Marketing/Current State of Loyalty

Marketing/Current State of Loyalty
April 11, 2013
Agenda
• The Speakers
• Loyalty and Loyalty Programs
• Loyalty Programs in Other Categories – Learnings/Best Practices
–
–
–
–
Grocery
Restaurant
Retail
Other?
• Loyalty in Convenience and Fuel Retail
– Who’s doing it and how
– How is it impacting consumer behavior
– Planning model review – how do you know if a loyalty program is right for you?
• Technology and Process Considerations
• Discussion/Q&A
THE SPEAKERS
Why Us?
• John Keenan
Managing Partner, Anthem Marketing Solutions
– Over fifteen years experience in data-driven marketing,
with specific expertise in retail, grocery, consumer packaged
goods, and home services
– Loyalty program experience includes: Marlboro Miles,
My Coke Rewards, Tropicana Juicy Rewards, Sainsbury’s
Rewards, Red Robin Royalty, My Sheetz Rewards,
Finish Line Winner’s Circle
• Patrick Raycroft
Managing Partner, W. Capra Consulting Group
– Over twenty years experience with the selection and
implementation of retail technology, specifically for payment
and loyalty programs in the retail petroleum and c-store
industry
– Participated on the Petroleum Convenience Alliance for
Technology Standards (PCATS) committee on loyalty standards.
– Worked with several large chains in designing and implementing
loyalty programs including grocer (earn) – fuel (redeem) and
general coalition programs.
LOYALTY AND LOYALTY PROGRAMS
Setting the Foundation
•
Loyalty not a new topic for NACS – numerous presentations over the years
– That said, we’ll try to provide some perspective based on work in other categories and
crossing over into convenience and fuel retail
•
Loyalty is an emotion; frequency is a behavior
– Not my line, but clears up confusion
•
Who believes they get 100% of spend from their most loyal customers?
•
Easier to motivate a behavior than create an emotion  share of wallet is what
really matters…
So… Why Aren’t Consumers Loyal?
They Make Purchase
Decisions Based On:
And Marketers Offer:
Price/Value
• Price competition
Features/Quality
• Minimal product/service differentiation
Brand Engagement
• No relevance
• Few incentives to deepen category
involvement
• What are we really trying to do?
– Increase frequency of visits
• Light users
•
Moderate/heavy users
• More items
•
Higher-margin items
• Day parts
•
Different needs, e.g. coffee
– Increase spend per visit
– Expand usage
Do Loyalty Programs Work?
•
“Loyalty” program tries to get consumers to select you when there is a choice
–
•
How does a loyalty program do this?
–
•
Not by creating an emotion, but by creating an incentive – establishing switching costs,
generally through preferential pricing or rewards/give-back
This can help win the battle for share of mind, but need to be realistic about
what it can deliver overall
–
–
–
•
Top of the “brand ladder”
Double-digit sales growth? Rarely…
But it can hold the line in a tough economy, and make marketing spend more efficient
Collecting identified transaction data is a major benefit, and should figure in ROI calculation
However, where there’s no cost, consumers will join programs for any
category they touch, and all category entrants
–
–
How many belong to 2+ grocery programs, 2+ drugstore programs, 2+ airline programs, etc.?
How do you differentiate from competitors?
Six or Seven Years Ago…
• Challenge in achieving loyalty
“share of mind”
– Average US household belongs to 12 programs
– Less than 40% of memberships “active”
• Must be a continually-reinforced
value proposition
– Enrollment
– Activation
– Ongoing participation
Stat
Value
Loyalty Membership
1.3B
Memberships per HH
12
Active Memberships
4.7 (40%)
Restaurants with Programs
5% of top 130 chains
Trends
• Regional
coalitions
• Two-tiered
pricing in grocery
Source: “Sizing Up the US Loyalty
Marketing Industry” Colloquy, April 2007
Today, the More Things Change…
•
Challenge in achieving loyalty “share of mind” expands
–
•
Harder to continually reinforce value proposition
–
•
No commitment or cost of entry: average US household now belongs to
18 programs; now more than 45% of memberships “active”
Consumers determine which messages to view – and where
SoLoMo revolution driving consumers to expect more
–
Insider information, special privileges, and more discounts and rewards
Successful loyalty programs will be those that widen their
focus from offering the “perfect reward” to providing valueadded benefits to their relationships.
•
•
Basic points programs are in many cases cost of entry
Technology has changed everything
‒
‒
‒
‒
‒
•
Cost structures
Communications capabilities
Geo-location
Consumer control
WOM and social sharing
Cross-retailer platforms, and coalition programs and
integrated payment systems vying for consumer – and
merchant – attention
Stat
Value
Loyalty Memberships
2.1B
Memberships per HH
18
Active Memberships
8.4 (46%)
Restaurants with Programs
16% of top 250
chains
Trends
• Targeted offers
• Pre-trip planning
tools
• Immediacy
Source: “COLLOQUY Loyalty Census Growth and Trends in
Loyalty-Program Membership and Activity” April 2011
A Rational Planning Framework
• Implementing a loyalty program requires a larger commitment than a
frequency-driving promotion
– Level of investment, time horizon, philosophical shift
• Once decision is made, category characteristics and consumer behavior in
the category should drive program development
11
Loyalty Program ROI Metrics
• Approach to calculating ROI should be understood prior to green-lighting
• Below is an example approach to help QSR chain forecast program impact
Input Parameters
Average Check
Visits/Month
Repeat Visit Rate
% of sales eligible for rewards
Revenue
Guest Count
Daily Guest Count
Unique Customers
Loyalty Penetration
Loyalty Members
Total Spend by Loyalty Members (Baseline)
Value
5.26
2.66
80%
85%
$
$
195,093
37,090
1,236
13,944
10%
1,394
19,509
$
Visit Lift (%)
Visits by loyalty members (Baseline)
Visits by loyalty members (w/ Visit Lift)
Incremental Visits per Restaurant
Sales Lift Due to Incremental Visits
$
10%
3,709
4,080
371
1,951
Spend Lift (%)
Lift per Transaction
Spend by loyalty members (w/ Spend Lift & Vist Lift)
Lift Due to Incremental Spend
$
$
$
5.0%
0.26
22,533
1,073
Combined Program Revenue Gain
Revenue Gain as a % of Loyalty Member Sales
Revenue Gain as a % of Total Sales
$
3,024
15.5%
1.6%
Gross Margin from Loyalty Members
Incremental Gross Margin
Contribution Margin from Loyalty Members
Incremental Contribution Margin
$
$
$
$
16,630
2,232
11,796
1,583
$
$
10.0%
2,253
608
2.7%
Amount Available for Program Operation
$
800
Total Program Cost
$
1,408
Perceived "Give Back" (Rewards) Ratio
Perceived Value of Rewards
Cost to Fulfill Rewards Bucket
Direct Cost of Rewards as a % of Enhanced Sales
Incremental Visits from Program
Breakeven Visits (On Gross Margin)
Breakeven Visits (On Contribution Margin)
Cash Flow Increase
ROI
371
169
310
$
175
12%
LOYALTY IN OTHER CATEGORIES
Loyalty Programs in Grocery
• Only seven of top 25 pure-play grocery chains do NOT utilize some type of
card program
– Excluding Wal-Mart and Target
• Continue to primarily provide two-tier pricing benefit for cardholders
– Albertson’s recently launched rebate program of type more typically seen in
specialty retail
Loyalty Trends in Grocery
• Pre-shop planning tools,
digital coupons and
driving relevance through
personalization, based on
transaction analysis, are
hottest topics
– Kroger’s “Customer 1st”
strategy driving industryleading results
– Safeway Just For U™
digital/mobile planning
program credited for strong
performance, suggesting may
be able to eliminate print
spending
Loyalty Trends in Grocery (cont’d)
• Grocers have historically
been willing to test
emerging technologies
–
–
–
–
Presence tracking
In-store GPS
NFC/RFID
Augmented Reality
Grocery/Fuel Tie-Ins
• Fuel discounts prominent for all big chains, often in addition
to card pricing
– For some chains, fuel discounts only rewards offered
Loyalty Programs in Restaurants
•
In 2006, 7 of top 130 restaurant chains in the U.S. utilized rewards-based
loyalty programs
– Today, research suggests less than 25 of the top 150 have rewards programs,
although almost all have e-clubs
– Most continue to follow standard rebate model – give back 5-10% of spend
–
Newer programs include mobile hooks but little rewards innovation
Loyalty in Restaurants – QSR
• Loyalty programs less common in QSR space – cash
payments, low ticket, franchise structures stumbling
blocks
# of Stores
Primary States of
Operation
Private Label
Credit Card
Details
Subway
38,444
Starbucks
17,244
Dunkin Donuts
10,000
Quiznos
2,795
Panera Bread
1,324
Nationwide
Worldwide
Worldwide
IL, IN, WI, OH, CA, VA, MI
Nationwide
N/A
N/A
N/A
N/A
N/A
Receive monthly email
offers and coupons
Present MyPanera card
each visit and be rewarded
with surprises at random.
The more you visit the
more surprises you can get
1,028,339
367.9
23,724
8.5
1,448,519
1,094.0
86,070
65.0
Rewards Program
Details
Facebook Likes
Likes Per Store
Twitter Followers
Followers per Store
Earn 1 point for every
Earn 1 star every time
dollar spent on menu your registered Starbucks
Recently announced
items and redeem points
card or mobile app is
new program to replace
for free menu items, i.e. used. As Stars accumulate
DD Perks - Get 10% Back
10 points = 1 cookie, 35
you move up to bigger
points = 6" sub
benefits
19,641,759
33,374,559
8,319,752
510.9
1,935.4
832.0
918,974
3,305,684
194,292
23.9
191.7
19.4
Loyalty Trends in Restaurants
• Mid-tier chains testing and
launching me-too programs
– Higher-end chains have cost-tojoin with immediate rewards
• Technology innovations driving
wave of start-ups trying to
penetrate space
– Payment and gift card
integration
– Pre-order to speed POS
– Cross-restaurant
programs/aggregators
– Mobile couponing
– Social media tie-ins
Loyalty Programs in Retail
• Rewards programs much more
common among general and
specialty retail
• Historically, higher-end brands
have had programs tied to
house credit and lower-end
brands have had open
programs
– More recently, higher-end
brands like Bloomingdale’s and
Saks have converted to open
programs
Loyalty Trends in Retail
• Retailers hedging bets –
innovation taking place
alongside traditional
loyalty/rewards programs
– Same tactics/players as
grocery
• Even highly-touted loyalty
programs unable to
overcome inherent
challenges in competitive
environment
Key Take-Aways
• Loyalty penetration may not be as widespread as commonly believed
• Giving back % of spend continues to be primary reward type
• Innovation in other categories taking place primarily around identification
and engagement, although personalization still a challenge
– Driven by technology advances
Best Practices
• Whether you’re considering launching a new program, or
evaluating an existing program, some considerations:
– Make it simple to understand and easy to participate
• Leverage technological innovations that consumers are adopting
– Recognize and reward
• Try to move recognition before transaction is completed
• Utilize a mix of hard and soft benefits that balance attainability and aspiration
• Targeted and relevant communications
– Create incentives good enough to change behavior but not so
generous that they erode margins
• High perceived value, low cost to deliver
– Continually measure and evaluate
– Employee engagement at front line is critical
LOYALTY IN GAS & CONVENIENCE
Why Loyalty In This Category?
•
High levels of competition and commodity product base suggest need to differentiate
–
Convenience/fuel retail sales forecast to be flat over next several years
•
•
–
NACS 2012 Retail Fuels Report highlights price sensitivity
•
•
Fewer gas visits provide fewer opportunities for inside sales
Declining tobacco consumption increases pressure on other categories to replace revenue
Price is dominant reason for buying gas at a particular location; even $.01 per gallon can change behavior
Implication: Loyalty program may be an effective tool to create barriers to switching
where natural barriers may not exist
–
Can’t solve category problems
•
•
•
Loyalty Program Benefits
Increased retention/frequency/purchase
size
Competitive differentiation
Individual-level/identified data capture
•
•
•
Drive efficiencies in marketing spend
•
•
Targeted communications/offers
Product planning
Esp. acquisition marketing
Category expansion
Loyalty Penetration
• Anecdotal research suggests that 16% of the top 150
chains utilize non-credit proprietary loyalty programs
– 3 of the top 10, including recently announced BP program
– Most continue to offer programs tied to house credit and
focused on fuel purchases
• Many additionally utilize email-based customer contact
programs and mobile apps to connect with customers
“We know that loyalty programs can
generate an increase of up to 15 percent
on inside sales volume and up to 10
percent in gallons at the pump“
General Manager, CITGO Light Oils
Marketing
“48% of consumers reported
increased
frequency in gas purchases at
Shell stations after obtaining the
Shell Saver Card“
FirstData Customer Success Story
• Average transaction size grew 25%
• Loyalty members purchase frequency
more than doubled
• Double category buyers increased by 22%
Wipro Fuel Loyalty Study
Loyalty Landscape – Sample Geo Focus
•
Where loyalty program are utilized, usually tied to pump discounts
–
•
Additionally, almost all major grocery chains now include “fuel rewards” as part of their card
program
Consumers appear willing to engage through social media – if leads to benefits
# of Stores
Primary States of
Operation
Sheetz
431
PA,MD,NC,VA,WV, OH
Citgo
6,102
East of Mississippi
the River, TX, OK,
AR, LA
Speedway
1,460
Shell
43,000
Giant Eagle Get Go
229
Rutters
55
Sunoco
4,900
Turkey Hill
270
OH, WV, IN, KY,
MI, MN, WI, IL
Worldwide
OH, PA, VA, WV, MD
PA
23 states stretching from
ME to FL and west to IN
PA, OH, IN
40 additional speedy
reward points for every
$1 spent at Speedway,
and 10 points for
everywhere else.
5₵ off per gallon with
Shell Credit Card, and
cash back for travel.
An additional 4₵ off per
gallon, when you use a
Giant Eagle Credit Card
N/A
5₵ off per gallon with
Sunoco Rewards Credit
Card
N/A
Points system in which
points can be
redeemed for in store
products and gas. 20
points per $1 in store,
10 points per gallon.
42,780
29.3
0
0.0
Instant 4₵ off per
Shop at participating
Every $50 you spend
gallon at the pump,
grocers, retail stores,
earns 10₵ off per
accumulate cents off in
restaurants and inside
gallon. Every 10 gallons
store, and have
the shell store to
pumped earns 1%
monthly drawings for
receive cents off per
discount in store
prizes
gallon
2,551,540
412,752
5,372
59.3
1,802.4
97.7
79,036
8,063
1,015
1.8
35.2
18.5
Private Label
Credit Card
Details
5₵ off per gallon with
Sheetz Credit Card. 5
points for Sheetz
purchases, 1 point
everywhere else.
5₵ off per gallon
with Citgo Credit
Card
Rewards Program
Details
Facebook Likes
Likes Per Store
Twitter Followers
Followers per Store
3₵ off per gallon with
Sheetz Loyalty Card, and
a number of loyalty
deals in store
Loyalty bucks
announced
888,345
2,061.1
11,413
26.5
1,846
0.3
1,008
0.2
Instant 3₵ off per gallon
Purchase select items to
at the pump, earn points
build up discounts on gas
on items in store for
and redeem at the pump,
cents off gas i.e. 10₵ of
i.e. buy large coffee and
per gallon for every 100
save 5₵ per gallon
points
9,469
11,510
1.9
42.6
309
8,023
0.1
29.7
28
Key Planning Considerations
Convenience & Fuel Retail
Characteristics
Program Planning
Implications
Variety of ownership structures
Select appropriate structure:
proprietary program vs. coalition
program vs. sponsored program
Commodity products
Focus rewards/offers around
points of differentiation
Abundance of choice/ degree of
competition
May need to factor in predetermined parameters
Price sensitivity
Ensure program delivers positive
ROI without leaving opening for
competitors
Convenience
Provide a compelling reason to
bypass your competitor
Frequency of need
Target areas with room to expand
consumption
Card-driven outside/cash-driven
inside
Provide reason to identify with
each inside transaction; utilize
emerging technologies to ease
process, recognize and reward
Multiple points of
purchase/interaction
Integration with payments, other
marketing and merchandising
efforts, and relevant
communications stream
Align Potential Returns
• Proven methodology allows alignment of expected behavioral shifts with
projected program costs to ensure positive ROI
TECHNOLOGY & PROCESS
A few key questions and answers
will help you determine
implementation approach and
business impact.
32
Question One: What loyalty program type is best for
my business?
• Business objectives will drive the type of program you ultimately select
• The program will drive economic, supplier, deployment, and operational
considerations
What do you want to accomplish?
• Automation
• Frequency
• Retention
• Attract new customers
Program types:
• Frequency programs
• Offer/Specials focused
• Brand-based
• Payment-based
• Coalition
o Common one in market =
Grocer (earn), Fuel (redeem)
o Local
o National
• Site based and/or e-commerce
and/or mobile
• Loyalty Instruments (cards, QR codes,
bar codes, disposable codes)
33
Question Two: How do I implement the program
within my business?
Expect impact to many of your systems:
Site
• POS
• Dispenser variations
• Pinpads
• Scanners
• Network – bandwidth and
latency
• Multimedia (audio and video)
HQ or External
• Loyalty program
• Reporting
• Pricebook
• Settlement applications
• Financial applications
• Loyalty processor
• Payment processor
• CRM database and application
• Offer engine
• Social media messaging
applications and monitors
• Multimedia (audio and video)
34
Assess Control and Engagement vs. Tech Impact
Program design and desired customization will drive impact to
infrastructure
• Enable via current infrastructure and current providers
• Enable via current or enhanced infrastructure with loyalty
focused partners
• Enable via enhanced and new infrastructure with loyalty
focused partners
35
Enabled via Existing Infrastructure
Considerations
•
•
Card
Processor
Dedicated
Retail
Network
•
•
•
Forecourt
Devices
POS
•
Current infrastructure is designed for and
focused on payments
Loyalty offers determined in large part by
the capabilities of processor, POS or the
brand / brand payment processor
Complex to integrate common loyalty offers
across multiple brands or branded and
unbranded site if applicable
Expect a specific version of the brand POS
application
Also possible to “bolt on” some third party
loyalty approaches (e.g. KickStart)
Loyalty increases complexity and
subsequent enhancements can require
changes to many components
Enabled via Existing or Enhanced
Infrastructure with Loyalty-Focused Partners
Loyalty
Processor
Payment
Card
Processor
Dedicated
Retail
Network
Card Appliance
(Payment and
Loyalty)
Forecourt
Devices
POS
Considerations
• Separate Loyalty Processor
• Opens up more loyalty program options
• Loyalty still rides the payment infrastructure at
the site
• Potential for multiple payment and loyalty
processors
• Standards are making it easier to send loyalty
and payment traffic to different processors
• Card appliance allows routing of payment and
loyalty transactions to different destinations
• More flexibility, but requires a card appliance at
the site and enhanced remote management of
the card appliance
• Loyalty roll out requires changes to many
components
Enabled via Enhanced/New Infrastructure,
New Systems and Loyalty-Focused Partners
Web Payments and
Loyalty (PayPal,
Google, 200 others)
Brand
Payment
Processor
Brand
Loyalty
Processor
Dedicated
Retail
Network
Card
Appliance
Forecourt
Devices
CRM
Offer Engine
Consumer
Mobile
Devices
POS
Leverage loyalty as ROI to invest in an
infrastructure that is future aware
Meet the demands to ensure ongoing payment
relevance
• Payment and Loyalty innovation driven by nontraditional players (MCX, Google, PayPal, many
others)
• Have to support increasingly diverse consumer
demands
Get to know your customers and communicate
directly with them
• Customer Relationship Management (CRM)
systems enable the capture of individual
customer info and buying patterns
• Customizable offers delivered directly to mobile
phones = one-to-one communication
Implement EMV aware systems
•
NFC, QR,
???
•
EMV will hit retailers hard - estimates range from $8
billion to $30 billion
Opportunity to add mobile capabilities as part of EMV
hardware and software upgrades
New Pope Announcement at Vatican
People change quickly … your programs will have to change too maintain relevance
39
Supporting Cast
Loyalty strategies should include the following components to keep your brand and
products top-of-mind. Although this new ecosystem offers new capabilities to attract,
retain, and communicate to consumers, it will be changing rapidly.
Marketing
• What is the annual marketing budget and supporting plans to
underpin the program launch and ongoing promotions?
• What is the traditional channel mix?
Payment Technology
• How can payment options and technology complement the
program?
• What options exist to subsidize the cost of the program?
• What role does mobile payments play near term / long term?
Coalition
CRM
Social Media / Digital
Strategy
• What opportunities exist to partner with complementary retailers to
enhance the value proposition and loyal shopping?
• How will consumer and transactional data be utilized to more
effectively and efficiently market to consumers?
• How do we leverage digital & social media to acquire, retain, and
enhance profitability from consumers in the program?
40
Key Considerations for Eco-System Decision
Implementing a loyalty
infrastructure
Rapid evolution of loyalty
offers
How Retailers Need to Adapt
•
•
•
•
Multiple delivery
mechanisms
Increasingly diverse
consumer segments
Minimize future regret cost
•
•
Look to leading retailers for trends
Actively engage with your technology suppliers and
industry SME’s
Look for opportunities to move business logic off site to
the cloud
Continue to support traditional at-site card-based
programs
Be aware and understand mobile
Align with your consumer
•
•
Flexibility is key – design for rapid adaptation
Develop a multi-faceted approach for consumer
engagement (payments, loyalty, social media, CRM,
mobile offer delivery, …)
•
Look for opportunities to add capabilities as part of your
EMV investment
5 Basic Steps in Implementing a Loyalty Program
from Idea to Operation
Business & Tech
Strategy
Partner & Tech
Selection
Detailed Program
Design
Develop, Integrate,
Test, Pilot
Deploy and
Operate
Activities
 Align with business
strategy
 Align with technology
strategy
 Assess competition
 Define, discuss, and
challenge options
 Define loyalty-CRM
strategy
 Design integrated
solution
 Assess as-is capabilities
 Define changes to
 Align with as-is and
organization
tech plans
 Design support model
 Execute RFI/RFP process
 Define metrics for
 Select approach, tech
operation and
and partners
economics
 Identify options
 Coordinate changes to
technology
 Integrate solution
 Lab test solution
 Define pilot and
specific goals
 Deploy solution
 Increase focus on site
operations
 Execute operational
support model
 Capture metrics
 Pilot solution and
measure
 Audit partner
operations
 Proven economics of
program
 Successful loyalty
program
 Proven integration of
technology
 Ideas to improve and
stay fresh
 Tested deployment
processes
 Change management
process
Deliverables
 Documented goals
 Options with pros &
cons
 Agreed program(s) and
high level design
 Detailed design of
integrated solution
 Selected technology and  Agreed & documented
partners
org changes
 Documented issues and
risks
 Commercial agreements  Defined deployment
model
 High level plan
 Detailed plan for design
 Draft operational
 Draft operational
support model
support model
 Tested operational
support processes
Best Practices for Delivery Once First Two
Decisions Made
Implement cross functional team to implement
Define requirements and assumptions up front
Spend time on detailing the consumer experience
Don’t underestimate consumer support and understand the
roles of the players
• Ensure message to consumer is consistent (loyalty vs. a card
message)
• Data, data, data
•
•
•
•
43
W. Capra Engagement Model
Loyalty is one aspect of a complex payment and marketing eco-system
Consumer Experience
(Card, Mobile, etc.)
Terminals
PEDs
Points of Sale
Processing
Payment/Loyalty
Head Office
FI / CRM
Consumer
Engagement
Marketing
Programs
Vendor
Contracts
Business Case
Tech
Architecture
Business
Strategy
Technology
Business
Project Execution: Leadership, Delivery, Audit
Sourcing: Buy vs. Build, Sourcing Strategy, Vendor Strategy
Operations: Assessment, Improvement
DISCUSSION
John Keenan
Patrick Raycroft
jkeenan@anthemedge.com
raycroft@wcapra.com
312.441.0385
46
312.498.5191