1. 9/30/2011
How…
 Disintermediation
 Socialization
 Gamification
 Monetization
are changing the face of loyalty marketing*
* and how these forces together drive today’s
key trends in customer engagement
Howard Schneider
Metzner l Schneider Associates
Disintermediation
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2. 9/30/2011
One of the biggest words I know
the elimination of an intermediary in a transaction between two parties
Marketer Wholesaler Retailer Customer
Marketer Retailer Customer
Marketer Customer
Disintermediation and loyalty
The history of loyalty programs is the story of disintermediation
• 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 turn 30 this year!
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.
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3. 9/30/2011
Engaging entertainment fans
“350 million customers…and we don’t know any of them 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
Engaging entertainment fans
WB Insider Rewards looks one
way to action movie fanboys
…and very different to classic
movie aficianados
Disintermediation and loyalty
Loyalty programs have both driven, and been driven by,
disintermediation. It is a trend that continues to accelerate, and it
means:
• More industries are launching loyalty programs
• Marketing efficiency continues to increase
• Measurability and accountability continue to spread, into
categories accustomed to less-precise metrics
Look for more loyalty and customer engagement programs
from marketers who are new to the world
of direct customer relationships.
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4. 9/30/2011
Monetization
Money talks
In a business plan, “monetization” means, “how do we make any money from
this great idea?” In loyalty programs, it means, “how do we accurately and cost-
effectively reward customers according to their value?”
Early loyalty programs – and many still today – use proxies for value:
• Miles
• Segments / visits
• Hotel nights / rental days
The use of proxies led to:
• 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
“If only we could really reward customer value”
The availability and cost of sophisticated technology forced the use of proxies.
Today, programs are limited only by vision.
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
When was the last time you tried
airline, more control and a better to redeem miles on a legacy
experience for the guest. air carrier?
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5. 9/30/2011
As easy as “supply and demand”
15 Days Advance Elevate is the first revenue-managed program
of its kind that provides choice, value, and a
dynamic approach to enhance ROI.
Higher ROS Lower ROS
14 Days Advance
Near Parity Near Parity
More than just a reward program. It’s an experience.
Elevate is the gateway through which guests engage
with Virgin America
All guests are encouraged to join Elevate; in fact, they have to
in order to access certain benefits
Elevate recognizes past behavior and preferences,
and rewards future, profitable behavior.
Through Elevate, Virgin has the platform to maintain
and extend the relationship into a guest’s lifestyle,
beyond specific transactions, even when not traveling.
Monetization and loyalty
Southwest, the largest US domestic carrier,
has adopted Virgin America’s program
design. As has JetBlue.
• Industries with available data, like supermarkets, have used actual customer
spending for years
• Other categories are actively exploring how to use the revenue-management
model for their loyalty programs
Look for more loyalty and customer engagement programs to
deliver incentives, rewards and value based on precise
knowledge of customer value.
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6. 9/30/2011
Socialization
“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.
Today’s social and mobile media are uniquely suited to play a
major role in loyalty and customer engagement. Social media
are an important tool for disintermediation and delivery of
customized value and relevance.
Why would I “like” a fabric softener?
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7. 9/30/2011
A sleeper strategy helps Downy and Macy’s clean up
Event marketing, demonstration-chic,
comedy, advertising, and the most basic
of DM tactics: customer acquisition, all
enabled by Facebook and Twitter. Voila: a
CPG company now has a database,
while Macy’s boosts January White Sale
traffic.
And the results?
Now, a CPG brand can begin
building direct relationships and
fostering loyalty.
Finding the “needles in a haystack” brand devotees
Sears and Kmart launched the fastest-
growing loyalty program in history – over
60 million customers joined
shopyourway rewards in the first year!
The program lets Sears track members’
spending and deliver targeted
information and offers to drive and
reward transactional behavior. But these
great old American brands wanted to get
members involved in a personal way.
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8. 9/30/2011
Driving social participation, not just transactions
The program rewards
social activity, like joining
Sears and Kmart branded
communities, sharing
reviews, uploading photos.
Social media turn a sweepstakes into a sharefest
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.
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
Social media are a fait accompli, and play a role in virtually
every successful loyalty program today.
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9. 9/30/2011
Gamification
Reality IS broken
Games aren’t a panacea for our broken world, or our
marketing and customer loyalty challenges. But they
sure can help engage customers.
As loyalty programs have become ubiquitous, they have
lost some of their power to motivate behavior and
differentiate brands.
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?”
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
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10. 9/30/2011
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
Games in the air…
Virgin America’s onboard entertainment (which
can be uniquely optimized by Elevate
members) offers onboard games, chat and
competition between passengers and,
sometimes, even between planes in the air and
guests in the terminal. The guests on the
winning plane are greeted as heroes by the
gate staff.
Terminal Takeover is a geo-
based check-in game, with a
leaderboard in the terminal to
track guests’ progress.
…on the road…
Subaru allows owners to “reward
themselves” and get recognition for
longtime loyal ownership, and for
identifying their lifestyles and interests
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11. 9/30/2011
…and online
Members earn
points for purchases,
credits for activities
Rewards are listed in separate
catalogues — points can be
redeemed for merchandise;
credits cashed in for virtual or
digital rewards such as avatars
—ringtones, wallpapers,
exclusive video clips or music
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 legacy brands and well-established categories will
increasingly incorporate gaming tactics to make their programs
fun and engaging.
Disintermediation, Monetization,
Socialization and Gamification
DISINTERMEDIATION MONETIZATION
Establish relationships Improved program
Build loyalty performance
Meet the challenges of Greater value for
indirect distribution customers
Optimal
Loyalty
Program
SOCIALIZATION GAMIFICATION
ID superfans Cost-effectively reward
Create/leverage non-revenue interactions
community Make programs fun
Drive engagement beyond Deliver the psychological
simple quid pro quo rewards of games
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12. 9/30/2011
Thank you!
Howard Schneider
Metzner l Schneider Associates
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