ty
                           A f f in
                                       n s P a rtn e r
                         R  e la t io            s h ip
                               h ip s         Ma rk e ti
           L o y a lt y
                                                  ng
                                         w  a rd
                                    Re ra m m          D a ta
              R e la t                                         ba
                        io n s P     ro g s               s e
                                          e
                    h ip                             m a rk
              m a rk e                                        e ti
                          t in                           ng
                    g
03/07/09                    Goldwag Empson Otitoju                   5
The challenges I work on
   Creating effective marketing programmes
   Finding partners to work with
   Difficulties in interpreting and analysing
    data
   Segmenting customers
   Making redemption work
   Gaining real benefit from your loyalty
    scheme

03/07/09            Goldwag Empson Otitoju       6
Customer
            Global        Strategy               Expectations
            Trends


                                                Loyalty Schemes



           Customer    The Internet
           Ownership                              Staff Quality




03/07/09               Goldwag Empson Otitoju                     7
Global trends
   Move from Mass Marketing to something
    much closer to one to one marketing
   24/7 society
   New channels of distribution – an
    alternative supplier is a click away
   One company makes a change and it sets a
    new standard for all
   I want it now

03/07/09           Goldwag Empson Otitoju      8
Customer Ownership

              Battle between the product/
               service owner and the
               retailer/ intermediary
              The battle is being fought on
               the field of data

03/07/09               Goldwag Empson Otitoju   9
Customers expect
   To be recognised
   For us to remember what happened
    before and what stage they are at in a
    process
   To be rewarded
   To be kept in touch


03/07/09          Goldwag Empson Otitoju   10
Strategy should be to integrate
               Retail
               Call Centre
               Internet
               Interactive TV
               WAP phones
               Who knows what next ?

 03/07/09            Goldwag Empson Otitoju   11
Communications strategy
              At every point
              Through every channel
              Same data
              Same offers
              Perfect knowledge


03/07/09               Goldwag Empson Otitoju   12
Why, what is changing?

              Far greater understanding
               on behalf of consumers of
               loyalty schemes

              A great deal more one to
               one communication

03/07/09               Goldwag Empson Otitoju   13
Loyalty Schemes
What is happening in the
market place?
 Databases used to be
  flavour of the month
 Now it is customer

  retention strategies and
  loyalty programmes

03/07/09   Goldwag Empson Otitoju   15
The beginning




03/07/09   Goldwag Empson Otitoju   16
Setting the scene
   Millions of consumers already belong to and are
    committed to “their” loyalty scheme
   Ensuring a place in the wallet or purse is becoming
    more difficult
   Almost every major retailer and service company is
    already or has been approached to become a
    member of a loyalty scheme
   There are real challenges in using the data
    collected
   Business to Business loyalty schemes very
    fragmented
03/07/09              Goldwag Empson Otitoju          17
How did it start ?
              American Airlines launched
               AAdvantage, the world’s first
               mileage-based frequent flyer
               programme in the 70’s
              100 million people belong to at least
               one such scheme
              50% of miles are earned on the
               ground, credit card spending and
               telephone calls are important
03/07/09                  Goldwag Empson Otitoju       18
The rest
                                        is
                                     history



03/07/09   Goldwag Empson Otitoju              19
UK market for loyalty cards
   27 million loyalty cards issued
   Average home has at least 2
   7% of homes have more than 20




03/07/09         Goldwag Empson Otitoju   20
“Share Of Wallet” is An
                 Issue




03/07/09   Goldwag Empson Otitoju          21
What cards are in your wallet now?
Lets have a show of hands!
   Nectar
   Tesco
   Boots
   AIR MILES




03/07/09        Goldwag Empson Otitoju   22
Who uses loyalty schemes?

                             Carlson Loyalty Monitor

            100
             90
             80
             70
             60
             50                                                      Aware
             40                                                      Active
             30
             20
             10
              0
                  16-24   25-34        35-44       45-54   55 plus


03/07/09                          Goldwag Empson Otitoju                      23
What makes loyalty
           schemes ideal?

              Customers identify
               themselves
              Because people want
               rewards they are willing to
               give data
              Offers and service can be
               tailored to the individual
03/07/09               Goldwag Empson Otitoju   24
What should a good scheme allow?

   Highly targeted campaigns
   Special Offers to distinct segments
   Keep valuable customers
   Develop better relationships with
    infrequent buyers
   Not over service poor customers
   People spending their points
   Valuable rewards

03/07/09            Goldwag Empson Otitoju   25
My approach to
segmentation
   Segments developed to drive strategic
    marketing initiatives and
    communication- no point doing it for
    fun
   Based on every scrap of data you can
    obtain, registration, behavioural,
    every transaction and communication,
    socio-demographic and 3rd party
03/07/09         Goldwag Empson Otitoju   26
Need to create this circle
           of information
                               S e g m e n t a t io n
                                   A n a ly s is



              P e r s o n a lis e d                      En h a n c e d
           C o m m u n ic a t io n /                 C o m m u n ic a t io n /
           A c t iv it y T r a c k in g                  C u s to m e r
                                                          S e r v ic e



                                  In s t a n t M I


03/07/09                        Goldwag Empson Otitoju                           27
Principals of Successful
           Segmentation

            •Relevant and sound data
            •Groups of homogeneous
            customers
            •Sufficiently distinct from each
            other statistically sound -
            Cluster Analysis
03/07/09             Goldwag Empson Otitoju    28
Example Segmentation
                 Matrix
                                  BEHAVIOUR CATEGORIES


EXPLANATORY                              FAST
                                                      FAST
                                                   TRACKERS             LAPSERS
                              MULTI    TRACKERS  + REDEMPTION   MULTI
 CATEGORIES        SOLUS                  NO                  REDEEMERS
                 COLLECTORS           REDEMPTION                                VALUE

      SINGLES

      YOUNG
     COUPLES
     AFFLUENT
      FAMILIES
        LESS
     AFFLUENT
      FAMILIES
        EMPTY
       NESTERS




      03/07/09                        Goldwag Empson Otitoju                       29
Customer Lifetime Value

                                                                                                                                                R e a c t iv
                                                                                                                                                   a te
    A C T IV IT Y
                                                                                                                                                                    X
                                                                        M o t iv a
                                                                           te
                      N u rtu r
                                                                                                      X                                                                                                     T e r m in
                                                                                                                                                                                                               a te
                          e
                                           X                                                          P r e d ic t iv                                                                                X
                                                                                                            e
                                                                                                      M o d e llin
                                                                                                            g
                                                                                                    L IF E T IM E

03/07/09                                                                 Goldwag Empson Otitoju
                    AIR MILES and the Flying Boat logo are trademarks of AIR MILES International Holdings N.V.AIR MILES awards are held and issued for use subject to AIR MILES Customer Terms and Conditions.
                                                                                                                                                                                                                    30
A word of warning about
     defining a valuable
     customer



03/07/09      Goldwag Empson Otitoju   31
What makes a customer
valuable?
   Volume
   Spend
   Frequency
   Share of wallet
   Satisfaction – willing to be an
    advocate
   Combination of some or all of these
03/07/09         Goldwag Empson Otitoju   32
What works – some truisms
   Customers are people
   The majority of people don’t change
    their behaviour – a minority do and its
    normally dramatic
   Those that benefit most join and
    remain active as they have the most
    to gain (normally ABC1’s)

03/07/09          Goldwag Empson Otitoju   33
So where do we start in rescuing an
existing programme?
   Understand what were the original
    objectives
   Review the competitive landscape and
    if it has changed
   Evaluate existing customers
   Are they all important / profitable?
   Research what matters to those you
    wish to retain
03/07/09         Goldwag Empson Otitoju   34
Why doesn’t everyone
               create their own loyalty
               programmes?

              High original set up costs
              Benefits of increased / shared
               communication channels
              Need to share marketing and
               promotional costs
              Requirement for fast redemption
              Need for a wide range of rewards

03/07/09              Goldwag Empson Otitoju      35
Coalition
           Programmes
            100

            80    Cost of Awards


           %60                                  Available
                                                 Budget
            40    Ongoing Costs


             20
                  Start Up Costs

             0

                  Solo Programme                Partnership
                    Year 1 Costs                Programme

03/07/09               Goldwag Empson Otitoju                 36
Two challenges for you to
discuss in the break
   The consumer increasingly knows the
    value of their own personal data. To
    spend time giving that data they will
    expect something in return – what
    will you give?
   How can you make a loyalty scheme
    more relevant than your competitors?

03/07/09         Goldwag Empson Otitoju   37
Agenda for 2nd half
   A review of the Major UK schemes
   What lessons can be learnt form
    Business to Business programmes
   Predictions for the future




03/07/09         Goldwag Empson Otitoju   38
Major programmes – what is
working and what is not?
   Nectar
   Tesco
   Boots Advantage
   AIR MILES




03/07/09        Goldwag Empson Otitoju   39
Nectar – Launch Poster




03/07/09            Goldwag Empson Otitoju   40
Nectar facts and figures
   Largest programme in               7 out of 10 collectors
    the UK                              have redeemed their
   Keith Mills did it again            points for a reward
   7000 retail outlets                Nectar has given back
    where the card can be               over £650 million
    used to earn points                 worth of rewards
   At least 17 sponsors               Up to 99 people can
                                        collect on one account



03/07/09                Goldwag Empson Otitoju                   41
Nectar Sponsors
   Sainsbury’s 2 points for a £1
   BP 1 point per litre of fuel
   American Express 2 points for a £1
    plus 2 extra points if used with Nectar
    retailer
   On line shop as well


03/07/09          Goldwag Empson Otitoju   42
Overview of the original Programme
              Collectors                                                    Contact Centre



Sponsors
                 Over 50%                                                • 400 Employees
             of UK Households                                            • 38,000 Contacts / Day


                         en t
                S ta t em
                    Joe
                                gs
                         Blog e P lace ode
                Mr. nywher P ostal C
                     A
                123 County,
                                                           ts
                                                      P oin 0
                                                        0000
                                                              0
                                                                                Suppliers
                 City,                                   0000 0
                                        nsor
                                   S po bury’s            0000
                                                                0
                   Date 03          Sains ur y’s           0000 0
                                          sb
                         1/
                   03/0 03           S ain aycard           0000
                                                                  0
                           1/
                     03/0 03          Barcl aycard          0000
                                                                   0
                            1/
                      04/0 03          Barcl aycard          0000
                                                                    0
                       04 /01/          Barcl hams            0000
                              1/03           en
                        05/0 03          Deb hams
                                              en
                               1/
                         03/0 03         Deb hams
                                               en
                                1/
                          04/0 03         Deb
                                 1/
                           05/0




                                                                        • 40+ Types of Rewards
                                                                        • Rewards starting from
              Database                                                    just 500 pts




03/07/09          Goldwag Empson Otitoju                                                           43
The bad and the ugly
   Lost major sponsors           Nectar for Business
    Barclaycard and                not as strong as
    Vodafone                       hoped for
   Account handling of           A decision has been
    sponsors not                   taken not to sell the
    always a priority              company yet




03/07/09           Goldwag Empson Otitoju              44
Tesco
Tesco clubcard facts and
figures
   Launched in 1995              One point for every
   One of the UK’s                £1 spent
    most popular                  Over 6 million
    loyalty card                   unique coupon
    schemes                        variations in each
   12 million active              mailing
    cardholders



03/07/09           Goldwag Empson Otitoju            46
Partners
   Powergen
   Avis
   Nationwide Autocentre
   Johnson’s




03/07/09        Goldwag Empson Otitoju   47
The Good
 “Probably the main factor in
 Tesco’s success has been the
 commitment to use the data
 gained to drive the business. The
 real benefit of a loyalty scheme
 is the very rich data obtained on
 customer behaviour. This use of
 data has been the major
 difference between the Tesco
 scheme and other initiatives
 that were less successful.” Clive
 Humby
Comparing results

   We know how much money we
   give back to Clubcard
   customers, how much it costs to
   run the programme and what
   behaviour we get from those
   customers. We can estimate
   what behaviour we get from
   non-Clubcard customers through
   market research. Then we can
   look at the difference to work
   out whether customers with
   cards remain more loyal to Tesco
The bad and the ugly
   You tell me?
   Partners love them
   Everyone raves about their use of
    data?




03/07/09         Goldwag Empson Otitoju   50
Boots




03/07/09   Goldwag Empson Otitoju   51
Boots advantage card
   15 million card               94% of active users
    holders                        are female
   4p for every £1               Cardholders on
    spent – the most               average spend
    generous of the big            double
    programmes                    Almost always
   Over 50% of UK                 asked for the card
    women hold a card              when shopping

03/07/09           Goldwag Empson Otitoju            52
The bad and ugly
   Very biased towards women
   Not maximising how generous their
    scheme is to others




03/07/09         Goldwag Empson Otitoju   53
03/07/09   Goldwag Empson Otitoju   54
AIR MILES around the world




                                                                  REWARDS
                   THE            LMN
                                                     AME SPAIN   MANAGEMENT
AMTP UK       LOYALTY GROUP   NETHERLANDS
                                                                 MIDDLE EAST



1988              1992           1994                    1996       2001




   03/07/09                     Goldwag Empson Otitoju                         55
Clients
   Royal Bank of Scotland in particular
    Nat West
   Tesco
   Shell
   Southern Electric



03/07/09          Goldwag Empson Otitoju   56
The bad and the ugly
   Up for sale or closure, because BA still
    don’t know what to do with it
   When I left in May 2000 we made £25
    million profit now its said to be £1.3
    million
   Travel offering much expanded – but
    now confusing

03/07/09          Goldwag Empson Otitoju   57
A quick look at some
  Individual retail
    programmes
WH Smith
   Is the programmes still in existence?
          Never asked for it in store
          No obvious mention of it on the corporate
           web-site
          No evidence that it is being used to drive
           marketing



03/07/09                 Goldwag Empson Otitoju     59
Homebase
   4 million cardholders
   Said to have been debating if it should
    be kept going
   Rarely asked for the card in store




03/07/09          Goldwag Empson Otitoju   60
What is going wrong
generally
   25% of all loyalty card holders do not
    use the points they have earned
   People acquire cards but don’t carry
    them in their wallets
   Difficult to maximise the benefits of
    the data gained
   Difficult to differentiate – everyone
    has similar rewards and programmes
03/07/09          Goldwag Empson Otitoju   61
Harder to distinguish
yourself




03/07/09   Goldwag Empson Otitoju   62
What is going wrong cont.

   Some programmes loosing their way – but
    company is scared to close them down
   When partners fall out – customers can be very
    badly served
   Fears about who owns the customer e.g. when Air
    Miles swapped Sainsbury’s for Tesco’s
   Loyalty schemes are not cheap to run costing an
    estimated 1 to 2% of the cost of the product



03/07/09             Goldwag Empson Otitoju           63
Business to Business
Loyalty
Very major challenges
   Is it ethical at all to give rewards to
    individuals for business decisions
   Who should get the reward –
    particularly in medium to large
    companies
   Often complex sales channels with
    manufacturers, wholesalers, dealers
    etc.

03/07/09           Goldwag Empson Otitoju     65
Need to manage disparate
groups

                   Wanda and co




                                             A wholesaler who
  My sales team   A 3rd Party re-seller
                                              sells to Dealers



03/07/09            Goldwag Empson Otitoju                       66
Very often a number of people
are involved in the process
                                       The Finance Dept.




           Internal purchasing dept                            The end user




03/07/09                              Goldwag Empson Otitoju                  67
Arvin Meritor
   Headquarters in Troy, Mich., U.S.,
   ArvinMeritor is an $8 billion supplier
    to the global motor vehicle industry.
   approximately 31,000 employees in
    25 Countries



03/07/09          Goldwag Empson Otitoju     68
Arvin Meritor
   Meritor is leading supplier of truck/tractor
    systems, modules, and components to the
    transportation industry.
   They believe they are partner of choice
    when it comes to truck/tractor
    requirements – for OEMs, fleets of all sizes,
    and end-users. From spec’ing the right
    components, to product training, service
    assistance, support materials, or
    aftermarket parts – before and after-the-
    sale, they are there to support their dealers
03/07/09            Goldwag Empson Otitoju      69
Their 2006 reward
programme
    Earn rewards every time you spec
    eligible products from Meritor. Each
    time you spec an eligible product, you
    earn Meritor Loyalty Points. The
    dollars you earn are loaded onto your
    Meritor Rewards card – a MasterCard™
    stored-value card.

03/07/09          Goldwag Empson Otitoju   70
How acceptable are the
rewards
   You can redeem your points anywhere
    MasterCard is accepted – at over 28
    million locations worldwide! Your
    purchases with the Meritor Rewards
    Card are processed like any credit
    card transaction. The cost of the
    purchase is deducted from your
    loyalty point balance.
03/07/09        Goldwag Empson Otitoju   71
How complex is the sale
   All Dealer Principals, Dealer Sales Managers
    and Dealer Salespersons are encouraged to
    participate

     Dealer Principals and Sales Managers may
    enroll more than one dealership; however,
    the individual Dealer Principal, Dealer Sales
    Manager and Dealer Salespersons
    responsible for selling Class 8 new trucks
    may enroll only once.
   Sales Managers who also sell new trucks
    must decide whether to enroll as a Sales
    Manager or Salesperson.
03/07/09            Goldwag Empson Otitoju      72
Rewards for product
knowledge
   Avnet Partner Solutions, a distributor
    of servers and storage products for
    major manufacturers like Hewlett-
    Packard and IBM
   Based in Tempe, Arizona, they have a
    points-based incentive program,
    SMART Rewards, for their channel
    partners

03/07/09          Goldwag Empson Otitoju     73
Avnet
   They anticipated a tougher market
   "Customers are making more informed
    technology purchases, and so [our
    resellers] have to be well-equipped to
    address market needs."

   Decided to reward resellers for taking
    advantage of educational opportunities
    instead of for straight sales.

03/07/09           Goldwag Empson Otitoju    74
How it works?
   Avnet channel partners earn points for
    business-building activities like attending
    Web seminars in which industry experts
    discuss market trends. Or they earn points
    for achieving certification and training on
    specific enterprise products.
   It also rewards partners in an industry with
    long sales cycles—which can discourage
    reward programs. "We distill information
    coming from the suppliers and point
    partners to activities that will result in long-
    term benefits."
03/07/09             Goldwag Empson Otitoju       75
Nectar for Business
   Aimed at small businesses. 3.5 million
    sole traders and small businesses in the UK
   Points for everyday business
    purchases, from stationery and
    catering supplies to van hire and
    decorators' materials.
   Sponsors include Viking Direct, ICI
    Dulux Decorator Centres, Brakes, EDF
    Energy, Hertz UK, HSS and Magnet
    Trade outlets.
03/07/09            Goldwag Empson Otitoju    76
Points can be redeemed for

   The business or its staff, including
    computers and office equipment,
    cases of wine, flights to Paris and
    tickets for rugby matches
   Points can also be redeemed for any
    of the existing consumer rewards
    provided by the original Nectar
    programme.

03/07/09          Goldwag Empson Otitoju   77
Predictions




03/07/09      Goldwag Empson Otitoju   78
Predictions
   Some major programmes will close – saying that
    customers are no longer interested in loyalty
   More companies will take the option that Virgin
    has and stop sending paper statements
   New coalition programmes in the charity and
    savings area as well as even more niche
    programmes
   Even greater use of technology – they will know
    when you are in store -someone will find a sensible
    way of doing the whole thing on mobile phones
   A loyalty scheme will become a tradeable currency
    in some emerging country

03/07/09              Goldwag Empson Otitoju          79

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Idm Loyalty Presentation 25.04.06 By Wanda Goldwag

  • 1. Loyalty Presentation for the Institute of Direct Marketing By Wanda Goldwag of Goldwag Empson and Otitoju
  • 2. Agenda for 1st half  My background  Global trends  Customer ownership and what they expect  The Strategic situation  Loyalty schemes in general and what makes a good one 03/07/09 Goldwag Empson Otitoju 2
  • 3. My background  Yves Rocher  Fidelity Unit Trust  Direct Marketing Agency WWAV  Thorn EMI  Thomas Cook  DM Agency Smith Bundy  AIR MILES  Smedvig Venture Capital, GEO and 6 others 03/07/09 Goldwag Empson Otitoju 3
  • 4. Apparently, I’m now a Marketing Guru  “a revered instructor, mentor or pundit” The Chambers Dictionary  Someone who having made most of the mistakes possible, can give advice to others on how not to repeat them 03/07/09 Goldwag Empson Otitoju 4
  • 5. My World Cu s to m A f f in it y Lo P ro ya l e r m a rk e ti C u s to t m g ra y me m ng e r s Lo y a l it y ty A f f in n s P a rtn e r R e la t io s h ip h ip s Ma rk e ti L o y a lt y ng w a rd Re ra m m D a ta R e la t ba io n s P ro g s s e e h ip m a rk m a rk e e ti t in ng g 03/07/09 Goldwag Empson Otitoju 5
  • 6. The challenges I work on  Creating effective marketing programmes  Finding partners to work with  Difficulties in interpreting and analysing data  Segmenting customers  Making redemption work  Gaining real benefit from your loyalty scheme 03/07/09 Goldwag Empson Otitoju 6
  • 7. Customer Global Strategy Expectations Trends Loyalty Schemes Customer The Internet Ownership Staff Quality 03/07/09 Goldwag Empson Otitoju 7
  • 8. Global trends  Move from Mass Marketing to something much closer to one to one marketing  24/7 society  New channels of distribution – an alternative supplier is a click away  One company makes a change and it sets a new standard for all  I want it now 03/07/09 Goldwag Empson Otitoju 8
  • 9. Customer Ownership  Battle between the product/ service owner and the retailer/ intermediary  The battle is being fought on the field of data 03/07/09 Goldwag Empson Otitoju 9
  • 10. Customers expect  To be recognised  For us to remember what happened before and what stage they are at in a process  To be rewarded  To be kept in touch 03/07/09 Goldwag Empson Otitoju 10
  • 11. Strategy should be to integrate  Retail  Call Centre  Internet  Interactive TV  WAP phones  Who knows what next ? 03/07/09 Goldwag Empson Otitoju 11
  • 12. Communications strategy  At every point  Through every channel  Same data  Same offers  Perfect knowledge 03/07/09 Goldwag Empson Otitoju 12
  • 13. Why, what is changing?  Far greater understanding on behalf of consumers of loyalty schemes  A great deal more one to one communication 03/07/09 Goldwag Empson Otitoju 13
  • 15. What is happening in the market place?  Databases used to be flavour of the month  Now it is customer retention strategies and loyalty programmes 03/07/09 Goldwag Empson Otitoju 15
  • 16. The beginning 03/07/09 Goldwag Empson Otitoju 16
  • 17. Setting the scene  Millions of consumers already belong to and are committed to “their” loyalty scheme  Ensuring a place in the wallet or purse is becoming more difficult  Almost every major retailer and service company is already or has been approached to become a member of a loyalty scheme  There are real challenges in using the data collected  Business to Business loyalty schemes very fragmented 03/07/09 Goldwag Empson Otitoju 17
  • 18. How did it start ?  American Airlines launched AAdvantage, the world’s first mileage-based frequent flyer programme in the 70’s  100 million people belong to at least one such scheme  50% of miles are earned on the ground, credit card spending and telephone calls are important 03/07/09 Goldwag Empson Otitoju 18
  • 19. The rest is history 03/07/09 Goldwag Empson Otitoju 19
  • 20. UK market for loyalty cards  27 million loyalty cards issued  Average home has at least 2  7% of homes have more than 20 03/07/09 Goldwag Empson Otitoju 20
  • 21. “Share Of Wallet” is An Issue 03/07/09 Goldwag Empson Otitoju 21
  • 22. What cards are in your wallet now? Lets have a show of hands!  Nectar  Tesco  Boots  AIR MILES 03/07/09 Goldwag Empson Otitoju 22
  • 23. Who uses loyalty schemes? Carlson Loyalty Monitor 100 90 80 70 60 50 Aware 40 Active 30 20 10 0 16-24 25-34 35-44 45-54 55 plus 03/07/09 Goldwag Empson Otitoju 23
  • 24. What makes loyalty schemes ideal?  Customers identify themselves  Because people want rewards they are willing to give data  Offers and service can be tailored to the individual 03/07/09 Goldwag Empson Otitoju 24
  • 25. What should a good scheme allow?  Highly targeted campaigns  Special Offers to distinct segments  Keep valuable customers  Develop better relationships with infrequent buyers  Not over service poor customers  People spending their points  Valuable rewards 03/07/09 Goldwag Empson Otitoju 25
  • 26. My approach to segmentation  Segments developed to drive strategic marketing initiatives and communication- no point doing it for fun  Based on every scrap of data you can obtain, registration, behavioural, every transaction and communication, socio-demographic and 3rd party 03/07/09 Goldwag Empson Otitoju 26
  • 27. Need to create this circle of information S e g m e n t a t io n A n a ly s is P e r s o n a lis e d En h a n c e d C o m m u n ic a t io n / C o m m u n ic a t io n / A c t iv it y T r a c k in g C u s to m e r S e r v ic e In s t a n t M I 03/07/09 Goldwag Empson Otitoju 27
  • 28. Principals of Successful Segmentation •Relevant and sound data •Groups of homogeneous customers •Sufficiently distinct from each other statistically sound - Cluster Analysis 03/07/09 Goldwag Empson Otitoju 28
  • 29. Example Segmentation Matrix BEHAVIOUR CATEGORIES EXPLANATORY FAST FAST TRACKERS LAPSERS MULTI TRACKERS + REDEMPTION MULTI CATEGORIES SOLUS NO REDEEMERS COLLECTORS REDEMPTION VALUE SINGLES YOUNG COUPLES AFFLUENT FAMILIES LESS AFFLUENT FAMILIES EMPTY NESTERS 03/07/09 Goldwag Empson Otitoju 29
  • 30. Customer Lifetime Value R e a c t iv a te A C T IV IT Y X M o t iv a te N u rtu r X T e r m in a te e X P r e d ic t iv X e M o d e llin g L IF E T IM E 03/07/09 Goldwag Empson Otitoju AIR MILES and the Flying Boat logo are trademarks of AIR MILES International Holdings N.V.AIR MILES awards are held and issued for use subject to AIR MILES Customer Terms and Conditions. 30
  • 31. A word of warning about defining a valuable customer 03/07/09 Goldwag Empson Otitoju 31
  • 32. What makes a customer valuable?  Volume  Spend  Frequency  Share of wallet  Satisfaction – willing to be an advocate  Combination of some or all of these 03/07/09 Goldwag Empson Otitoju 32
  • 33. What works – some truisms  Customers are people  The majority of people don’t change their behaviour – a minority do and its normally dramatic  Those that benefit most join and remain active as they have the most to gain (normally ABC1’s) 03/07/09 Goldwag Empson Otitoju 33
  • 34. So where do we start in rescuing an existing programme?  Understand what were the original objectives  Review the competitive landscape and if it has changed  Evaluate existing customers  Are they all important / profitable?  Research what matters to those you wish to retain 03/07/09 Goldwag Empson Otitoju 34
  • 35. Why doesn’t everyone create their own loyalty programmes?  High original set up costs  Benefits of increased / shared communication channels  Need to share marketing and promotional costs  Requirement for fast redemption  Need for a wide range of rewards 03/07/09 Goldwag Empson Otitoju 35
  • 36. Coalition Programmes 100 80 Cost of Awards %60 Available Budget 40 Ongoing Costs 20 Start Up Costs 0 Solo Programme Partnership Year 1 Costs Programme 03/07/09 Goldwag Empson Otitoju 36
  • 37. Two challenges for you to discuss in the break  The consumer increasingly knows the value of their own personal data. To spend time giving that data they will expect something in return – what will you give?  How can you make a loyalty scheme more relevant than your competitors? 03/07/09 Goldwag Empson Otitoju 37
  • 38. Agenda for 2nd half  A review of the Major UK schemes  What lessons can be learnt form Business to Business programmes  Predictions for the future 03/07/09 Goldwag Empson Otitoju 38
  • 39. Major programmes – what is working and what is not?  Nectar  Tesco  Boots Advantage  AIR MILES 03/07/09 Goldwag Empson Otitoju 39
  • 40. Nectar – Launch Poster 03/07/09 Goldwag Empson Otitoju 40
  • 41. Nectar facts and figures  Largest programme in  7 out of 10 collectors the UK have redeemed their  Keith Mills did it again points for a reward  7000 retail outlets  Nectar has given back where the card can be over £650 million used to earn points worth of rewards  At least 17 sponsors  Up to 99 people can collect on one account 03/07/09 Goldwag Empson Otitoju 41
  • 42. Nectar Sponsors  Sainsbury’s 2 points for a £1  BP 1 point per litre of fuel  American Express 2 points for a £1 plus 2 extra points if used with Nectar retailer  On line shop as well 03/07/09 Goldwag Empson Otitoju 42
  • 43. Overview of the original Programme Collectors Contact Centre Sponsors Over 50% • 400 Employees of UK Households • 38,000 Contacts / Day en t S ta t em Joe gs Blog e P lace ode Mr. nywher P ostal C A 123 County, ts P oin 0 0000 0 Suppliers City, 0000 0 nsor S po bury’s 0000 0 Date 03 Sains ur y’s 0000 0 sb 1/ 03/0 03 S ain aycard 0000 0 1/ 03/0 03 Barcl aycard 0000 0 1/ 04/0 03 Barcl aycard 0000 0 04 /01/ Barcl hams 0000 1/03 en 05/0 03 Deb hams en 1/ 03/0 03 Deb hams en 1/ 04/0 03 Deb 1/ 05/0 • 40+ Types of Rewards • Rewards starting from Database just 500 pts 03/07/09 Goldwag Empson Otitoju 43
  • 44. The bad and the ugly  Lost major sponsors  Nectar for Business Barclaycard and not as strong as Vodafone hoped for  Account handling of  A decision has been sponsors not taken not to sell the always a priority company yet 03/07/09 Goldwag Empson Otitoju 44
  • 45. Tesco
  • 46. Tesco clubcard facts and figures  Launched in 1995  One point for every  One of the UK’s £1 spent most popular  Over 6 million loyalty card unique coupon schemes variations in each  12 million active mailing cardholders 03/07/09 Goldwag Empson Otitoju 46
  • 47. Partners  Powergen  Avis  Nationwide Autocentre  Johnson’s 03/07/09 Goldwag Empson Otitoju 47
  • 48. The Good “Probably the main factor in Tesco’s success has been the commitment to use the data gained to drive the business. The real benefit of a loyalty scheme is the very rich data obtained on customer behaviour. This use of data has been the major difference between the Tesco scheme and other initiatives that were less successful.” Clive Humby
  • 49. Comparing results We know how much money we give back to Clubcard customers, how much it costs to run the programme and what behaviour we get from those customers. We can estimate what behaviour we get from non-Clubcard customers through market research. Then we can look at the difference to work out whether customers with cards remain more loyal to Tesco
  • 50. The bad and the ugly  You tell me?  Partners love them  Everyone raves about their use of data? 03/07/09 Goldwag Empson Otitoju 50
  • 51. Boots 03/07/09 Goldwag Empson Otitoju 51
  • 52. Boots advantage card  15 million card  94% of active users holders are female  4p for every £1  Cardholders on spent – the most average spend generous of the big double programmes  Almost always  Over 50% of UK asked for the card women hold a card when shopping 03/07/09 Goldwag Empson Otitoju 52
  • 53. The bad and ugly  Very biased towards women  Not maximising how generous their scheme is to others 03/07/09 Goldwag Empson Otitoju 53
  • 54. 03/07/09 Goldwag Empson Otitoju 54
  • 55. AIR MILES around the world REWARDS THE LMN AME SPAIN MANAGEMENT AMTP UK LOYALTY GROUP NETHERLANDS MIDDLE EAST 1988 1992 1994 1996 2001 03/07/09 Goldwag Empson Otitoju 55
  • 56. Clients  Royal Bank of Scotland in particular Nat West  Tesco  Shell  Southern Electric 03/07/09 Goldwag Empson Otitoju 56
  • 57. The bad and the ugly  Up for sale or closure, because BA still don’t know what to do with it  When I left in May 2000 we made £25 million profit now its said to be £1.3 million  Travel offering much expanded – but now confusing 03/07/09 Goldwag Empson Otitoju 57
  • 58. A quick look at some Individual retail programmes
  • 59. WH Smith  Is the programmes still in existence?  Never asked for it in store  No obvious mention of it on the corporate web-site  No evidence that it is being used to drive marketing 03/07/09 Goldwag Empson Otitoju 59
  • 60. Homebase  4 million cardholders  Said to have been debating if it should be kept going  Rarely asked for the card in store 03/07/09 Goldwag Empson Otitoju 60
  • 61. What is going wrong generally  25% of all loyalty card holders do not use the points they have earned  People acquire cards but don’t carry them in their wallets  Difficult to maximise the benefits of the data gained  Difficult to differentiate – everyone has similar rewards and programmes 03/07/09 Goldwag Empson Otitoju 61
  • 62. Harder to distinguish yourself 03/07/09 Goldwag Empson Otitoju 62
  • 63. What is going wrong cont.  Some programmes loosing their way – but company is scared to close them down  When partners fall out – customers can be very badly served  Fears about who owns the customer e.g. when Air Miles swapped Sainsbury’s for Tesco’s  Loyalty schemes are not cheap to run costing an estimated 1 to 2% of the cost of the product 03/07/09 Goldwag Empson Otitoju 63
  • 65. Very major challenges  Is it ethical at all to give rewards to individuals for business decisions  Who should get the reward – particularly in medium to large companies  Often complex sales channels with manufacturers, wholesalers, dealers etc. 03/07/09 Goldwag Empson Otitoju 65
  • 66. Need to manage disparate groups Wanda and co A wholesaler who My sales team A 3rd Party re-seller sells to Dealers 03/07/09 Goldwag Empson Otitoju 66
  • 67. Very often a number of people are involved in the process The Finance Dept. Internal purchasing dept The end user 03/07/09 Goldwag Empson Otitoju 67
  • 68. Arvin Meritor  Headquarters in Troy, Mich., U.S.,  ArvinMeritor is an $8 billion supplier to the global motor vehicle industry.  approximately 31,000 employees in 25 Countries 03/07/09 Goldwag Empson Otitoju 68
  • 69. Arvin Meritor  Meritor is leading supplier of truck/tractor systems, modules, and components to the transportation industry.  They believe they are partner of choice when it comes to truck/tractor requirements – for OEMs, fleets of all sizes, and end-users. From spec’ing the right components, to product training, service assistance, support materials, or aftermarket parts – before and after-the- sale, they are there to support their dealers 03/07/09 Goldwag Empson Otitoju 69
  • 70. Their 2006 reward programme Earn rewards every time you spec eligible products from Meritor. Each time you spec an eligible product, you earn Meritor Loyalty Points. The dollars you earn are loaded onto your Meritor Rewards card – a MasterCard™ stored-value card. 03/07/09 Goldwag Empson Otitoju 70
  • 71. How acceptable are the rewards  You can redeem your points anywhere MasterCard is accepted – at over 28 million locations worldwide! Your purchases with the Meritor Rewards Card are processed like any credit card transaction. The cost of the purchase is deducted from your loyalty point balance. 03/07/09 Goldwag Empson Otitoju 71
  • 72. How complex is the sale  All Dealer Principals, Dealer Sales Managers and Dealer Salespersons are encouraged to participate  Dealer Principals and Sales Managers may enroll more than one dealership; however, the individual Dealer Principal, Dealer Sales Manager and Dealer Salespersons responsible for selling Class 8 new trucks may enroll only once.  Sales Managers who also sell new trucks must decide whether to enroll as a Sales Manager or Salesperson. 03/07/09 Goldwag Empson Otitoju 72
  • 73. Rewards for product knowledge  Avnet Partner Solutions, a distributor of servers and storage products for major manufacturers like Hewlett- Packard and IBM  Based in Tempe, Arizona, they have a points-based incentive program, SMART Rewards, for their channel partners 03/07/09 Goldwag Empson Otitoju 73
  • 74. Avnet  They anticipated a tougher market  "Customers are making more informed technology purchases, and so [our resellers] have to be well-equipped to address market needs."  Decided to reward resellers for taking advantage of educational opportunities instead of for straight sales. 03/07/09 Goldwag Empson Otitoju 74
  • 75. How it works?  Avnet channel partners earn points for business-building activities like attending Web seminars in which industry experts discuss market trends. Or they earn points for achieving certification and training on specific enterprise products.  It also rewards partners in an industry with long sales cycles—which can discourage reward programs. "We distill information coming from the suppliers and point partners to activities that will result in long- term benefits." 03/07/09 Goldwag Empson Otitoju 75
  • 76. Nectar for Business  Aimed at small businesses. 3.5 million sole traders and small businesses in the UK  Points for everyday business purchases, from stationery and catering supplies to van hire and decorators' materials.  Sponsors include Viking Direct, ICI Dulux Decorator Centres, Brakes, EDF Energy, Hertz UK, HSS and Magnet Trade outlets. 03/07/09 Goldwag Empson Otitoju 76
  • 77. Points can be redeemed for  The business or its staff, including computers and office equipment, cases of wine, flights to Paris and tickets for rugby matches  Points can also be redeemed for any of the existing consumer rewards provided by the original Nectar programme. 03/07/09 Goldwag Empson Otitoju 77
  • 78. Predictions 03/07/09 Goldwag Empson Otitoju 78
  • 79. Predictions  Some major programmes will close – saying that customers are no longer interested in loyalty  More companies will take the option that Virgin has and stop sending paper statements  New coalition programmes in the charity and savings area as well as even more niche programmes  Even greater use of technology – they will know when you are in store -someone will find a sensible way of doing the whole thing on mobile phones  A loyalty scheme will become a tradeable currency in some emerging country 03/07/09 Goldwag Empson Otitoju 79