RS: They did. And, you understand, definitely within the 90s once I labored there, The Bay was the division retailer. They have been kicking Eaton’s within the chin. You understand, sadly, Simpsons needed to form of sundown into the Bay. However the Bay had its, uh, formidable years. You understand, I take into consideration, you understand, the power of the Bay Card, the Bay Card {Dollars} program that I used to be lucky sufficient to herald as their first loyalty program. I take into consideration their sturdy merchandising, their value ensures, the enduring scratch and save – they have been hitting all of the marks with the patron and so they have been undoubtedly a vacation spot for Canadians for all of their buying wants, whether or not that be comfortable items or exhausting items. However that every one did change.
SS: Nicely, it is moderately dramatic and as you say, considerably of a mirrored image of the decline in malls usually, however definitely a tragic day once they, once they shuttered the establishment. So that you left the Bay to hitch Consumers Drug Mart in 1997, is that appropriate?
RS: That is appropriate, that is appropriate.
SS: And whenever you made that transfer, what have been plans already underway to launch a unified factors based mostly loyalty program? I do know they’d some golf equipment and loyalty packages on a form of a distinct segment foundation, however did they create you in to steer that or did you lead the cost and persuade them that this was the fitting factor to do, proper approach to go? (9.47)
RS: Really, what’s fascinating about that function was I used to be in a really coveted function at Hudson’s Bay Firm. I used to be there for nearly 9 years and I needed to make a troublesome resolution to go away the group. Not essentially to a task that supplied certainty that there can be a loyalty program or at the very least an enterprise large loyalty program, however actually to return there to find out whether or not the group wanted a unifying loyalty program. As a result of as you talked about, they’d three totally different packages. That they had the Cosmetics Membership, which was a really valued program, and beloved program. That they had a seniors program, they’d a child program. So they’d these form of disparate packages working within the retailer. And naturally at the back of the shop they’d Well being Watch, which was not a loyalty program, however engendered an amazing quantity of loyalty, with sufferers and prospects. However they’d nothing to form of unify that complete buyer expertise. So my function was to find out A, do they want a unified loyalty program and B, in that case, what would that appear to be and what’s the technique behind that? What’s the design? What is the worth proposition? And most significantly, what are the financials to substantiate the necessity for that sort of funding?
SS: So out of the gate, have been you pondering a factors based mostly program or was it a clean slate at that time and also you had to have a look at the market competitively and assess whether or not this made sense or not.
RS: It was a clean slate, fairly frankly. However you understand, I might say again then in 1997, level packages have been fairly ubiquitous. So there definitely was a leaning in direction of factors. However what was most essential when it comes to the precise design of this system was to ship worth and ship on the spot gratification to prospects in a quite simple method. As a result of in the event you took a take a look at a lot of the packages of the day, they have been pretty difficult. You understand, Air Miles was a reasonably difficult worth proposition with various earn charges at companions and ranging redemption charges. So Consumers was searching for one thing that was simplistic and unified and that basically led to the precise, you understand, foundational pondering round how we carry Optimum to fruition.
SS: I used to be an early member, I simply cannot recall: however it was an earn and burn program although from the beginning.
RS: It wasn’t an earn and burn program. And the way in which this system labored was when you hit a sure spend threshold, you’d redeem immediately on the level of sale. And remember, again within the day, not all packages have been form of on the spot. You did not see your factors replace immediately. Even with Air Miles with companions but to attend 24, 48 hours. With Optimum, that expertise was in-built. The sweetness was on the time Consumers was truly doing an entire overhaul of all their level of sale tools. That they had about 14 or 15 totally different level of sale distributors and, you understand, it was pretty difficult to construct a loyalty program that built-in with all these totally different level of sale methods.
So it was the fitting time to construct a unified loyalty program with one, you understand, IBM level of sale system so prospects may truly see what they’re incomes within the second, whether or not it was base factors, bonus factors, or different sorts of initiatives and so they may redeem within the second. In order that was actually the hallmark of this system. It was in all probability a program that did not emulate different packages. A lot of the packages form of had some degree of delay when it comes to form of earn and burn. Whereas we had prospects coming in and their first transaction redeeming by their second transaction as a result of there may be this ubiquitous variety of bonus factors proper throughout the shop.
SS: So that you, you would not have checked out CVS within the U.S. or every other – Tesco – or every other on the time would have been considered finest in school loyalty packages as a mannequin? Have been you principally inventing this from scratch?
RS: It is fascinating you talked about these two retailers. So actually the chief group at Consumers truly went over the pond to go to Tesco and Sainsbury and a few others, in addition to Boots the Chemist. And Boots was truly a frontrunner within the business and so they got here again form of evangelical round the entire notion of proprietary loyalty and the necessity to construct form of on the spot gratification and that helped to form of, you understand, lay the inspiration for that. CVS was truly operating a pilot on the time once we have been, you understand, conceiving the Optimum program. A few years later, truly Walgreens got here as much as Canada to essentially take a look at the Optimum program and form of emulate what was constructed by Consumers Drug Mart in the way in which of Optimum to design their precise program. In order that they took lots of inspiration from the Optimum program and we took inspiration from Boots and Tesco, who have been leaders in loyalty design within the U.Okay. on the time.
SS: That is fascinating. And simply return previous to the launch: how a lot of your time was spent, as a result of it took a few years, proper, to get this program off the bottom. How a lot of that point was truly spent planning, conception versus this system mechanics, logistics, the deployment side of it earlier than you truly went dwell with this system, I believe in 2000. What was the division of time there, the trouble span? (15.15)
RS: Yeah, good query, Stephen. So I joined in ’97. In ‘99, we truly piloted this system in three cities, Kingston, Halifax, and Calgary with totally different dividend rewards. These pilots went on for about 16 months. After which we launched in September 10, 2000, which is twenty fifth anniversary of this system. There was lots of pressure round whether or not Consumers ought to construct their very own proprietary loyalty program or truly, you understand, take the better route and be a part of the Air Miles reward program or one other coalition program like Aeroplan. However I believe the sentiment of the day was that Consumers actually needed to personal the information as a result of the worth, as you effectively know and your listeners know, is within the knowledge and utilization of the information. And that was going to afford them the chance to try this.
However getting again to your query, when it comes to form of division of labour, there was lots of time spent educating and convincing the chief group across the deserves of loyalty just because on the time Consumers was very a lot an operational service provider. It was a matter of bringing the products in, piling as excessive as you may on the proper value and transferring them out the door. They usually have been masters at that. In order that they have been retailers, however they weren’t essentially entrance retailer buyer centric retailers. And actually educating the, and form of education the chief group round buyer centricity was lots of the work that was completed to get them to purchase into the entire notion of loyalty, and the ability of loyalty, and the utilization of knowledge. After which after all a disproportionate period of time was put into the precise technique, the design, the worth proposition, and naturally lots of rigour across the monetary, you understand, efficacy, projected efficacy of this system. So I might say the overwhelming majority of the time was across the precise technique and design and financials of this system.
SS: Fascinating. And was there a second, a eureka second, the place you thought, you understand, popping out of a C-Suite assembly or perhaps a boardroom dialog the place you stated, okay, I believe they have it, or was it principally a sluggish, gradual construct to persuade them?
RS: I might say it was a sluggish, gradual construct. However I believe the turning level was when the chief group got here again from the U.Okay. and had the chance to satisfy with their counterparts at Tesco and Boots. They have been ingesting the Kool-Assist once they got here again, it was like, okay, inexperienced mild, let’s go forward, let’s construct this, let’s pilot this. You understand, having stated that, there have been lots of verify ins with the chief group. You understand, myself and Neil Everett, who was the CMO on the time, we spent lots of time with the chief group and the board each step of the way in which. The late CEO David Bloom, could he relaxation in peace, was very, very fingers on and for the fitting causes as a result of this was an enormous enterprise for the group. You get into these loyalty packages, when you’re in them it’s extremely exhausting to get out of them.
So that you wish to be sure you’re making the fitting selections and the fitting investments. As a result of, you understand, with the cash that was spent constructing out all of the expertise, as a result of most of it was all homegrown and constructing form of the empire of individuals across the program, you understand, that cash might be used to, you understand, open new shops and also you get a really, you understand, sure return on funding on new shops. Whereas loyalty is just a little bit extra murky when it comes to what you are going to get. So yeah, it was a really intense time frame.
SS: Fascinating. Now, I imply, that is within the historical past books. You launch it in 2000. It was nearly an on the spot hit with prospects. In your intestine on the time, you’d completed the check markets, I noticed that. However nonetheless, with all that quantity of planning, you continue to have this second, queasy feeling of is that this going to essentially work or not? Did you envision that form of rapid success or was {that a} shock? And have been there a number of, form of, nervous moments alongside the way in which that prompted you some sleepless nights?
RS: Oh, I believe we had numerous sleepless nights, anytime you launch one thing as a result of all eyes have been on the pilot or at the very least the three totally different pilots. And we knew that they needed to succeed. And we truly established some very, very lofty objectives when it comes to enrollment charges and scan charges and will increase in gross sales and basket measurement and all the same old loyalty metrics. However we additionally had management shops. And we did this in a really methodical approach. So all eyes of the corporate have been on these pilots. And we made certain that we spent lots of time within the pilot markets. We did not simply launch this system and let it go. We have been within the shops always ensuring that we have been high quality tuning this system and likewise creating conviction by the affiliate house owners of the pilot market that, you understand, the entire firm is driving on the success of this program. And for sure, we overshot all these lofty objectives.
And when this system was launched nationally, there was such an unimaginable inertia as a result of, you understand, from the highest down, the chief group was fully behind this. The truth is, I bear in mind, you understand, the chief bonuses have been truly tied to the success of this system. You understand, a number of the compensation at retailer degree was truly tied to the success of this system. So when this program was launched, your complete firm was behind it. I bear in mind the late CEO David Bloom took all different initiatives off the desk for the primary eight weeks of the launch to make it possible for everybody was solely targeted on this program. And the outcomes that we anticipated to get in a single 12 months have been achieved in six weeks. It was fairly miraculous. And this actually speaks to the ability of getting a whole group round a serious initiative to realize such unimaginable success. (21.29)
SS: Nicely, you’ll have been deemed a hero by the group for that. Wow, that is truly actually spectacular to listen to. What do you assume have been the three essential components within the success of this launch? Clearly the due diligence that you simply did, however you simply alluded to it, I believe, is getting the group absolutely supportive and behind the initiative in order that nobody had doubts that it was the fitting factor to do.
RS: I believe there are three issues. Initially, Neil Everett, who was the CMO, assembled an important staff. So I occurred to be the ringleader, however I had, a really imply and lean staff working with me in addition to lots of cross useful individuals inside the group from IT, expertise, operations, merchandising. We have been all targeted on this and all of us form of labored collectively. And the important thing right here was bringing all sides of the group collectively. This was not simply the loyalty staff constructing this system. We introduced merchandising into the fold to hearken to what their considerations are, make them a part of the answer, not the issue. And as soon as they supplied options to issues, they purchased into this. They stood behind the answer itself. In order that was very, very crucial.
I believe the fervour of the chief group was unwavering and their help of this system was crucial to the precise success of this system. After which I might say on the retailer degree the affiliate house owners’ conviction across the program as a result of they noticed within the pilot markets what this program can truly obtain. And I might say lastly the entrance line retailer workers. And Consumers did an exquisite factor. They included workers in this system which was a pricey resolution to make. As a result of give it some thought, they have been getting a employees low cost. Now they’re getting, you understand, a reduction with Optimum Factors.
However it was the most effective factor that Consumers ever did as a result of these individuals turned evangelical about this system. We did not really want to coach them regardless that we went by means of formal coaching. However they have been experiencing this system firsthand and so they have been telling the purchasers which with such ardour and pleasure about you understand, the primary time they redeem, they’d clarify sure hacks which you could obtain to get to your reward ranges faster. It was actually unimaginable as a result of it fostered such sturdy bonds between cashiers and prospects who would in any other case hardly ever discuss. So it was nearly infectious when it comes to, you understand, the enrollment and participation of this system. So I might say these have been crucial operational components.
SS: So let’s quick ahead a bit. So I believe 2018 Loblaws had by that time bought Consumers and amalgamated the organizations, resolve that they should carry collectively your loyalty program along with their very own PC program and renamed it PC Optimum, launched it in 2018. Some snafus, clearly it occurred on the time, possibly you could have a perspective on that. However in the present day it is acknowledged because the primary loyalty program in Canada. What makes it so widespread with consumers? Why is it the identical components that made it widespread whenever you launch this system? It simply appears to have gotten greater and extra engaged in consumers’ lives, going by my spouse’s perspective, who’s within the high 1% of earners as a member. (25.07)
RS: Nicely your spouse is just not alone. It is fascinating. I believe one of many issues that Loblaws did a very good job at was holding the essence of this system intact. And that is what individuals love about this system. It is easy to take part in, straightforward to know, offers worth, on the spot gratification. They run a complete host of promotions I might say maybe typically too usually round redemption, bonuses after which retailer large bonuses and, you understand, SKU bonuses. So individuals get to the rewards in a short time and so they get monetary savings. And, you understand Consumers Drug Mart is just not the most affordable retailer on the town. After they run a sale they really have nice costs. However once they do not and also you wish to redeem your factors, you may stroll away with lots of free product. In order that’s nice.
The worth proposition is barely totally different at Loblaws and their related firms, the place they do not have a base supply, however they’ve primarily bonus affords. As I stated, the essence of this system was retained, however they’ve additionally completed a very good job round personalization when it comes to affords, getting prospects to purchase issues that they usually purchase, but in addition stretch them into different adjoining classes, which I believe is nice for form of, you understand, offering worth, introducing new merchandise to prospects, non-public label merchandise, and I believe prospects admire the worth that they get. And I believe it is nice for the enterprise as effectively as a result of it expands prospects.
And now you bought to recollect when this program was acquired by Loblaws, it represented in all probability the most important feminine database within the nation. So this was an actual strategic asset for Loblaws. You understand, take into consideration, you understand, Consumers Drug Mart prospects who could haven’t shopped at Loblaws. This can be a nice alternative to port over these prospects, or there have been prospects that have been in each packages. So there’s some efficiencies there bringing the packages collectively. So it was a win, win state of affairs for Loblaws to 1, purchase Consumers Drug Mart, however two, to accumulate the Optimum program as a result of it was a really helpful database. And as, you understand, the first shopper of Loblaws is a feminine shopper.
SS: So I wish to transfer on, since you left Consumers and went to, I believe, Loyalty One, which is healthier generally known as the proprietor of the Air Miles program. And I believe you, you moved there in 2003. Everyone knows what’s occurred to it since. And in its heyday, again within the early 90s, across the time you have been at HBC, it was possibly the preferred loyalty program in Canada on the time, however went right into a spiral within the final variety of years. And everyone knows Financial institution of Montreal, which is without doubt one of the main sponsors, has acquired the Air Miles program. I might wish to get your perspective. You have been there at Loyalty One for a few years. What’s your opinion on the explanations that it went into that tailspin and finally it was turned over, or BMO finally acquired it2. What’s your perspective, having labored there?
RS: Yeah, so I used to be very lucky to be there for about 10 years in a number of management capacities. And I used to be there in the course of the heyday, so I used to be very lucky to be there in the course of the good days. This system was rising, had numerous sponsors in this system. It was including sponsors. It was an actual drive to be reckoned with. And as I discussed and you understand, I might hear the tales once I came to visit to Loyalty One about how they want Consumers Drug Mart would have joined their program. On the time they’d Safeway in this system that offered a little bit of a battle for Consumers Drug Mart.
I believe what occurred was quite a few issues. This system turned much less buyer centric and extra targeted on financials. The group did a pair issues to form of mitigate a number of the monetary threat. They broke up form of the mile into money miles and dream miles to form of handle their legal responsibility. And I do not assume that was greeted rather well with prospects. You understand, coupled with placing expiry dates, that created form of an uproar in our loyalty business the place hastily the federal government of the day on the provincial degree got here in and began placing mandates round what you may and you’ll’t do round expiry. In order that they sadly obtained lots of detrimental press.
There have been some allegations round potential manipulation of what rewards prospects have been seeing or not seeing. You understand, whether or not that is truth or fiction, I do not know. I wasn’t there on the time. However for sure, you understand, notion is actuality in the case of prospects. And I believe prospects began to essentially really feel the pinch on this system and never see the worth in this system. And when prospects do not see the worth, sponsors and companions do not see the worth. So hastily you see an attrition of companions, you understand, from the LCBOs of the world, to the Sobeys, and the Metros and, you understand, others leaving this system. And there was a little bit of a, you understand, a destruction fairly frankly in this system.
Quick ahead, BMO, you understand, was a founding accomplice of this system. They in all probability had essentially the most to lose as a result of they’d a big put in buyer base of bank card holders and so they determined to purchase this system over. They usually’re truly doing a little actually good issues with this system proper now. I just like the route they are going in with this system and I believe there’s future viability with this program. You understand, I believe Sean Stewart, the brand new CEO or President, has actually completed nice work and his staff, however they’ve some work to be completed nonetheless. You understand, construct again a few of that credibility.
I believe the problem with Air Miles, and I hear it very often, is it is all the time known as your dad and mom’ program and it does not essentially attraction as a lot to that form of GenZ shopper. Having stated that, I believe the group is taking steps to change into extra related, extra hip. They’ve created other ways of partnering, not sticking to the previous methods of partnership. In order that they’re modernizing this system and I hope that they proceed to achieve success with that. (31.38)
SS: Nicely, you talked about a number of the issues that you simply like, what they’re doing. What can be a few of these issues?
RS: Yeah, you understand, for instance, you understand, the place they misplaced companions, they launched card linking. And I believe that is, you understand, an important substitute to, you understand, getting classes the place you may truly earn factors that, you understand, sadly are absent now. In order their grocers left, they stated, you understand what, we’ll assume out of the field. We’ll discover methods to, you understand, nonetheless fill the class, maybe to not the identical, you understand, degree, however make it possible for our prospects are nonetheless incomes in these classes. In order that they’re doing issues just a little bit otherwise. They’re doing offers with CPG firms the place you are able to do form of automated receipt scanning as a way to truly earn factors very simply, whether or not you are buying at a accomplice location or not.
SS: I believe one of many downfalls throughout that interval the place there was lots of price administration, if I can put it that approach, was a decline in customer support. As a result of I bear in mind my spouse who’s a factors maven, you’ll recall, was an enormous Air Miles consumer, however she obtained so pissed off with coping with corrections on factors that had not been allotted, making an attempt to get by means of to customer support. After which redemption was a complete one other problem. So to your level, in the event you make the member expertise awful, then there’s not a lot in it for, for anyone else. So it is fascinating.
I wish to discuss concerning the different program, the granddaddy of all of them actually when it comes to Canada anyway, Air Canada, the Aeroplan program launched in 84 I believe, which actually created the wave of loyalty packages that adopted, because it did within the U.S.. They’ve not too long ago introduced – and there is been some clearly toggling forwards and backwards, you understand, Aeroplan spun off at one level after which repurchased from AIMIA, as all of us recall – however in the present day they’ve made some modifications in how factors are run by members. What are your ideas on the modifications they’ve made and the way forward for that program?
RS: Yeah, good query. Thanks for asking that as a result of that is very topical. And only for full disclosure, once I was at Bond Model Loyalty, I had the privilege of truly working with Aeroplan and serving to them redesign their program previous to them relaunching it throughout COVID – fascinating time to relaunch a program. I, only for the report, was not concerned in the latest form of reimagination of this system. However I do have some views on it.
I believe what they’re making an attempt to do is, you understand, they’ve readjusted this system to offer accelerators to their highest worth prospects, their Elite, Tremendous Elite prospects. And you understand, most good loyalty packages are going to take a position closely in opposition to your highest prospects as a result of that’s the place profitability is coming from. In order that they’ve created a little bit of a realignment. The problem with that’s you continue to have the plenty at giant who take part in this system. Due to the character of the modifications that they’ve made, these prospects are going to see maybe in some circumstances, some diminished worth.
The problem we have now in Canada, as you effectively know, is we do not have lots of carriers right here. So, even in the event you’re upset with Air Canada due to modifications in this system, you do not usually have many choices. You understand, clearly you may go to WestJet or, you understand, possibly a global provider, or discover a totally different mode of transportation, or regardless of the case could also be. However, you understand, I believe they’ve taken just a little little bit of a chance right here as a result of on the finish of the day, I believe the main focus is on constructing profitability on the excessive finish. And this isn’t unusual within the airline business. We have seen others earlier than them do this sort of factor. These loyalty packages are extraordinarily helpful to the airways, you understand, it simply, simply learn an article the opposite day the place airways like Delta and United, you understand, their packages are valued round, you understand, $24-$25 billion. (35.42)
SS: Greater than the airline.
RS: Greater than the airline in lots of circumstances. In order that they have to essentially handle these property and, you understand, develop these property as effectively.
SS: Let’s simply discuss usually concerning the loyalty market in Canada. It is sizable, as everyone knows, and it is nonetheless rising. I’ve learn some projected progress estimates that over the subsequent few years it should develop at a fee of 12% yearly – one thing like 95% of Canadians belong to a loyalty program – most to a couple of. I believe the typical is 14. How can it presumably develop any greater than it already is?
RS: Yeah, you understand, it is a good query. I believe there are a number of forces at play. One can be immigration. We have seen some important immigration in Canada. Numerous these packages are concentrating on new Canadians. You understand, you concentrate on the banks for instance, you understand, they have very particular packages. Retailers, you understand, in any respect ranges, whether or not that is low cost retailers or conventional retailers, are concentrating on new Canadians as effectively. However I additionally assume that many packages which are beginning to get extra, I might say, intelligent round their worth propositions and making an attempt to entice prospects away from form of the me-too loyalty packages, and, you understand, buying new prospects to the manufacturers, so to talk. However you are completely proper.
I believe, you understand, a current research I noticed that Bond Model Loyalty printed, was that, I take into consideration the typical Canadian has about 16 or 17 loyalty packages of their pockets or of their digital pockets, however solely take part in half of them. And I believe the problem with that’s there may be nonetheless lots of program apathy the place individuals join packages however do not take part in all of the packages as a result of they don’t seem to be demonstrating related worth to them. And I believe that is one thing that I believe loyalty operators really want to take discover of. It isn’t essentially about buying extra members. It is about optimizing the connection with present members and creating better stickiness to the model correct. I all the time say that the function of a loyalty program is to construct loyalty to the model, to not the loyalty program. And I believe it is essential that you understand, as loyalty operators we heed that recommendation.
SS: Nicely, and I’ll reference my spouse once more as a result of she is a buyer. Her loyalty is to this system, to not Loblaws or Consumers for that matter. And I am going to go away it there. Now, simply when it comes to a number of the key traits that you simply’re seeing in loyalty advertising, the evolution of packages in the present day, and also you made a very good level I believe, is that the loyalty program needs to be a gateway to the connection. That is the place lots of firms appear to fall down. They do not fairly perceive that – now they’ve the chance to handle that relationship in different methods they could not do earlier than. Are you seeing firms begin to admire that truth and transfer extra within the route of creating this actually a part of their buyer expertise technique?
RS: I might say that the largest problem with many loyalty packages out there may be that they’re too transactionally targeted. And I am going to take just a little little bit of a deep dive together with your liberty. I’m an actual scholar of neuroscience behaviour. I’ve been following this for fairly some time, this motion. And there is a nice ebook to your listeners. And by the way in which, I get no, attribution because of this. However it’s a ebook that I learn known as Pushed. It is about how human nature shapes our decisions. And it is written by two professors at Harvard, Dr. Paul Lawrence and Dr. Nitin Nohria.3 And what it advocates is as human beings we have now 4 organic drives. The drive to accumulate issues, stuff, standing, you understand, simply gather issues of worth to us, factors, reductions – then the drive to defend, you understand, once we get these items we wish to maintain them close to and expensive to us and defend them.
So you understand, standing in a program for instance, we’ll soar by means of hoops and do foolish issues like you understand, make a journey between Toronto to Montreal, to maintain our standing. We have all completed that earlier than. These are all very transactional loyalty mechanics and so they’re embodied in most loyalty packages out within the market. They usually’re all good and so they all work, they’re very transactional. What most loyalty packages do not do job at are form of interesting to the human emotional organic drives. And there is two drives. There’s the drive to bond as human beings. We’re people who find themselves like minded, wish to come collectively and bond with one another over issues that matter to us. And loyalty packages by and huge do not try this. There are some nice examples of packages that try this, however most of them do not. After which there’s this complete drive to study and create betterment for ourselves, betterment for our households, our communities and the world at giant. Loyalty packages have to take that on as a task as effectively.
So I am going to provide you with an instance of um, two loyalty packages truly do job at that. However I might say most loyalty packages should not interesting to the emotional drive. So for instance, Sephora, a model that I used to work with once I was at Bond Model Loyalty, helped them redesign their program. They’ve one thing known as a Magnificence Insider discussion board the place members can come collectively to share ideas and methods about magnificence regimens, get recommendation, do digital try-ons with their associates and friends and get recommendation from magnificence advisors. Possibly there’s some reductions in there too, however that is not the aim of the discussion board. What an effective way to make the loyalty program a hub to carry like-minded individuals collectively to immerse within the model correct.
You understand, one other instance is Starbucks. Starbucks truly, not even inside the loyalty program. They’ve one thing known as My Starbucks Thought. And this brings like-minded individuals collectively who’re immersed within the model to share ideas and methods about how they will create a greater branded journey or expertise. Imagine it or not, the pumpkin spice latte and the inexperienced little stopper that goes into your cup that stops it from spilling have been all conceived by members inside My Starbucks Thought. In order that they’re creating that drive to study and create betterment for themselves and betterment for the group at giant. These are all issues that needs to be enshrined in a loyalty program.
What I might like to see is loyalty operators having extra of a stability throughout all 4 organic drives. I am not saying it’s a must to be fully transactional, it’s a must to be fully emotional. However in Dr. Paul Lawrence and Dr. Nitin Nohria’s mannequin, known as the 4 Drive Mannequin, they advocate that as human beings, we have now 4 organic drives that buyers count on to be appealed to, and types have to take discover of this. (43:00)
SS: I notably like your reference to this concept of constructing group amongst form of kindred spirits, for certain. The concept of linking fandom into it, for certain. I agree with you. Numerous packages appear to overlook the boat on that. You referenced Sephora as a finest in school instance, completely agree with you. Are there others which may fall into that class? I am pondering of the SAQ in Quebec appears to do a reasonably good job of understanding its viewers and serving to them when it comes to studying extra about wines or catering to their specific tastes. Are there different packages that come to thoughts in Canada that signify finest in school examples of what you are speaking about?
RS: Yeah, I might look even past Canada. I believe there are lots of good packages in Canada that try this. However, you understand, even internationally, I am going to provide you with an instance. I used to be not too long ago on a KLM flight to Africa. They do one thing actually fascinating round what I name form of rituals and symbols. Not essentially a loyalty program, however they use a ritual as a mechanic to engender loyalty. And it is actually fascinating. What they do is, whenever you end your flight, the stewardess or the flight attendant will come round with a tray of little homes that appear to be the little homes which are on the canal in Amsterdam. And inside every a kind of little homes, which every are totally different and are numbered uniquely, there’s just a little little bit of gin in there and it is just a little reward from KLM to remove and form of carry house, possibly put in your workplace, put in your kitchen, and you will all the time bear in mind form of that flight, and you’ll truly go on their app, all these houses are numbered and every time you come on a KLM flight.
Now, once more, this occurred to be in enterprise class or Premium Economic system, the place you are eligible to get this. It is one thing that’s endearing, it is one thing that creates a reminiscence, it creates a connection between the land and the airline. And I discovered that to be actually fascinating and distinctive. You understand, it form of falls underneath that complete sense of making betterment, creating that emotive connection between a model and a buyer. It isn’t enshrined of their loyalty program, however to me it is a loyalty mechanic, which is basically fascinating. (45.23)
SS: However this, to some extent, goes again to the query I requested earlier about loyalty technique versus loyalty program. However even above that, the idea of a CX technique, a relationship technique – is there a hierarchy right here? Like, does the loyalty program actually fall underneath, underneath the umbrella, if you’ll, of CX administration. And subsequently the loyalty program can carry out a really clear function transactionally, as we have been speaking about, however definitely be this enabler of a extra direct relationship with the client.
RS: Yeah, and I agree with that commentary. I really feel, as I stated earlier, {that a} loyalty program needs to be in service to the model. You talked about form of a survey of one among your spouse being loyal to this system. That may truly be very harmful as a result of if that program goes away, the loyalty to the model goes away. And I will not point out which accomplice this was, however once I was with Air Miles, there was a accomplice that was pondering of leaving the Air Miles program. And sadly their prospects obtained so hooked on the Air Miles reward program that it could have been psychologically painful for that model to eliminate the Air Miles reward program. The truth is, we did a ton of analysis and we noticed, I believe on the time, about 78% potential defection of consumers if that program went away.
So that you by no means wish to be in a state of affairs the place this system trumps the model. The model must be, sorry, this system must be in help of the model and truly has to embody the CX technique. After I’m working with purchasers that really construct a loyalty program from scratch, the very first thing we do is we take a look at the present buyer journey and the varied totally different milestones within the journey to essentially unearth what are the ache factors, what are the alternatives, what are the issues which are working effectively? And the way would possibly we reimagine that buyer journey by means of the infusion or the embodiment of loyalty mechanics that may assist drive transactional stickiness, however emotional stickiness to the model correct.
SS: In order that job, I say, that you simply’re concerned in, introduced in on, is basically about designing a CX technique, not as a lot a loyalty technique, is that truthful to say?
RS: That’s truthful to say as a result of on the finish of the day you want to take a look at the client CX journey to find out how would possibly a loyalty program play a task. Many organizations sadly exit and say, I would like a loyalty program as a result of my competitor has a loyalty program and I would like a factors program, I would like a reduction program. The problem with doing that’s there’s nothing new about that. Entering into a degree low cost program is a little bit of a zero sum sport. And we have seen this, Stephen, in so many industries, whether or not it is in gas, whether or not it is in banking, you understand, all it does is it drives margin erosion. The bottom line is to essentially perceive what your core prospects’ wants are.
And I usually seek advice from the entire notion of a number of the totally different currencies of loyalty. You understand, how would possibly I infuse compassion into the expertise? How would possibly I save my prospects’ time? How would possibly I impart data? How would possibly I have a good time recollections? How would possibly I create peace of thoughts for purchasers? What entry can I give them? How would possibly I encourage them or encourage them to create betterment for themselves and the group at giant? These are the form of, the totally different currencies of loyalty that form of transcend the low cost, which is simple to do. Anybody can supply a reduction. There’s nothing difficult about it, you understand, it simply turns into a little bit of a me-too, eroding, you understand, fallacy to go down that path.
SS: Nicely, it is a promotion in disguise, actually.
RS: It is a promotion in disguise. And the second that the low cost is gone, so is the loyalty. So, you understand, I all the time advocate, you understand, assume effectively past the low cost. Be inventive, take into consideration what your buyer wants are and the way would possibly you serve these wants.
SS: So let’s speak about constructing a loyalty program from scratch. As a result of clearly you are introduced in lots of the time to do precisely that. What are the – you’ve got talked about a few of them – however what are the important thing issues when some, when an organization is, is deciding, oh yeah, we’d like one thing right here, both our competitor has it or we’re experiencing attrition and we have to discover a way of reversing it and/or we have to improve the incremental worth of a buyer over time. So the place do you begin with that? What are you saying to the corporate to say these are the stuff you completely want to consider earlier than we resolve simply how a lot we wish to spend money on all of this? (50.19)
RS: Stephen, I’m going by means of a reasonably rigorous technique of form of discovery with the group to essentially perceive why do they even wish to get into loyalty? What are they making an attempt to resolve for? And, you understand, we undergo lots of government interviews throughout the spectrum of the group as a result of, you understand, a loyalty program shouldn’t be in service only for the advertising staff. It needs to be in service to the entire sides of the group. I am a agency believer in form of enterprise loyalty. So actually understanding what the underpinnings are, what are we making an attempt to resolve for, what are the goals of the group, what are the outcomes that you simply’re searching for prospects to do, your companions, so a reasonably rigorous course of if there isn’t any loyalty program.
Additionally wish to get a way of what is occurring inside the aggressive set to know the place the white area alternative is. That is very crucial. After which, you understand, we form of get right into a deep dive across the present ecosystem of property inside the group to see what would possibly we be capable to carry right into a loyalty answer that may engender curiosity by prospects that, you understand, the group would possibly have already got. These might be underutilized property that they have already got that they don’t seem to be getting credited for. Or new property that they should carry into this system, similar to partnerships. So actually, you understand, understanding the underpinnings of the enterprise and ensuring that the worth proposition that is being designed is addressing the entire wants inside the group – that is very, very crucial.
Voice of buyer is completely paramount. Actually understanding, you understand, the client’s perspective on, you understand, what influence this program can have on them, each from a transactional and emotional perspective. After I’m working with purchasers, I usually run co-creation classes with prospects to really assist design the final word loyalty answer. We will spend a half a day going by means of a buyer journey, understanding what their ache factors are. How would possibly we mitigate a few of these ache factors or create new experiences and engender better form of love for the model. So, you understand, infusing all these key substances into the design could be very, very crucial.
SS: However I think about you should additionally need to set some baselines across the degree of loyalty. Whether or not that is an NPS rating or a loyalty rating, what present spending is, what the potential upside to that is likely to be, the potential cross-sell alternatives, all main as much as a enterprise case which finally you will not get a inexperienced mild till, till you may show that as you talked about at the beginning of this dialog with Consumers, proper? So is a part of what you do to ascertain these baseline measurements, KPIs.
RS: You are completely proper. What I did not get to was all of this work is underpinned by monetary rigour. So understanding, what’s the baseline in the present day of the group? What’s the propensity for modifications throughout numerous totally different metrics? Whether or not that is frequency, basket measurement, you understand, lifetime worth, you understand, all these essential metrics. And, you understand, we additionally take a look at not simply the quantitative metrics but in addition take a look at the qualitative metrics. You understand, how would possibly that change web promoter rating, you understand, buyer satisfaction, emotional loyalty index, you understand, model affinity. Like there’s a complete host of metrics that we glance and mission out because of designing a loyalty program as a result of every part must be form of underpinned round a monetary viability. I all the time advocate {that a} sturdy loyalty program is one that’s aligned with the model correct, is related to prospects, is operationally and technically possible, and financially accretive to the enterprise.
SS: Nicely, and calculating what the potential worth of a one level improve within the loyalty rating can be an enormous a part of this as effectively, proper?
RS: Completely, completely. And that is why we take a look at each the qualitative and quantitative components. In order that they’ll be the behavioural parts, blended with the monetary parts, blended with the emotional levers.
SS: I wish to do a deep dive on one specific side of program design as a result of it may be complicated. And we once more talked about this earlier within the dialog, which is, an organization’s determined it is in its finest curiosity to have a rewards based mostly program or frequency advertising program, of some sort. You have to resolve a bunch of issues, proper? You’ve obtained to set a reward sort construction, foreign money, accrual and redemption guidelines, the fitting expiry coverage,…
RS: Sure. (55.10)
SS: …there’s only a complete bunch of math behind all of this too. How do you even go about determining all of that?
RS: That is one thing I have been doing for about 30 years now and it’s complicated as a result of whenever you go into a corporation and have these discussions there’s various factors of view on ought to it’s factors or not factors? That is often the primary hurdle you get into. Ought to it’s transactional vs experiential? How are we going to price this out? Is it really incremental? The sweetness is I have been lucky to be round lengthy sufficient to have lots of use circumstances up right here locked away throughout numerous totally different sectors. I have been lucky to work with so many various manufacturers. So there’s precedent round this.
However finally organizations need to take a little bit of leap of religion. However there’s a actual outlined self-discipline to doing this. You construct the baseline financials, you take a look at the potential incrementality, you mission that out, you do some litmus testing in opposition to prospects. You understand, the sweetness once I was at Consumers, we piloted all of this so we have been principally in a position to, you understand, form of ratify that. Sure, we’ll get this sort of raise. We’ll get this degree of, you understand, scan fee in this system. You do not all the time have that luxurious of doing it. Consumers did it the fitting approach.
Some firms are, you understand, moderately impatient and simply wish to get into market, however they wish to have that degree of certainty. So you want to carry that degree of confidence. And you understand, there are business benchmarks out within the market for a few of these. Loyalty is just not a brand new self-discipline. It has been a self-discipline that is been round for a lot of, many many years now.
SS: Nicely, I simply consider, you understand, the distinction, say between an Optimum program the place you are, you understand, cashing in in your factors on a very common foundation versus a tiered program the place it’s aspirational, you are making an attempt to hit that subsequent threshold of spending and it turns into a little bit of a long term play. These obtained to be powerful name to make. Which, what route you’d go.
RS: They’re very powerful calls. And you understand, even deciding, you understand, what the tier degree goes to be, that may have a really demonstrative influence by these selections. You understand, one of many issues that I usually do with a consumer is who’s constructing a tier program is, we take their knowledge, their buyer knowledge, and we break them down by deciles and we take a look at every one of many deciles to find out, okay, effectively, the place’s the primary break going to be? You understand, is it going to be decile one, is it going to be midway into decile two? You understand, what’s the propensity to maneuver a portion of decile 2 as much as decile 1? You understand, is the center of the pack going to be form of, you understand, decile three to 5 after which the underside of the row going to be form of, you understand, anybody, you understand, as much as, you understand, decile 6 to 10. You understand, these are a number of the crucial selections which are made.
You understand, I’ve labored with purchasers who already had tiered packages in place and so they have been questioning whether or not the tiers have been proper. And to vary tiers with an present program, as you effectively know, that may have a reasonably demonstrative influence on, you understand, buyer attraction whenever you make these modifications. So that you higher be fairly darn proper about that. So lots of rigour goes into that. Now I’ve to say with the arrival of AI, it will possibly truly make it loads simpler to run lots of this modeling proper now as a result of it may be thoughtful of lots of knowledge that was very harder, I might say up to now to really, you understand, amalgamate and get a transparent view on.
SS: Nicely, and to a number of the dialogue earlier across the merchandising piece of this, which is what number of factors is it going to take to incentivize anyone to purchase a lot of this product that it should have a payback on it. These are Byzantine calculations that I’ve to think about in the present day requires a staff of statisticians to form of determine. AI could also be definitely the reply to a few of that.
One different query on the mechanics of this, which is the company construction across the program and given its complexity, in the event you take it to its finish such as you did with Consumers or PC Optimum, what is the optimum construction for that? I imply, I believe underneath Consumers, you referenced the CMO main the cost. Does it belong in advertising or does it want its personal enterprise unit or does it report into the CX chief? What’s the optimum construction to handle a loyalty program? As a result of it calls on so many components of the corporate.
RS: It does. And that is a very fascinating query. I have been requested that many occasions by purchasers. You understand, the place ought to it reside? I believe there’s good arguments throughout the board. There’s very constructive and historic arguments for it to take a seat inside the advertising, underneath the CMO. If there’s form of a CX skilled inside the group, I believe there’s additionally argument there. I’ve seen it sit truly in areas that you simply would not count on. You understand, approach again within the day once I was coping with A&P4, it was truly sitting within the expertise staff, which could be very weird. However you understand, on the finish of the day they those who’re form of working this system and I would not advocate that. However, you understand, now with knowledge and knowledge scientists, it may sit in, form of, enterprise technique for instance. There are organizations who’re utilizing knowledge to tell all selections throughout their enterprise. And one may argue that possibly it ought to sit underneath enterprise technique for instance.
I might revert again to 2 areas. I believe it ought to sit in advertising as a result of at its core it’s a advertising device, however it needs to be a conduit that’s used throughout the group in a really enterprise method. So if I am a retailer I wish to make it possible for the loyalty program isn’t just getting used to form of spit out affords, to drive basket measurement and frequency. It needs to be utilized in CX to make selections round, or operations, to make selections round how do I employees my retailer, when do my finest prospects truly come into the shop, what kind of expertise ought to I be offering? Now, CX could also be a part of advertising, it is probably not half, it might be a separate form of entity inside the group. I might additionally wish to make it possible for, you understand, loyalty knowledge is getting used to make selections round actual property. You understand, the place ought to I put my subsequent retailer? These are all helpful items to the puzzle, however I might say by and huge, and traditionally it is set within the advertising division, however it doesn’t suggest it has to take a seat there. (1:01:48).
SS: So we’re nearly out of time and I do wish to take a second to look ahead. Tons occurring within the market. We talked about 12% annual progress 12 months over 12 months. There are traits, as you talked about, towards transferring away from this being strictly transactional relationship to being a gateway to a broader buyer relationship. How do you see loyalty packages evolve? AI is clearly going to have an effect right here. How do you see loyalty packages evolving over the subsequent 5 years?
RS: I believe loyalty packages are going to get smarter and smarter and I believe due to the arrival of AI. So if you concentrate on AI, this complete notion of hyper personalization goes to be pushed by AI. You understand, in the present day most manufacturers are doing what I might name form of mass segmentation personalization. I believe manufacturers which are leveraging AI and we’re already seeing some of these items, you understand, Starbucks is already doing it to offer a distinct supply to me than it’s to you for instance. So I see hyper personalization. I see dynamic rewards. Chances are you’ll be provided various kinds of rewards at totally different, you understand, reward thresholds than me based mostly on optimization of a program, measuring emotional sentiment and reacting to that utilizing AI goes to be one thing that we’ll see – fraud detection and mitigation of fraud. You understand, loyalty has a foreign money and particularly in, you understand, airways the place there’s, you understand, a reasonably substantial amount of cash there, organizations are going to have the ability to not simply detect however mitigate, you understand, every kind of hacking that is occurring very, in a short time. And it is rather huge downside within the business.
We’ll see, you understand, AI chatbots and brokers actually enjoying a way more demonstrative function when it comes to, you understand, proactively managing the client relationship with the model, and negotiating affords, and recommending rewards, and guaranteeing most worth for each prospects and companies. So I see so many modifications coming because of AI. I believe we have now to watch out about them. They need to be very managed. As a result of what AI cannot supply is that human to human contact that I fear that we’re going to lose if we change into too reliant on AI to handle our packages.
SS: Nicely, given the complexity of this enterprise, it is a good factor there are individuals such as you round with sufficient expertise to direct individuals in the fitting approach. So thanks a lot for the time in the present day, Richard. Really that was revelatory, listening to you speak about your expertise with Consumers and the success you had with that program, but in addition simply the overall state of the business. It is, you understand, I do not assume any loyalty marketer has to fret about shedding their job to AI. I believe this complete business appeared poised for even quicker progress as, as you’ve got been describing it in the present day, so.
RS: Yeah, thanks very a lot. I actually admire being in your podcast, Stephen. And yeah, I do concur with you. I believe that we have to use it as a device to assist us, to not substitute us.
SS: Proper, Precisely. Sufficient stated. Okay. Thanks a lot, Richard. Actually admire it.
RS: Thanks.
That concludes my interview with Richard Schenker. As we realized, factors packages are a robust approach to lock in prospects and affect their buying selections. They assist firms keep away from margin killing value wars. They supply helpful analytical perception into buying patterns and shopping for behaviour which permits smarter class administration selections. They assist determine the actually helpful prospects. And regardless of the excessive price of working them they’ve confirmed to be worthwhile investments by rising incremental recurring income over time. However a loyalty program by itself is just not a loyalty technique. Factors packages fail to make members really feel particular or appreciated. Prospects crave recognition and “white glove” remedy. They don’t merely need one more program that delivers money financial savings – they need one which makes buying a greater expertise (or on the very least, much less onerous). A loyalty program shouldn’t be merely a promotional program in disguise. It ought to function the entry level to a broader, richer, extra customized, and reciprocal relationship. A contemporary loyalty program ought to make prospects really feel valued and linked to the model. It shouldn’t merely be seen as one more card of their pockets or app on their telephone. And it undoubtedly shouldn’t be seen as a approach “to keep away from getting ripped off”.
P 1 – American actual property investor Richard Baker’s agency, NRDC Fairness Companions, acquired HBC in 2008 and took it public in 2020.
2 – BMO acquired the AIR MILES Reward Program in 2023 after its mum or dad firm, LoyaltyOne, filed for chapter.
3 – “Pushed: How Human Nature Shapes Our Selections Paperback (2002) by Paul R. Lawrence, Nitin Nohria
4 – In 2005, Metro acquired A&P Canada from its U.S. mum or dad firm and rebranded it underneath the Metro banner.
Stephen Shaw is the Chief Technique Officer of Kenna, a advertising options supplier specializing in delivering a extra unified buyer expertise. He’s additionally the host of the Buyer First Pondering podcast. Stephen might be reached through e-mail at sshaw@kenna.
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