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Market Movers Discussion on What Makes a Loyalty Program Successful & How to Improve Engagement and Retention

Al Lalani, Co-Founder and Chief Strategist at Annex Cloud, sits down with Oliver Page, Principal, and Ramya Murali, Principal, of Deloitte to discuss topics such as “what makes a loyalty program successful?” and “how can you improve customer engagement and retention throughout the lifecycle of your customers? These luminaries give us insight into proven methods of success along with ideas on how we should think of loyalty programs in the context of the digital transformation in the next 12-36 months.

Transcript

AL Lalani:

Welcome to another discussion of Annex Cloud Market Movers, where we bring in experts, luminaries, to support us during the current times. I am extremely excited today because we are speaking with Deloitte, who has amazing experience over many, many years in the topics we're discussing today around loyalty and retention. I want to welcome Oliver and Ramya to the discussion. Thank you so much, guys, for joining us today. If you might want to just start off with a quick introduction about yourselves and we kick it off, that would be wonderful.

Oliver:

Sure. I'll go first. Thanks, Al, appreciate you having us on. My name is Oliver Page, I am a principal in our digital practice within Deloitte. I focus on building and implementing solutions that are customer facing and associate facing, and one of those things is loyalty. Over the last few years, loyalty has actually been a very big topic for us. And it's actually a big topic for our clients because it's driving a ton of revenue. And right now, during COVID, it's driving a ton of retention. So looking forward to sharing a bit more about our lessons learned and some of the things that we've seen drive successful loyalty programs.

Ramya:

Awesome. Yeah, again, thank you, Al, I'm really happy to be here. My name is Ramya Murali, I'm a principal in our strategy practice at Deloitte. I spent the bulk of my career really thinking about the intersection of growth strategy and the customer experiences, and how you can drive growth and business value and think about new ways that you engage with your customer. And just to build on Oliver's point, loyalty is really one of the strongest levers companies can pull to try to engage with their customers and drive that type of growth. I've really spent a lot of time thinking about that across a broad range of both B2B and B2C companies, and thinking about how different companies can apply loyalty and activate it in different ways.

Al Lalani:

Wonderful. Well, thank you so much, both of you, and really, really happy and excited to have you here. Let's kick it off. The first one is more open-ended. I want to talk a little bit about, in your experience of the many years that you both have spent in the space of digital transformation, what are the things that you have learned that matter the most when it comes to loyalty and retention, especially around the ability for customers to retain their customers and keep them loyal as it comes around for the long run?

Ramya:

Yeah. It's a question we spend a lot of time thinking about Al. The truth is, is that the loyalty marketplace is very crowded, and it becomes really difficult for consumers to wade through the noise and understand which loyalty programs meet their needs and really help serve them the best. And so over the many, many projects that we've delivered as a firm and just understanding the loyalty landscape, we've distilled what we think of as the five beliefs that are critical for a loyalty program to be successful.

Just to quickly summarize them, we think that a loyalty program should drive specific customer behavior that actually corresponds to business value. We believe that it should deliver a broad portfolio of compelling beliefs and experiences and interactions. That it should engage a customer throughout their life cycle. So not just in an individual transaction, but throughout their entire experience and in multiple ways as they grow as consumers. We think that it's important that a program effectively engages the employees of the company because they are often important ambassadors and activators of the program. And external partners, as we think about loyalty programs increasingly being ecosystems. And then finally, that loyalty programs should be delivered in a modern dynamic way, which means that it should be thought of as another strategic product of your business and be nimble and evolving over time.

Our fundamental belief is, if a company and a program are able to deliver on those five beliefs, there are two really important things that it allows you to do. It creates a rational and emotional resonance between the brand and the customer. So it's not just a transaction, it's actually an emotional connection that your customers have with the brand. And you've created a system where you're developing, you're delivering authentic and differentiated value. In this time period where there's so much noise, we believe that if you actually think distinctly about these beliefs, you're going to connect with your guests and your customer in a way that's unique and differentiated and drive a long-term relationship.

Al Lalani:

Wonderful. I really love all these points that you mentioned. Just to give you some sort of context, there are a lot of studies from how we've looked at loyalty programs ourselves. And I really liked the two points that you mentioned, that we want to dive a little deeper into, which is, talking about using specific customer behavior to drive business outcomes. And that's important, because a lot of times we look at very generic loyalty programs that are transactional, that is focused just on driving one behavior, which is fortresses, but the customer journey is very, very varied. The second point, which really parlays well into that, which is engaging people across their customer journey. Not just for the point of the transaction, because a lot of times minds are made up well before the transaction.

And by the way, if you want them to become an advocate and buy again, and not just buy again themselves, but make other people buy, you have to think about the post-purchase journey. So it's a full experience that really matters. And you have to take all the behaviors that they do, not just the transactional behaviors in mind. Oliver, what's your take on certain examples of how you've implemented some of these tactics in play, and what are other pieces that you are going to enlighten us on, on that topic?

Oliver:

Yeah. You used the word tactic, which is an interesting one. These beliefs we think are encompassing. We didn't talk about things like personalization and customization, we believe those things come as tactics within those beliefs. So we can certainly dive into some of those tactics, but for us, those are evolving trends and behaviors that we're seeing, and we do a lot of research on what those trends are. But if we bubble up a half level or a level above that at the strategic level, what's required to make these programs successful? So on the first one, just tying to customer behavior, tying a business outcome to customer behavior.

I'll share an example of a company that I've worked with on their program, which was a regional convenience player here in the US. They have an interesting business model across three different lines of business, across a field business, a retail business, and then a prepared food business. And as you bring those different models together, there are vastly different margin requirements across them to be successful. And driving behavior or driving customer behavior by moving them between different parts of that business was critically important to the success of that program. So from the onset, we knew right away what we needed to do was move people across their field business into the prepared food business into their retail business, and be able to shift customers across those different lines of business.

So we were very intentional in our design to think about, A, first taking into account all aspects of their business as part of the program, and then driving customer challenges and offers and behaviors that would shift people and extend them into other parts of the business, while taking into consideration the margin impact associated with, say a field-side versus a prepared food side. If I take a different example, and this will actually extend nicely into the second part of your question which was around the customer journey, we were working with a travel center. And in their situation, what we discovered very quickly is, there are all these different parts of the experience that start, just like you said, pre-purchase during purchase post-purchase, but they had a whole set of different services actually.

So at different parts of the stay for this travel center, you'd be offering coffee, snacks, maybe showers, truck washes, and such. And as you wanted to extend that end-to-end loyalty experience across the journey, being able to go and cross-sell those different services across the end-to-end experience. And what we actually found was, most customers wanted to purchase things digitally and enable that end-to-end journey through a digital channel. But they never had a killer value proposition in that digital channel to attract them to that channel. So as soon as we started to create the impetus to say, all right, your loyalty and your rewards are all in the digital channel, it drove so much behavior into that channel, and then exposed them to other services across the life cycle of their purchase behavior. From their morning coffee to their parking stall, for example, for overnight parking.

Ramya:

I would love to add, just building off of Oliver's last point. If you think about a lot of the companies in the travel and hospitality space, so airlines, hotel companies, so much of their most loyal customers are driven off of high-frequency business travelers. And one of the important opportunities that we see with the loyalty programs in this space is, their ultimate goal, generally speaking, is to drive greater customer retention rate or share of wallet. But one of the most important pivots that they make when you connect that first belief to the third one, as you described, is how do you connect the behaviors of a business traveler with your behaviors when you travel for leisure? And the way that you might offer different loyalty program benefits, the way that you engage with a consumer when they're on a family vacation versus when they're on a business trip, those are important experience points that these companies can really deliver authentic, unique, personalized experiences and differentiate because we looked for different things when we travel.

And one of the great attributes of these loyalty programs is when you're able to make those connections and say, how do I engage with a traveler differently when their purpose is different? And to our response, really make it so that you know more about how that customer is behaving and can find ways to delight them and offer them different interactions and benefits in different points in their customer journey.

Al Lalani:

Absolutely. And then, since you mentioned travel and hospitality, one of the things in case studies, especially when we talk about airlines, ask anyone about a loyalty program and ask them about which loyalty programs they're a part of, the first few things they'll say is, some airline, right? And American Airlines and United Airlines, we just saw the news less than a month ago, that they were able to raise $5 billion against a value of close to 20 to $30 billion of their loyalty program, which values their loyalty program at two exercises of everything else they own. The planes and everything else put together. So just to show us that they've spent 40 years building this, right? So it takes time obviously, but it's the right time invested. And in times of a pandemic, when no one's flying, it's more valuable than their entire company.

So they built that mental capacity in all of us over time, and brands and companies should use that towards that. And that takes me to my next question is, we're in a very different time right now, we're in the COVID post-pandemic era, we're trying to come out of it. And one of the other studies that, in addition to the American Airlines examples I want to bring up is, back from the last recession in 2008, there was a study done by Catalina Marketing and CML Counsel, which was for 32 million people that bought from 685 top brands. This includes Coke, Pepsi, Samsung, Apple, everyone else back in 2008. And the study said, for across average, across all the brands, 52% of their customers defected between 2008 and 2009, which is significantly high than what anyone's seen ever in the past, essentially.

A big portion of their customers defected, and 19% of those defections actually went to a competitor, right? Because they have different service or it was less expensive, what have you Right now, it's even more important to keep your customers sticky. Right now it's even more important to keep your customers loyal and investing, that is important. That's what I learned from the 2008 piece. What are your considerations around what's happening right now with COVID, and what should brands and companies and businesses think about retention and loyalty as it pertains to now?

Oliver:

Yeah. This is a good question. What's happening right now is pushing companies to the brink and forcing radically different interactions, a ton of innovation, and rapid switching of what was the normal way of doing business just six months ago is now been turned on its head. We think, without a doubt, that this is a golden window of opportunity to think about your customers and retain those customers more aggressively than ever before. Partially because there's not a ton of net new business in the marketplace, and the competition for existing business has doubled up. The competition for each dollar in the business, in the marketplace, has increased, whether that's B2C or B2B. And creating retention focused models around your business model, whether it's a traditional B2C model or a B2B model is critically important.

And we're actually seeing that in just the requests that we're getting from companies. The RFPs that are coming our way are actively around, how do we retain customers? They may not explicitly say loyalty, but they're explicitly saying, we're doubling down on retaining our customers in unique and creative ways, and making sure that, in essence, what you just said, they don't defect. That all just set up this case for the next 12, 24 months are going to be critical to retention. And moving quickly to how you retain your customers is going to be very important. And then, the second piece that we're seeing around this is the creativity and the expansion.

There's a ton of net new programs or thought processes around retention. And then we're also seeing a resurgence on existing programs. If you just look across the marketplace, people have extended the length of status, people have gone and extended your tiers and created very compelling offers that shift from one category to another, say on your credit card. All of those models have extended. But then, if you're thinking about net new, we're seeing equally aggressive innovation in markets I've never seen loyalty programs. Especially, most recently I'm seeing a shift in the B2B space much more aggressively. So I'm excited for what the next 24 months bring around this topic.

Al Lalani:

On the impact of COVID, Ramya, do you have anything to add to what Oliver just said?

Ramya:

Yeah. I think that one of the things you're seeing is, consumer apprehension is incredibly high right now. And so, one of the ways that loyalty programs are able to help their companies differentiate themselves in this very turbulent time is really emphasizing, with a ton of transparency, the actions, and protocols that they're putting in place around health, safety, and cleanliness. And you're really seeing this across the full spectrum of retail and travel companies. I think it's incredibly important because I think this is going to be a trend that is pervasive for a little while, even as the pandemic evolves, where consumers are really expecting a heightened sense of transparency and communication, especially from the brands that they are the most loyal to. And I think it is, to build on Oliver's point, an important way that companies can use their loyalty programs to stand out in this complicated time.

Al Lalani:

Yeah. I'm really glad you mentioned B2B a few times because we're seeing exactly the same thing. In a traditional, you think about B2C and consumer-oriented markets that have always adopted loyalty as a mechanism and they're doubling down. And if they had it, they're changing it and improving it. If they didn't have it, they're always doing it. But B2B, that's a massive shift of mindset. So I completely agree.

And they're doing that very, very actively now as you speak. So thanks for bringing that up. Other parts are, as a company that has never done that before, if they come to Deloitte and say, what are the top considerations, from an executional perspective, if I'm embarking on this journey to improve retention for my customers?

And I agree with you, loyalty programs are a tactic. It's a means to an end, the end is really improving retention. And there are a few other ways to do that. But if they're thinking of doing loyalty programs to get there, what are the top considerations from a business process, executional, other things, that you would advise people to start thinking about in this perspective and this journey?

Ramya:

Yeah. It's an important place to start. And where we always come back to, there was a long period of time where a lot of loyalty programs were basically emerging because it was the flavor of choice for marketing, it felt like a thing that you had to have. And I think we're at an important inflection point, as Oliver said when there's an opportunity for companies to recalibrate and say, is my program doing the thing that I want it to do? Is it serving the outcome? Use retention as an example, and retention is one business objective, and there are many others. And I think, first and foremost, when we enter into these exercises, whether you're trying to develop a program from scratch or refreshing a program, is to say, what are you trying to accomplish?

Because ultimately, answering some of those upfront strategic questions of what business value you're trying to drive and how do you want to engage with your customers to do that, it really does then make the handoff to some of the operational and execution choices so much clear. It also makes the metrics by which you measure your effectiveness that much more apparent. So I think, first and foremost, you always want to start with that strategy question of, why are you doing this? What is the thing you're trying to achieve?

Al Lalani:

Yeah. Wonderful. Oliver, carrying on from Ramya's top considerations, are there any other top considerations from your perspective as businesses think about embarking on this journey?

Oliver:

Yeah, especially if you're starting out for the first time in the loyalty space. One of the big gotchas, if you haven't been down this journey, is that the first year is very exciting. The program is doing exceptionally well and you're seeing all these great results and frequency in basket size or whatever the metrics are that you measure. But often, what ends up happening is, you're really measuring results of behavior that has already existed. And granted, there's going to be net-new behavior, but say 75% of that is existing behavior. And then carrying that into year two is absolutely critical. So what we find in that first year that you have to double down on is the data.

You have to double down on all the loyalty data, the customer data that you've already captured as a result of the program because it's a goldmine of information. But those are going to be your drivers for how you continue to drive frequency, how you continue to drive the growth of the program in year two. And that's your way of trying to avoid that dip in the year two mark. So as you're embarking on this journey, there are all the things you have to do to get out the door and get your program live. As soon as you get live, measuring, using and monetizing that data in a way that helps you drive frequency, helps you drive basket size in year two as well, will be absolutely critical to your program's success.

Al Lalani:

Wonderful. And I actually really like it because it ties really well to the part that you guys mentioned about the entire customer journey. Because the customer data will have the traditional loyalty metrics data, which is repeat rate and basket size as you mentioned, but it also has a lot of customer behavioral data across the entire customer journey that can be then be mined and used in year two, as you mentioned. So it really ties into your beliefs really well as well. So thank you for mentioning that. That's perfect.

This was great. Thank you again, both of you for joining me today. I think we have a wealth of knowledge and information that we collected. If people want to reach Oliver or Ramya at Deloitte, or get their help in strategizing their loyalty programs, you can find them on LinkedIn or you can find them on Deloitte. And I highly recommend, because they've got a wealth of experience scaling large scale loyalty programs, both in the B2C, and as you heard, in the B2B space. So thank you, both Oliver and Ramya for joining us today. We really appreciate it. And for everyone else, if you want to hear amazing such videos, please go to annexcloud.com/marketmovers. Thank you again. Bye for now.

Oliver:

Thank you, Al.

Ramya:

Thank you.

Oliver:

Take care.

Featured Speakers

Al

Al Lalani

Co-Founder, Annex Cloud

Oliver

Oliver Page

Principal, Deloitte

Ramya

Ramya Murali

Principal, Deloitte

Annexcloud Logo

Since 2010, Annex Cloud has provided industry leading loyalty solutions to more than 250 leading brands and retailers, including Jenni Kayne, Hewlett-Packard, Bed Bath & Beyond, e.l.f. Cosmetics, Olympus, Sugarfina, Mizuno, MacKenzie-Childs, VF Corp., with the ability to engage tens of millions of their customers one-to-one at scale.

The Annex Cloud platform provides fully integrated Customer Loyalty, Referral Marketing, and User Generated Content (UGC) solutions that seamlessly work together to optimize the customer journey and deliver a unified customer experience that is designed to accelerate revenue growth, retain valuable customers, increase average order values (AOV) and drive repeat order frequency.

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Deloitte is a multinational professional services network, and is one of the Big Four accounting organizations and the largest professional services network in the world by revenue. Deloitte has been serving professionals for over 175 years and always strives to make a positive difference in society as well as maximize success across the board. One of the many services provided is that of consulting in areas such as enterprise applications, technology integration, and strategy & operations. Their professionals provide the guidance and expertise needed to navigate this changing economic landscape.

To learn more about the services Deloitte provides www2.deloitte.com