Just what is customer loyalty? And how are: Monetization , Socialization , Gamification and Disintermediation chan

1. Just what is customer loyalty? And how are: Monetization, Socialization, Gamification and Disintermediation changing loyalty forever? Howard Schneider Metzner lSchneider Associates

2. Loyalty Faithfulness or a devotion to a person, country, group, or cause

3. Customer loyalty Measurably incremental profit driven by customer engagement, enabled by an understanding of individual customer needs, interests and behavior

4. The loyalty landscape • 31% of Americans find loyalty programs “extremely relevant” • 17% of Americans say programs “very influential” in purchase decisions • U.S. loyalty memberships - 2.1 BILLION • Average American household is enrolled in 18 loyalty programs • Active in 8.4 • US marketers spend over $2 billion a year on loyalty programs What consumers say • 65% view programs as “very essential” or “quite valuable” • 80% commit to “maintaining or further funding” programs • Only 13% believe their programs have been “highly effective” What CMOs say

5. One hundred years of loyalty Ancient history 1981 1990s – early 2000s Today The origins: Manual programs 1st generation automated programs: Travel 2nd generation automated programs: Retail and card programs Online programs and beyond: Omnichannel programs

6. Programs have evolved Reward charts, status levels, transaction-based, limited channels Multi-channel, customer choice, experiential, real time

7. Loyalty and the customer lifecycle Maximize Cross/upsell Engage / update profile Activate Onboard Retain Reactivate Acquisition Advocate 7

8. Loyalty is both rational and emotional • How do I feel? • Recognition of my value • Thanks for my business • Community • Reinforcement • Measured by research and purchases • Perception • Preference • Satisfaction • Advocacy What do I get? Discounts Free or upgraded product Measured by tracking behavior Purchases Participation Share of wallet ROI 8

9. Four key trends 9

10. Disintermediation: One of the biggest words I know the elimination of an intermediary in a transaction between two parties 10

11. True or false? Loyalty programs were invented to reward marketers’ best customers.

12. Disintermediation and loyalty • In 1981, 95% of all airline tickets were sold by travel agents • Airlines did not know their customers by name • AAdvantage was launched as a promotional tool to get customers to identify themselves…NOT as a reward program • Travel, hospitality, car rental companies established direct relationships with their customers • Banks and some retailers, who had transactional data, soon followed • Retail, restaurant and others jumped in as technology and cost permitted Loyalty programs have both driven, and been driven by, disintermediation—and it is a trend that continues to accelerate.

13. The history of loyalty programs is the story of disintermediation Travel industry Credit cards Early retailers Retailers Restaurant Entertainment Early CPG Next gen travel More CPG OEMs Media 13

14. Consumer empowerment is here to stay • More than ever, customers… • define relationships • demand real time responsiveness • choose their preferred channels, content and cadence 14

15. Indirect distribution models Today, some of the fastest growing categories for loyalty programs are those with indirect distribution models Media companies, studios, manufacturers, CPG companies are turning to loyalty and engagement programs to create one-to-one customer relationships for the first time.

16. “350M customers…and we don’t know any by name.” • Indirect distribution: exhibitors, iTunes, Amazon, cable, b’cast, satellite • Customers not interested in studio “brand” • Incredible diversity of product means no natural common denominator • Warner Bros. solution: WB Insider Rewards • A common program platform with different skins for different interests • Rewards interactions and transactions • Allows fans to customize their experience • Tracks, incents, rewards behavior across multiple touchpoints 16

17. Engaging entertainment fans WB Insider Rewards looks one way to action movie fanboys …and very different to classic movie afficianados 17

18. Four key trends

19. Money talks In a business plan…. In a loyalty program…. “How do we make money from this great idea?” “How do we reward customers according to their value?”

20. Money talks Early loyalty programs – and many still today – use proxies for value: • Proxies • Miles / flights • Visits / items bought • Hotel nights / rental days • Poor economics for marketers • Rewarding past, not future, behavior • Rewarding without clear value metric • Unhappy customers • Decreasing reward availability • Blackouts and restrictions • Higher cost to redeem

21. “If only we could really reward customer value” The first major airline program to be based directly on customer spend is Virgin America’s Elevate – a program that has changed the way frequent flier programs work. Elevate is a revenue-managed program that delivers better economics to the airline, more control and a better experience for the guest. When was the last time you tried to redeem miles on a legacy air carrier?

22. As easy as “supply and demand” As easy as “supply and demand” Elevate is the first revenue-managed program of its kind that provides choice, value, and a dynamic approach to enhance ROI. 15 Days Advance Higher ROS Lower ROS 14 Days Advance Near Parity Near Parity 22

23. More than just a reward program. It’s an experience. 23

24. Monetization is a major trend in loyalty • Credit cards and retailers have used customer spend for years. • In the travel category, hotels have used a combination of revenue and stays/nights. • Southwest, JetBlue, and Virgin America all have revenue-managed loyalty programs • Earning based on spend • Dynamic reward pricing Look for more and more companies to reward behavior based on better understanding of individual customers’ monetary value.

25. Four key trends

26. “What are we doing in social media?” - every CEO in the world • Every emerging media tool or channel has a lifecycle, something like this: • Novelty • Skepticism • Infatuation • Evangelism • Overuse / misuse • Disenchantment • Sooo last year Eventually, each finds its optimal role in an ever-evolving mix of media, strategies and tactics.

27. Why would I “like” a fabric softener?

28. A sleeper strategy helps Downy and Macy’s clean up Event marketing Demonstration-chic Customer acquisition All enabled by Facebook and Twitter

29. And the results? Voila: A CPG brand can begin building direct relationships and fostering loyalty.

30. Finding the brand fanatics and building communities • Email, in-store promotion, social media combine for the biggest video upload sweeps ever for a retailer: • 45k entries • 5.7mm views • This promotion built awareness of and participation in the SYWR program, and reinforced the value of points.

31. Socialization and loyalty • Social strategies, while not always driving immediate sales, measurably help marketers achieve: • Increased awareness of and participation in programs • Invaluable WOM • Identification of brand fanatics • Channel for addressing customer concerns Social and mobile media are not only a necessary component of effective loyalty strategies – they are becoming the leading channel in many programs.

32. Four key trends

33. Gamification: IS Reality Broken? There is an increasing need, driven by both marketplace psychographics and program economics, to reward non-transactional behavior …and you may ask yourself: “You said programs should be based on revenue. Now you say programs should reward non-transactional behavior. WTF?”

34. The economic challenge • It IS challenging to cost-effectively reward non-transactional behavior. But that doesn’t mean it is impossible to value and reward non-purchase interactions. • Establish a point structure that allows for small earnings and small rewards for interactions, and more meaningful earnings and rewards for sales • Use a separate earnings and rewards scale to incent and recognize non-transactional, but still valuable behavior

35. Enter, the psychology and mechanics of gaming • Marketers increasingly want to reward interactions like: • Posting a review • Sharing something with a friend • Answering a survey • Posting a photo, video or comment • Visiting a website, watching a trailer or demo • Downloading a ringtone, trailer, link or instructional video • Game constructs can reward these activities with virtual rewards: • Recognition for achievement and participation • Bragging rights • Reinforcement • Badges, stars, leader boards, graphics, enhancements

36. Of course, there are skeptics… …but there are many situations where gamification has been well-received and is brand-appropriate.

37. Games in the air…on the road…online

38. Gamification and loyalty • Innovative applications are emerging, technology platforms that can add gaming elements to conventional program websites • More fun, greater variety for customers • More ways to engage on the customer’s own terms • More economic leverage for marketers with more ways to reward behavior without giving away the store Even conservative, established brands are adding gaming elements to their customer relationships.

39. Disintermediation, Monetization,Socialization and Gamification

40. Thank you! Howard Schneider Metzner |Schneider Associates howard@metzner-schneider.com