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From The Loyalty Podcast by Ian Pringle

Global loyalty experts discuss and debate the latest developments in the loyalty industry that will help you make your retention strategy more effective.

In this podcast we will explore informal loyalty programmes and why brands may want to consider covert alternatives to a formal published loyalty strategy. With special guests Phil Gunter, Adam Posner and Mark Ross-Smith.

Iain Pringle:

Hi, I’m Iain Pringle this is The Loyalty Podcast from New World Loyalty. Where we help you make the most of your loyalty strategies by listening to us do what we like to do most, which is talked about loyalty and loyalty programs. In this podcast, we’ll explore the fascinating subject of informal loyalty programs, where brands have decided that the formal structure of a one-size-fits-all approach is not for them. To help me explore this fascinating subject, I’m joined by a panel of experts with direct experience in developing informal loyalty strategies. So, please welcome Adam Posner. Hi, Adam.

Adam Posner:

Hi Iain, hi everyone.

Iain Pringle:

And Phil Gunter. Hi, Phil.

Phil Gunter:

Hello, Iain.

Iain Pringle:

And Mark Ross-Smith. Welcome back to the podcast Mark,

Mark Ross-Smith:

G’day, great to be back again, Iain.

Iain Pringle:

Brilliant. So to get us started tonight, who would like to explain what we mean by non-formal loyalty? Phil, would you like to give that a go?

Phil Gunter:

Yeah, absolutely. Well, we all know what a formal program is. A formal program has a structure which often has points or tiers, something that is published. Quite simply, informal or sometimes called a covert program is where you’re trying to achieve the same things, you’re trying to achieve increased activity, you want to collect customer data, you want to collect insights. So, the objectives are the same, but you don’t have a formal, published structure which people can see and understand.

Iain Pringle:

Brilliant, okay. Could we each then briefly introduce ourselves and examples of projects you’ve worked on in this space? Adam, do you want to start us off with that?

Adam Posner:

Yeah, thanks. So, I’m Adam, as you’ve been introduced to me, I’m a Loyalty specialist consultant here in Melbourne, Australia, helping brands make more money from the value of their existing customers. I do that through consulting and research, and I’m also the author of the For Love or Money research study. Yeah, I’ve had hands-on experience. Phil has explained an informal program, or as he said it, covert, with a hotel group that had a points program, had structures and had tiers.

It just was failing abysmally and costing them a lot of money, but because they had data, and this is the key point, they knew their customers based on their stays and who they are. They had PID, they had Personal Identified Data. We could actually segment their base, based on stays and actually create silent tiers and then drive what we called a recognition and reward program with surprise and delight.

So, we could still recognize and reward the people for staying frequently, even though they didn’t know that they were on their 20th stay or their 100th stay. Drive outcomes, as Phil mentioned, based on surprise and delight in getting that real engagement. That’s just a quick snapshot of a program that I worked on.

Iain Pringle:

That’s because they had name and address details of each, they had individual identifiers because of the nature of the booking process?

Adam Posner:

Nature of the business. Exactly. You have to give you your first name, your surname, your contact details and then you’ve got to book. You’ve got the purchase behavior and you’ve got the PID, the Personalized Identified Data. You’ve got the information, you’ve got the data to drive the behaviors and you can tier them. Yes is the answer, it’s because they’ve got that data.

Iain Pringle:

Perfect, and Mark?

Mark Ross-Smith:

Hi, everyone, Mark Ross-Smith, is currently the CEO and co-founder of statusmatch.com. We work with global travel brands to help them acquire new high-value customers. I’ve worked in airline loyalty for about eight years now. Prior to that in telco loyalty, where I built up a tech company, and we had a successful trade sale, in 2013.

Interestingly, I’ve worked on creating status tiers, both a new status tier in a formalized program and an unpublished status tier, both in airlines. So, I’ve seen the difference in how they both play out and the economics for both and the use case that’s used internally to create or not create a formalized loyalty tier.

Iain Pringle:

Perfect, and Phil?

Phil Gunter:

Yeah, Phil Gunter. I’ve designed and managed some very, very successful formal programs including Berton’s program in Australia and managed American Express membership rewards for a while. But, I’m public on the record of saying that most loyalty programs actually either fail or at least don’t achieve their potential. I’m a consultant now and I frequently advise clients that they don’t need a formal program and they can actually achieve their objectives much easier using a covert or informal sort of structure.

I’ll give you a similar example, I guess. One was a New Zealand retailer where they had the perfect system in place to collect data and customer to identify themselves. So, they were able to do everything they wanted without the complexity of the currency or the points or the rewards.

Another one was a quick-service restaurant chain, where the program which they were looking at was going to over-reward people that were totally maxed out and couldn’t buy anything more with them and would be completely irrelevant to the people with the long tail. For them, the covert program was necessary, not just because it was able to achieve their aims, but because it could not do some of the harm that a formal program can do if you get it wrong.

Iain Pringle:

Yeah, no, I agree with that. I’m Iain Pringle, everyone knows me on the podcast, I think. I’ve got experience in a couple of ways. First of all, very much similar to you, Phil, in that, in that I always say to my clients, “Look, don’t create a loyalty program to understand customers, understand customers and then create a loyalty program.” I’ve had a client I’ve been working with for about a year, where we’ve spent a lot of time at getting data, especially credit card data, payment card data, which is non-personalized, by the way.

They’re token, so you don’t know the customer, but you can understand customers by analyzing the token to understand the complete customer base. Then you can create a loyalty program or not, depending on the behaviors that you see. Because actually, you can create lots of different things within the customer value proposition that can help move the dial for each of those customer segments without having a lot to program at all. I’m with that.

The other one I’d say is, I haven’t had direct experience of, apart from what you said, Mark, about creating silent tiers. I haven’t created a completely silent, non-traditional loyalty program, but I have been to the pub lots of times. I think every pub I’ve ever been-

Adam Posner:

And they don’t know who you are, yeah.

Iain Pringle:

Every pub I’ve ever been to knows that Phil sits in the corner and has a half a lager every night. He’s got a little plaque by his thing and that’s where his dog sits. I think it’s a classic example of trying to do that personalization, but at scale, in an informal way. Before we get into the formal/informal programs, what do you think the drawbacks of a formal program are? What problems, therefore, are non-formal programs trying to solve? Mark, do you want to cover that one off?

Mark Ross-Smith:

I think it’s the boring answer, I don’t think there’s anything wrong with formal program, at all. I think it comes down to the strategy on what the business is trying to achieve. For some businesses, a structured, formal loyalty program where the rules of the game are set out, so everyone knows if you do X, you get Y, that makes a lot of sense. People can see the rule book and they go, “If I play the game, I get the prizes.”

Phil Gunter:

Well, I’m happy to, not be controversial, but I’m happy to offer everyone [inaudible 00:07:39]

Iain Pringle:

Everyone likes you being controversial, Phil.

Phil Gunter:

Yeah, no, but the thing is, there’s a big pro and a con to a formal program as far as I see it. With a formal program, the downside of the formal program is it rewards everybody. With a covert program, you can choose to target certain customers, where with a overt program, with a formal program, everyone, “If you do this, you get that.” That means it can be expensive.

I talked before about the quick-service restaurant, their program would have to reward people that bought every Friday. Rewarding people that were buying every Friday would just be a big cost to the business. A formal program, that’s the problem with it, is that if you publish it, you have to do it. But, the benefit of that and the downside of an informal program is that, with an informal program you’ve got to educate people and they’ve got to open your emails and read and do what you’re asking them to do.

Where, with a formal program, it’s open to everybody, so customers can go in, see it and they can then strive for things over time. The impact, if you get it right, a formal program can do an awful lot more than an informal program, but it is more complex. For me, it isn’t one’s better than the other, they’re very, very different. It’s actually a continuum, there’s ones in the middle, which have got half and half.

Iain Pringle:

It’s also more of a commitment, isn’t it? To do a formal program, there’s a commitment to be in it. You’re in it for a while and you’re giving one-size-fits-all, mainly. Adam, you look like you’re desperate to jump in there?

Adam Posner:

Yeah, I’m desperate to jump in because one other thing that a formal program does that we haven’t spoken about is that, as soon as you make the promise, you heighten the expectations of your customers. In fact, an insight that I’ve just got from my recent study is that customers have now got a greater expectation, because you’ve made them another promise besides your normal offering of something that your program promises. So, they have a greater level of expectation.

With an informal program, you’ve set no expectations, because you’ve promised nothing. You’re just using the data to drive the behaviors. It’s planned spontaneity in an informal program, but you don’t have the hook. A formal program, you have the hook, you have the promise, “Join this, get that.” Also, in a formal program, especially with tiers and so on, you use the psychology. You’ve got the Goal Gradient Effect, you’ve got the Endowed Progress Effect. You’ve got all the psychology that loyalty programs are famous for, but in an informal program you don’t.

Phil Gunter:

No, no. Look, I get that, but the problem in some industries is that there is an expectation full stop. If you don’t have a formal program, it’s very difficult to satisfy that need. There’s a stack of customers out there that know exactly what they spend with you and they say, “I spend X with you, I buy something every Friday, so I deserve something.” The benefit of a formal program is you can tick that box and move on. With an informal program, it’s an irritant that you have to surprise and delight them excessively.

Adam Posner:

No, not necessarily. I disagree with you. Yes, I hear you that people expect things these days and it depends on the category and the business and so on. In fact, I’ve got a wine retailer who’s never had a program and their customers have been asking them for years and years, “Why haven’t you got a program? Why haven’t you got a program?” To that extent, I agree, but when you actually just deliver on your basic promise and you be a brilliant business, you don’t necessarily have to have a program.

If you’ve got the data, then you can drive. In fact, in terms of the surprising, delighting everyone, to a certain extent, it does create a little bit of a monkey on your back. Because once you surprise somebody, they might expect it again. So, you’ve got to manage that process. But certainly, certainly, there’s a lot of pros for an informal program as well.

Iain Pringle:

Yeah, I think there’s a couple of things I’d say there. The first is that in a formal program, once you’ve achieved the certain goals, especially Gold, is then there’s obviously a big incentive to have that extra tier, the extra hidden tier. Simply because after Gold, where do you go? That’s why most airlines have an informal tier that’s for people above that, that rewards behavior beyond the Gold tier.

Mark Ross-Smith:

In that respect, is it good to have maybe a hybrid here? Have formal tiers and informal tiers running, for some businesses, side by side? That way, you can get the benefits of both. People that have expectations, there’s a program for them, fills it, check the box. For people that are looking for something else, there’s a bit of a mystery there. There’s a bit of a game.

Iain Pringle:

I like Adam’s word planned spontaneity. I like that, because you can also measure planned spontaneity. We’re not Father Christmas here, we are trying to make money out of this. You can surprise and delight and there’s less commitment to an informal program.

Moving on, where do we think we’ve seen it work best? What examples have you got where we said, “Actually, that has worked”? I mean clearly, Adam, you said your wine retailer. Through their surprise and delight mechanics, are they saying, “Actually, now, this works well enough for me to continue this on at scale and in a formal structure on an informal program”?

Adam Posner:

Let me just clarify that. I’m busy working on a program and we haven’t decided whether it’s formal or informal, for the wine retailer. But, they’ve got the data on from the e-commerce point of view. They’ve got the PID, they know the customer, they know how much they spend, they know how often they know what they buy. We are still discussing and debating whether we have a formal or informal.

The one example that I shared you on is the hotel group, where absolutely, they had a points program with tiers, really a poorly-run program. For a whole range of reasons, costing them so much. They took that all away. No marketing, no points, no customer service, no tiers, nothing. They silent-tiered their base.

For Mark, who travels a lot and is on his hundredth stay when he arrived in his hotel room, a beautiful bottle of wine and all budgeted for across the silent tiers so that we could know what the cost of running all of that planned spontaneity is. But, the feedback from the customer, the reviews, the referrals and so on, were out of this world for them. Yeah, that’s the example specifically I was talking about.

Iain Pringle:

I’ll give you a good example where I’ve seen it worked very well. I mean, it’s again this invisible tier piece, or the dynamic was different either way. At a brand like British Airways or where there’s a big airline group, the very top customers are often consultants, or they have a loose affiliation with the brand because they’re just big, big, big travelers. Whereas at Virgin Atlantic, they had a top tier that was for, say, the top 250 customers.

That works astonishingly well, because they have a very, very different relationship with the brand, because in order to travel that much with a brand that has a far more limited network is they are truly, truly loyal to the brand. Therefore, it was much more of a club and much more of a personal relationship they had with the brand for those very, very top customers. Therefore, the Gold guest list and the top 250, they were very different dynamics. Does that make sense? Just because of the nature of the two different airline brands.

Phil Gunter:

Well, I do wonder. This conversation or this discussion’s interesting, and there certainly is informal tiers within formal programs, et cetera. But, for the masses, where I see most informal programs is actually in the, say the smaller retailers that wouldn’t be able to have a big program that would be top of wallet. Because to me, I’ve often said if you’re not one of the top three cards in their wallets, you’re kind of wasting your time. For the retailers and the businesses that won’t be able to get into the top of the wallet, having an informal program often is a really good option.

Certainly in Australia, there’s stacks of them and they’re almost like hybrids. You’ve got people like Dan Murphy’s, Coco Republic, those businesses, they collect your data, they always identify you and the only thing they’ve got is a few member pricing. Dan Murphy’s probably does a bit more than most, but this member pricing thing, there’s enough member prices across the store that when you go, you want to identify yourself. So, they get the data which they were after, but the actual cost to the business and the complexity is pretty much nothing.

Iain Pringle:

There’s many of those here. I’m not sure I would describe them as an informal loyalty program. Though it’s almost like two-tier pricing, because that’s what-

Adam Posner:

It’s still a formal promise. It’s still a promise. “Hey, join My Dan’s.” My Dan’s is a formal promise, it’s a marketed program promise. What it actually looks like, you’re right, it’s not tiered gold/silver points, it’s got none of those structures. But, the promise is, as you say Phil, is its member pricing, exclusive offers, events, personalized. It’s still a promise, it’s still a program by definition. You’re right, they’ve trained their team incredibly to ask you every single time, “Are you a member?” So they can collect your data. But, it’s still a promise, it’s still a formal program.

Mark Ross-Smith:

I’ve got a good one. You’re like [inaudible 00:16:36] Ferrari, right?

Iain Pringle:

I knew you’d have a Ferrari, Mark. Something told me you might have a Ferrari.

Mark Ross-Smith:

Well, wait, wait, wait. I don’t know if you know this, you can’t just walk into a Ferrari dealership and buy any car you want. They won’t let you. Ferrari has this formal, unofficial loyalty program where, have you ever seen they announce a new model and they say, “Oh, by the way, it’s sold out.” Right? It’s because people have already bought it before they even announce it. The idea of Ferrari is you start your Ferrari journey and they’ll let you buy the cheap cars.

Go buy a used car, go buy the stuff that is hard for them to move. Own it for a few years and then you go back and then they might let you buy the next car up. Maybe they’ll let you. You kind of need permission to buy that and you’ve got to work your way up within Ferrari. You’ve got to go to the Ferrari track days, you’ve got to buy the merch, you’ve got to socialize and do the right things. When you work your way up, then this access unlocks for you to buy more cars. That’s why they say you’re either a Ferrari driver or a Ferrari owner.

Phil Gunter:

That’s the only reason I don’t have one, Mark.

Iain Pringle:

Let’s just quickly go around, where we think the keys to success for an informal loyalty program. Adam, would you like to kick us off for that?

Adam Posner:

The number one is data. If you want to communicate, you’ve got to Personally Identifiable Data, with permission to contact.

Iain Pringle:

Well, if I could draw you up on that, there’s a growing number of ways in which you can use Non-Personalized Identified Data now. On tokenized cards, there’s people like Adyen who are out of the Netherlands, where they will use their card data. Nike, for example, have a loyalty program where they’ll track your spend on a particular credit card and then once they see certain behaviors, they’ll ask you, “Do you want to join the loyalty program?” They’re targeting your behavior based on non-loyalty, based on un-targeted data, but then they’re then asking you to join.

Adam Posner:

Fair enough, fair enough. I think I’m seeing it from a different angle. I’m seeing it as a total holistic, informal program. You said what are the keys to success? If you want to communicate-

Iain Pringle:

That’s true, yeah.

Adam Posner:

If you want to drive comms, you need Personally Identifiable Data to connect it to behavior. The pure play e-commerce brands or businesses can do that, because of the nature of the business. That’s why I spoke about, within a program, the data, yeah.

Iain Pringle:

Phil, what about you?

Phil Gunter:

Oh, I agree it’s the data, but it’s your ability to actually use the data. Because I constantly come across businesses and they become obsessive about collecting it. Some of them report on it, but there’s an awful lot of them that don’t actually turn it into proper actionable offers or communications to customers. That’s the secret. You’ve got to get the data and then turn it into something. To make an overt customer program work, I think as Adam’s saying, it’s got that spontaneous thing or planned spontaneity. But, that takes a lot of work and it takes a fair amount of skill.

Iain Pringle:

[inaudible 00:19:55] Mark?

Adam Posner:

And so does a loyalty program. A formal program takes a lot of work and a lot of skill. We don’t just put formal programs up and set and forget. We all know that they take a lot of work and smarts and so they both take a lot of work. There’s no doubt. Yeah, the kind of work is different.

Iain Pringle:

And then Mark?

Mark Ross-Smith:

A couple of takeaways here. Unofficial programs, if you could obscurify the value in some ways so it’s more subjective for the customer, I think that can win. Then for an official program it’s really just about a set criteria of rules and published benefits so people know the rules of the game, anyone can play.

Iain Pringle:

Perfect. Well, thanks very much for your time then this morning. Thanks very much, Adam. Thank you for joining us.

Adam Posner:

Thanks very much.

Iain Pringle:

And thanks, Phil. Thank you for joining us.

Phil Gunter:

Yeah, thank you Adam, Iain, and Mark.

Iain Pringle:

And Mark, welcome back to the team. Nice to see you again.

Mark Ross-Smith:

Thanks, Iain, it’s been a blast.

Iain Pringle:

Well, that’s it guys. If you liked this podcast, please like, share and comment on the LinkedIn using the hashtag loyaltypodcast. We’ll look forward to your company again. Thank you for listening and goodbye.

 

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