Loyalty Marketing Webcast: Event Recording and Summary

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The SAP CRM thought leadership webcast "Webcast, Dec. 8: Driving Customer Advocacy with Loyalty Marketing" was held on Dec. 8th and brought together a global audience of over 100 people who heard from experienced speakers, such as Jef Harris, Managing Director of Global Digital Loyalty and Brett Billick, Director of CRM at Virgin America.

You may view a RECORDING of the event here.  I have summarized below interesting points and key take-aways from the webcast, as well as compiled questions and answers.

Webcast Summary and Key Take-Aways:

To kick off the session, Ralf Strauss, Head of Global CRM Marketing Product Management at SAP, highlighted key marketing trends and why loyalty marketing is sought after more than ever...  During economic turmoil, unmet customer expectations erode customer loyalty and result in higher switch propensity, both in brand and traditional purchasing channels. Loyalty marketing can help enhance customer satisfaction, drive customer retention and ultimately increase revenues. Some other key benefits include:

• Cost Efficiency of Customer Loyalty -- The cost of acquiring a new customer is 10 times the cost of retaining a customer.
• Understanding customer value and driving customer behavior -- Poor service drives customer churn and is communicated to others.
• Revenue generator -- It's an ancillary revenue generator - profit of miles sales sometimes exceeds carriers profit!
• Customer insight -- First step in knowing who the airline or rail customers are - analyzing customer behavior and expectation for commercial benefit.

Jef Harris then spoke about "Best practices on establishing a Loyalty Marketing program across various industries" and presented some challenges... the average person is registered in 14 loyalty programs and has 6 or more active loyalty cards in their wallet.  So, how do you leverage loyalty and differentiate your program? Two types of loyalty programs were outlined:

1. Commoditized: those are based on transactions only, designed for retention and tend to reward volume rather than value. Often used in the retail industry, where older legacy systems are used and can only capture data from point of sales(POS) at a very basic levels.
2. Multi-Channel (Loyalty 2.0): these treat each customer as individual, they create targeted/relevant communications and now use social media networking to increase engagement, test ideas, gather feedback and recognize/reward in real time. In fact, those companies with multi-channel programs experience an uplift of between 20-30% increase in sales.

He also covered 8 critical steps to building a successful loyalty program:  

1. Build a senior Stakeholder team from all departments (marketing, sales, finance, IT, ops, etc.)
2. Internal audit / scoping exercise / business case roadmap -- Conduct SWOT and gap analyses, list services and relationship activities you provide to your customers, understand skills and resources available, as well as your different customer segments.
3. Define commercial objectives and set trackable metric for KPIs -- Loyalty initiatives are designed to deliver profitable behaviors and better insights to drive business decisions. Some KPIs include, increase in revenues, decrease in costs, Net promoter score, customer satisfaction, etc. Industry benchmarks were highlighted in the areas of acquisition (5-10%), redemption (40-60%), cross/up sell (5-10%), and more...
4. Acquiring the data -- You need a holistic view of data to have a successful loyalty program and not only look at customer transactions, but also their behavior. When FedEx moved to an umbrella platform for their business units, they not only made it easier for customers to do business, but had very positive results.
5. Build a scoring model -- Who should be your primary target and are you rewarding just volumes of sales or recognizing the true value of your customers? It is important to have a mixture of customer segments. Brand loyal customers with low value tend to be ignored, when they are early adopters and could be brand advocates. On the other hand, high value - brand fickle customers only respond to tactical promotions and may be rewarded for purchases they would have done anyway... For instance, Citibank was looking at how long a customer had been with their bank, but given high switching costs for going to another bank this metric did not necessarily correlate with loyalty. 
6. Design the Program and pilot -- Everyone wants to start at this step, but the first 5 steps are critical to your program's success.
   Make it Relevant: Understand how you can differentiate from competition and influence behaviors. Increasingly, customers want to choose how they interact with a loyalty program... one program does not fit all! Change from product and program oriented to customer oriented, consider recognition versus rewards and make intelligent use of data to deliver relevancy.
   Make it Pay: Understanding and managing the economics is critical, track and drive ROI by customer segment, and cut back on rewards for people that would do the business volume anyway and direct those dollars into recognition.
   Make a Difference: Applying the data gathered to enhance service for customers is critical. Loyalty is an ongoing program, keep it fresh and dynamic. Make the necessary dedicated resources available.
7. Monitor, measure, report results, revise -- Create pilots/control groups, test different offers and messages.
8. Dynamically drive communications and behavior -- Ensure that you use all the information you have available to dynamically and effectively communicate with customers.
   

Lessons Learned:

• Don't treat all customers the same, who are the most valuable, customize communications to meet their needs and motivations
• Ensure your loyalty program is engaging and kept fresh, can your customers earn and receive benefits across multi channels, do they lose interest because it's hard to get instant gratification?
• Recognize and reward in real time based on your customers' motivations, needs and desired behavior
• Ensure your partners enhance your customer experience
• Use social networking and communities to increase engagement in your program, track and measure success
• Test and test again
• Be patient

In his talk about Loyalty Marketing and Customer Advocacy at Virgin America, Brett Billick gave an overview of who Virgin America is and what challenges they face... an industry not particularly known for customer service; large, incumbents with well-established brands in the US and with much higher media budgets; and customer choice based primarily on a few areas: price, destination, frequency and Frequent Flyer Program.  The keys to their marketing strategy lie on: increasing awareness, fueling the passion and leveraging word of mouth. Their account on twitter is "VirginAmerica" and on Facebook is "Virgin America".

Their loyalty program "Elevate", was launched at the same time as their flight launch - a first in US airline history. Key pieces of the program that helped them differentiate:

1. Clear and simple proposition -- Member earn points instead of miles, these points have higher value versus miles offered by other carriers.
2. Any seat, anytime rewards. No blackouts -- the ‘carrot' and biggest differentiator that set them apart.
3. One-way redemptions always an option -- Not something that is commonly offered in USA.
4. Unique offerings beyond the traditional norm (special events, Virgin partners, etc) -- looking to extend the customer experience beyond the flight.

He gave a case study of how they've used their loyalty program to launch a new Wi-Fi service, which was a result of combining knowledge of the Elevate members with a new product vision, and encouraging them to spread the word by participating in the launch. Results have been strong... Many guests have said Wi-Fi is a key purchase driver for Virgin America and since the launch they have seen continuous record highs hit each month for the number of Wi-Fi sessions.

Observations & Lessons learned:

• Loyalty innovation must stay fresh - Their program was unique at launch, but they have to continue to invest in it as competitors are catching up.
• Social interactions will continue to put control in the customers' hands - So they are enabling and encouraging customers to talk to each other, with both good and bad feedback, since this adds to the credibility of the brand and loyalty program.
• Must complement the true purchase driver: their product - The loyalty program should be in line with the brand to complement their product and be part of the decision making process.
• Predictive models and other analytically driven marketing are more important than ever - Provided they have low media budgets, they need to ensure they are scoring guests and talking to the rights ones to grow success.

Finally, Bhushan Khadpe from SAP CRM Product Management went through a showcase of how organizations can execute Loyalty Marketing with Facebook for Airline and ultimately drive customer advocacy. Key elements covered included:

1. How members can access detailed loyalty program information (recent activities, number of points, tier level, etc.),
2. How customers can be encouraged to provide feedback to surveys through these channels,
3. How members can learn about, review and enroll in loyalty program offers, 
4. How companies can use the social graph and viral marketing to invite friends to join the program or download the application, and 
5. How notifications are sent to the social network about recent activities and experiences of the member

All this can lead to organizations achieving a rapid lift in awareness of products and offers, enable them to extend reach to a broader customer segment, and create intense engagement with the brand. In summary, it is clear that organizations need to transform into social enterprises to move from customer loyalty to customer advocacy.

Find out more details on this Loyalty Marketing & Facebook Showcase here: http://www.sdn.sap.com/irj/ecohub/solutions/targetmarketingfacebook

Questions & Answers: 

1.     You mentioned how companies should be bundling social media and loyalty programs - do you have an example of a best practice or company who does this well?

Jef Harris: Many companies are doing this well. Remember, one loyalty program does not fit all. Your web loyalty interface might be different than the loyalty program for customer segments on Facebook or Twitter. One example is Comcast, in addition to their web program they created ComcastCares on Twitter, where they have seven dedicated people whose full time job is to focus on answering customer questions, concerns and issues with technology. Another example is Victoria secret, who launched a nontraditional program that engages people affiliated with the brand... in just a few months, they have got 1.5M people associated with the brand on Facebook and 12,000 wall posts.

2.     Do you see increasing interest in loyalty programs and loyalty concepts?

Jef Harris: Yes, indeed there is increasing interest in this area since companies are more focused on mapping out ROI and cutting costs. Also, companies are also looking at loyalty programs to improve communications and lowering operational costs. For instance, some companies offer incentives to customers for receiving email statements instead of paper ones. Also, retail has been struggling in this economy and are looking at ways to increase revenues when they can only catch data at point of sales. This limits them since the credit cards used for loyalty programs allows them to recognize customers based on volume of sales, but not necessarily on the importance of the customer. So, they are looking to use social media (Facebook, Twitter, etc.) as other ways to drive brand engagement and loyalty.

3.     Are companies looking more for direct sales impact or long term effects with their loyalty programs?

Jef Harris: I actually see more the latter. For instance, Intel focused on specifiers and influencers of product as opposed to just transactions. They recognized that low value resellers were important because they would influence large companies to buy. So, they are using loyalty initiatives not just for reward but also to provide information and help companies make decisions. However, I strongly recommend using a mixture of hard and soft measures to have a well-rounded evaluation of your loyalty program's impact.

4.     You mentioned an increase of 20% of people who flew more than once a year... Have you been able to track if your loyalty program has increased sales/revenues?

Brett Billick: This was in part due to adding new routes. But we have estimated the contribution factor of that increase to 30-40% due to the engagement in our loyalty program. One other lesson learned is around education... our loyalty program uses a different ‘currency' (points) than what's usually offered in the united States, so we are now focusing on educating guests about the loyalty program and getting guests to educate other guests. 

5.     You briefly mentioned predictive analytics... how are you currently using these and what are your plans for the future?

Brett Billick: We are currently doing typical CRM analytics and segmentation, and working with data we have that can be easily funneled into our predictive models, for instance flight behavior, demographics, partnerships and rewards behaviors. In future, we will be working on how to model profitability of someone engaged in other channels (ex: social media) and how do we view that in our scoring system.

6.     Usually loyalty programs are separated from social media initiatives... How do you ensure your Loyalty program is linked to your social media activities?

Brett Billick: They have been integrated since the beginning, this was a decision we made. But from having worked at other companies I know this is not always the case. Everything we do is coordinated on brand and loyalty level that's why we have a high penetration rate in loyalty program members. For instance, we are cross referencing social media followers with Elevate members to send them alerts on promotions earlier and make them feel special.

7.     What's next for Virgin America's loyalty program?

Brett Billick: We will leverage the Virgin brand even more through unique partnerships. We will have more promotions, one example is around Virgin Galactic. We will need to continue to enhance our program as more and more frequent flyer programs will move to a revenue-based model like ours. As such, we will add to the flexibility, earning-ability and partnerships.

8.     From a tool / enablement perspective, how does IT support your efforts in the Loyalty Space?  And in Social Media?

Brett Billick: IT is a tremendous asset in supporting our efforts. Our segmentation is only as good as the interface and functionality we have in place to model our guests.  Data integrity is also an issue we focus a great deal on to ensure what we are using is accurate.  We are continuing to invest in enhancing our systems and analytics capabilities to improve the effectiveness of our loyalty program.  As for social media, we are just scratching the surface as mentioned previously and currently reviewing several different tools to get a better understanding of our guests who are actively engaged in these channels.

9.     How difficult is it to build the Facebook applications and can it be linked to the company's website in real time?

Bhushan Khadpe: To build the Facebook integration you would require a CRM system to run the loyalty program. These applications can be built on your own website or on social sites, depending where most of your customers are found or where they are discussing your brand. It's important to understand that not all conversations will be positive, but at least by being present there you will have an opportunity to address those negative experiences and potentially convert them to advocates.

Other Links of Interest:

• SAP CRM: Enabling Customer-Loyalty Management flash demo
• SAP Loyalty Solution Brief

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Here's a preview of our planned CRM Thought Leadership Webcasts Series on Marketing topics for 2010:

• Marketing Planning & Budgeting
• Loyalty in Retail
• Online Marketing
• Sales & Marketing Integration
• Marketing Mix Optimization

If you are interested in being informed about those upcoming events -- email me to get added to the Thought leadership Webcasts mailing list.

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