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Loyalty: Looking Forward
The State of the Loyalty Industry and its Digitized, Instant Future
By Denis Huré and Jill Goldworn
Part 1 of the Knowledge Series from the first club™
© 2011 the first club™ - www.thefirstclub.net
In any industry, loyal customers are the cornerstones
of successful businesses.
In consumer-centric industries, the loyal customer
is one that is familiar with an offered product or
service, inclined to have a positive impression of the
company or brand, and represents the best opportunity
for a repeat transaction. For B2B companies, the
relationships established with loyal clients will often
lead to more clients, and repeat business is the
foundation upon which growth is built. These are
commonly accepted beliefs of business and are the
rationale behind loyalty programs.
Loyalty programs are generally acknowledged as
necessary and useful, yet everyone seems to have a
different opinion on their inherent value. Are they
holdovers from a bygone era, where a more diverse
marketplace and a less bargain-thirsty customer
base necessitated greater effort to create and maintain
loyal customers? Or are they integral business tools,
still conferring considerable advantages on those
companies that wield them well?
More importantly, do loyalty programs work in their
current state? Is it still effective to offer pieces of
main product as an enticement for repeat business?
The simple answers are “sometimes” and “somewhat.”
The solutions to the challenges faced by loyalty
programs and the way forward for the loyalty industry
lay in the digital realm: the adoption of digital rewards,
the acknowledgement that consumers are seeking more
relevant and redeemable rewards at their fingertips, and
the implementation of loyalty strategies that leverage the
latest technology to meet consumers’ needs and desires.
Let’s look at the numbers: some 71% of marketing
decision makers said that loyalty schemes have become
more vital to successful business over the last two years,
according to a study by GI Insight released in early 2010*.
The total loyalty market in the US remains incredibly
robust, as measured by Colloquy1
at 1.807 billion
individual programs in 13 different segments. Yet a survey
by the Chief Marketing Officer Council found that 32%
of consumers feel that program participation holds “little
to no value,” while 37% believed individual rewards held
even less value, all of which presents a loyalty paradox.
These findings tell us is that loyalty programs are at a
crossroads, and that while they seem certain of occupying
a position of importance for most businesses, they will
take a much different form in the future than they do
today. Consumer needs have evolved, technology has
evolved and so will loyalty programs, driven by
forward-thinking companies in step with technology and
consumers’ constantly evolving attitudes, to provide
relevant, enticing digital rewards.
Denis Huré & Jill Goldworn
the first club ™
© 2011 the first club™ 			 								 2
The State of Loyalty, today and tomorrow
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
When American Airlines rolled out the first frequent flyer
program (FFP) in the early 1980s, it was hailed as a giant
leap forward in loyalty. Programs to induce repeat
business had been around for years, of course, but the
concept of awarding miles to loyal flyers in a
newly-deregulated passenger aviation market was
exciting. Miles still remain the most recognizable loyalty
unit, and their influence has spread beyond the
bounds of the airline industry into financial services
(co-branded credit cards), retail partnerships, and even
social media (Virgin America rewards frequent flyers
who use the Foursquare competitor Topguest with
miles)2
. Though each of these is an approach unique
from the others, the dynamic remains the same:
consumers are awarded miles or points, the unit of
accrual, for participating in a certain activity.
This parallels with other loyalty units in related industries.
Hotel loyalty programs, or Frequent Guest Programs
(FGPs), award points to be used toward room nights.
Retailers typically award units toward the price of a
product.
Loyalty Programs Were Created Equal, or Were They?
The significant aspect is that across all industries and
types of loyalty programs, the end goal is always the
same: accrue enough units to earn one free main product
or service. Though cross-promotion and strategic
partnerships exist, loyalty programs are overwhelmingly
geared toward to the accrual of units, not the
redemption of units. This distillation of the loyalty
program is perhaps inevitable – after all, “buy two,
get one free” is the simplest and best understood form
of loyalty strategy – and it highlights its long-term nature.
More recently, membership in the loyalty program has
been leveraged as a promotional tool and has been
used as a vehicle to attract customers into a relationship
with short term tactical incentives to drive attention,
engagement and action, yielding immediate results.
In this case, participation often translates to upgraded
service of one type or another. Airlines often use this
model in their FFP; those frequent flyers enrolled in a
carrier’s FFP enjoy lounge access, a reprieve from certain
fees, and preferential treatment in a number of ways
before, during and after flight. Having said that, this
practice, while newer than miles accrual, is also fading
as the ancillary revenue derived from these fees
in recent years has become more central to the
airline operating model.
Hotels have also pursued FGPs for years, though usually
without a robust loyalty reward system. These traditional
programs have their place, and most enjoy widespread
use in their respective industries.
And this shouldn’t imply that there is no room for
improvement. In fact, the progression of new loyalty
strategies, including a more incremental approach
to reward redemption and leveraging the value
of digital media and other content to create new
and more attainable rewards, is well underway.
That evolution is being driven by changes in lifestyle
needs and attitudes among customers.
© 2011 the first club™ 			 				 				 3
Roots and Relics of the Loyalty Program
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
The exasperation of the average loyalty participant is
well-documented. After all, stories of loyal but frustrated
customers make good newspaper copy. But if so many
consumers were unhappy with the limitations of their
loyalty program’s redemption policies, the programs
themselves would be long since defunct. In fact, the
opposite is true; loyalty programs are as popular as
ever, and the recent recession has only heightened this
trend. It seems consumers are driven by the value they
receive from the loyalty programs, and not necessarily
by the nuances of the redemption process. According
to the Gallup Management Journal*, “Brands that deliver
functionally and emotionally for customers result
in indexed loyalty scores three times higher.”
Unfortunately, a number of aspects of the evolving
consumer attitude have contributed to the decline
of perceived value of loyalty programs, including a
lack of relevant and attractive redemption options, a
dissatisfaction with the time frame associated with
certain accrual systems (FFPs first and foremost), and
a certain level of frustration with the often strict
redemption processes. Without a change in approach,
the loyal consumer will eventually outgrow the loyalty
program.
The Perception of Value in a Loyalty Program
It’s important to remember, however, that consumers
are willing to be loyal to brands and companies – but
if they participate in a formal reward program, they
want to be able to claim their earnings quickly
and use them in ways that are appealing, relevant
and practical to their lifestyle. Personally relevant
deals are the second most frequently chosen reason
for spending more with a company, mentioned by
48% of people surveyed in new research by Ipsos
Mori and The Logic Group3
.
The Loyal Customer
The explicit goal of any loyalty program is to develop
loyal customers. That’s a no brainer. And the best way
to achieve this is by encouraging customer engagement,
which yields not only repeat business but trust, advocacy
and passion for the brand – all of which are revenue
multipliers, and another no brainer. The best way to
achieve this significant consumer engagement is to
recognize what the loyal customer wants and who the
loyal customer is, and to meet their needs. That, it seems,
is not such a no-brainer.
Today, consumers want things they can use - relevant,
valuable, and instantly redeemable digital rewards.
© 2011 the first club™ 			 								 4
“Today, consumers want things they can
use - relevant, valuable, and instantly
redeemable digital rewards.”
“The best way to achieve this significant
consumer engagement is to recognize
what the loyal customer wants and who the
loyal customer is, and to meet their needs.
That, it seems, is not such a no-brainer.”
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
Where loyalty programs can differentiate themselves in
the digital arena is by embracing emerging technology
and offering rewards on a mobile platform. This also
represents a significant growth area for loyalty programs.
Zoomerang surveyed US mobile phone owners on
behalf of mobile marketing firm Hipcricket in October
2010 and found that more than a third of respondents
said they would be interested in a mobile loyalty program
from a trusted brand. But only 9% were already
participating in such a program4
.
© 2011 the first club™ 							 				 5
Today (and tomorrow’s) consumers increasingly want
to spend their loyalty accruals on digital content. The
proliferation and revenue-potential of digital content like
eBooks, music tracks, games and mobile applications
has opened up an entirely new market for
loyalty unit redemption. Just as co-branded credit
cards revolutionized the accrual aspect of loyalty
programs several decades ago, the ability to earn
points toward valuable digital content is set to
revolutionize the redemption aspect of these same
programs in this decade.
The Age of Digital Content
Digital content has become highly attractive and effective
as a loyalty reward for three reasons:
1. There is more digital content currently available for
sale in the overall market than at any time in history,
resulting in a consumer base that is very familiar
with the selection of digital content. New technologies,
increasingly sophisticated mobile devices, and the
increasing rate of consumer adoption have all supported
this trend. Consumers now want to interact and access
information at a time and in a way that suits their
needs – not someone else’s.
2. Digital content has been monetized to an unprecedented
degree. The current information age is not defined by
Napster-style sharing, but by the pay-to-play
merchandizing model of Apple’s App Store or Amazon.
Consumers are primed to pay, and so they assign more
value to the earned attainment of digital content. One
familiar set of figures perfectly illustrates this trend:
IFPI reported a decline in global music sales in 2009
by 16% to $16 billion, while digital sales grew by
14% to $4.2 billion in 2009, representing ten times the
value of the digital market in 2004.
3. The quality of apps, games and even traditional media
like music and movies has increased dramatically, again
increasing the value assigned to them when used as
rewards. Of course, most airlines, retailers and hotels
are not in the business of creating digital content, not for
their own loyalty programs or for any purpose. This is the
limitation inherent to using digital content as a reward
incentive – it requires a reputable partner and provider.
Digital Love
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
Content and the right content partner(s) is the most
important aspect of implementing digital rewards, and
this is where relevance comes into play. Consumers
will not be incentivized by an offering that is not
attractive or relevant to them, and so whichever
provider a company partners with to supply content
becomes paramount to the participation and redemption
rates enjoyed by the loyalty program and its members.
Companies that facilitate digital loyalty rewards often
provide convenient, well-known and current catalog of
content that consumers will immediately recognize
and value.
In other words, offering digital content that consumers will
really want to redeem their reward points for is key.
Give Consumers Content They Want
According to the Pew Internet & American Life Proj-
ect, 65% of online Americans have paid for intangible
digital content over the web, just under the 66% who
told Pew earlier in 2010 they had made an ecommerce
purchase of physical goods5
. More importantly for
loyalty programs, however, is the fact that these
consumers purchased a spectacularly wide array of
digital products. This means that loyalty programs
need not be pigeonholed by a selection of digital
reward offerings that might not suit their customers’
tastes. That is, digital content that consumers find
relevant (and therefore useful as a loyalty incentive)
is not limited to music and movies; it spans a range of
offerings, including apps, news, software, eBooks,
audio books, digital magazines and games.
Have Content, Now What?
It’s clear that loyalty is in a state of flux, is evolving
across sectors. Each sector will approach the new type
of loyalty program from a different direction, as
consumers have differing expectations of what a
digital-reward-centric loyalty program should entail,
depending on whether it is offered by a large airline or
their local supermarket chain. A few industries deserve
deeper examination, as they utilize loyalty programs
to the furthest extent, and here we take a closer look
at these industries: airlines, hotels, and retail.
Downloading Digital Content: By The Numbers
Music, software, and apps are the most popular content
that internet users have paid to access or download,
although the range of paid online content is quite varied
and widespread, as evidenced by a 2010 survey
from Pew Internet & American Life Project:
33% of internet users have paid for digital music online
33% have paid for software
21% have paid for apps for their cell phones or tablet
computers
19% have paid for digital games
18% have paid for digital newspaper, magazine, or
journal articles or reports
16% have paid for videos, movies, or TV shows
15% have paid for ringtones
12% have paid for digital photos
11% have paid for members-only premium content from a
website that has other free material on it
10% have paid for e-books
7% have paid for podcasts
5% have paid for tools or materials to use in video or
computer games
5% have paid for “cheats or codes” to help them in video
games
5% have paid to access particular websites such as online
dating sites or services
2% have paid for adult content
© 2011 the first club™ 			 				 				 6
Content is King
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
Airline FFP revenues can be divided into two distinct cat-
egories: currency-based revenue (or the sale of points),
and fee-based revenue. With the airline industry adopting
tighter loyalty currency accounting standards since
the International Financial Reporting Interpretation
Committee’s IFRIC 13 was instituted in 2008, airlines
now must offer attractive redemption options for orphan
points in order to realize the revenue from their initial
sale to partners like co-brand credit card banks.
InarecentsurveyconductedbyAirlineInformation/Collinson
Latitude, loyalty managers representing 40 international
airlines were asked to describe their strategies to generate
more revenue from their loyalty program members.
Interestingly, 27% of FFP managers planned to increase
their number of partners and encourage both earning and
spending of points, while another 24% of managers plan
to emphasize non-flight partner point redemptions only.
Manyairlineshavealreadyinstitutedalternativeredemption
options for miles, perhaps the most recognizable is
upgrades, but also rental car fees and other non-air
services. Some have even integrated mile redemption into
their onboard retailing strategies. But few have engaged
in the sort of redemption-friendly, high-yield digital
rewards that are poised to constitute the new loyalty
landscape.
© 2011 the first club™ 			 								 7
Airlines are the undisputed kings of loyalty programs.
Every major airline has a frequent flyer program, with the
largest (the new Delta/Northwest) boasting more than
81 million members. American Airlines AAdvantage®,
the original FFP, currently has 62.8 billion members,
who, in 2009, redeemed 150 billion miles for 6.9 million
awards.
These are big numbers, and FFP participation represents
an overwhelming percentage of the larger passenger
aviation market. Yet this is the industry that garners
the most consumer complaints about limitations and
restrictions on award redemption. Even reporting
on the industry’s reward availability is fractional at
best, due to a lack of transparency among airlines.
Airlines normally consider member accounts with enough
points for the minimum flight redemption in an FFP
to count against their liability calculations. Therefore
there are a significant number of so called “orphan
points” outstanding in accounts belonging to members
that have not earned enough for flight rewards. Orphan
point holders, according to airline consultancy Airline
Information “represent a significant revenue growth
opportunity for frequent flyer programs.”
The Problem with Orphan Points and Loyalty
Programs
In an effort to address consumer concerns airlines have
generally liberalized their FFP reward restrictions over
the past several years, expanding expiration periods
and adding last-seat redemption options. However
these improvements although welcomed by genuinely
“frequent” passengers, do not completely address
the significant and growing segment of orphan point
holders who, according to Airline Information, can easily
exceed 50% of an FFP’s membership base. Coupled with
the fact that 54% of all airline loyalty points are earned
from non-flight activity6
(led by the financially lucrative
co-branded credit card), orphan point holders represent
a major portion of an airline loyalty program’s bottom line.
“Air travel is a largely commoditized
product, and we see tremendous revenue
growth potential in the business of
currency-based loyalty.”
Airline Information
Airlines
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
How Will Airlines Integrate This Into Their Existing
Loyalty Programs?
Third-party providers will play a leading role in this
process, as airlines will find the process of
partnering with key content partners expensive
and time consuming. Ultimately, though, the
modernization of FFPs to include digital rewards will
substantially decrease airlines’ exposure to financial
liability (by encouraging the incremental redemption
of miles), will resonate with consumers who clearly desire
more value from their loyalty program participation,
and will generally encourage more repeat business
in a market increasingly defined by price-based
competition.
“It’s bigger than an accounting liability issue, airlines
are in the loyalty business whether they like it or
not, and the bottom line is that loyalty is driven by
rewards.” According to the Airline Information/Collinson
survey, 24% of airlines want to increase their profit per
FFP member. The most effective way to do that is to
engage a largely ignored segment of most loyalty
program memberships by offering small transaction
rewards. That is, low-level redemption rewards that can
be redeemed often and while members are travelling.
© 2011 the first club™ 			 								 8
“Revenue from redemption fees and selling
elite levels etc are also lucrative and can
be realized immediately due to their non-
currency affiliation. But an FFP serious about
sustainable ancillary revenues needs to take
care of its core business, rewards business
of currency-based loyalty,”
Airline Information
AIRLINE LOYALTY PROGRAMS
Collinson Latitude research in conjunction with Airline Information, October 2010, revealed that:
• 100% of airline industry respondents wanted to have more redemption content in their portfolios
• Almost 50% of respondents have redemption offers which deliver them profits rather than costing them money
• 1 in 10 industry respondents are not communicating with their customers about their redemption offers
• Two thirds feel that customers who engage with redemption programs are more loyal to the core loyalty program
By The Numbers: Frequent Flyer Programs
Delta Air Lines SkyMiles ® - 81 million members in May 2010
American Airlines AAdvantage ® - 62.8 million members in May 2010
British Airways Executive Club ® - 5.1 million members in October 2006
United Airlines Mileage Plus ® - 56 million members in May 2010
Lufthansa Miles&More ® - 15 million members since 2008
Air France/ KLM Flying Blue ® - 13.5 million members in September 2009
Virgin Atlantic Flying Club ® -1.4 million members in March 2008
Airlines
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
These two statistics alone indicate that hotel loyalty
programs, like airline programs, would be very well
served by adopting redeemable, relevant rewards,
including digital rewards that are delivered to the
devices consumers use throughout their daily lives.
© 2011 the first club™ 			 								 9
The lodging industry is another with a long and successful
history of loyalty programs. One of the largest hotel
loyalty programs, InterContinental Hotels Priority Club
Rewards ®, serves more than 52 million members
who account for nearly a third of the chain’s total hotel
stays. Hotels have followed the airlines into profitable
loyalty-based ventures like co-branded credit cards,
which have significantly boosted accrual, as has the
industry trend toward consolidation, brand segmentation
and chain dominance- (loyalty programs are most
effective when a brand has a presence in many
geographic markets).
Hotelloyaltyprograms,however,relymoreontheimproved
or increased services that are offered as benefits of
program membership. That is, a Marriott Rewards®
member enjoys an increased level of service than a
one-time lodger simply by participating in the program.
Unit accrual is also a component of this strategy,
by a notable emphasis has historically been a part
of most hotel loyalty programs.
Hotels and the Digital Realm
Relying heavily on increased services inside the hotel puts
hotels at a disadvantage when consumers are shopping.
Discounts and savings, according to the CMO Council
study, top loyalty participants’ priorities across sectors
(at 66%), while “recognition and appreciation” and “more
individualized attention” rank toward the bottom (18%
and 12%, respectively). To wring the most value out of
their loyalty programs, hotels should emphasize reward
redemption over preferred service.
One way is to engage in digital rewards. This is partic-
ularly appropriate for hotels, where there is generally a
longer window of time and more channels through which
consumers can immediately enjoy their digital rewards.
Moreover, as room nights carry a substantially lower av-
erage price versus a plane ticket, digital rewards are a
more natural analogue, and can be redeemed after a
single stay, and are thus perceived as greater value by
consumers.
Nearly half of all consumers – 47% – said they were
more motivated to join loyalty programs that provided
instant gratification7
. The same survey by Mintel indicated
that fewer and fewer consumers found value in loyalty
programs that award travel units, like airline miles or
room nights (just 7% responded that such rewards would
be an incentive to choose one loyalty program over
another).
What Consumers Want
“In any sector that utilizes loyalty marketing,
loyalty programs are fast becoming a very
important part of the relationship with the
customer,” said Susan Menke, VP and
behavioral economist at Mintel. “It seems
that now is the time to focus on adding
or improving loyalty programs to help
engage customers and maintain, and
even grow, their relationship with the
post-recession consumer.” Loyalty program
members are quite often the most profit-
able customers for marketers, and those
who use loyalty programs tend to be more
brand-loyal,” adds Susan Menke. “By
personalizing redemption opportunities and
offering easy to redeem savings, companies
can lure and retain more customers.”
AT A GLANCE: Top 10 Global HOTEL Loyalty
Programs*
1. InterContinental Hotels Priority Club ® Rewards:
52 million members
2. Marriott Rewards ®: 33 million members
3. Hilton HHonors™: 26 million members
4. Starwood Hotels Preferred Guest ®: 25 million members
5. Hyatt Gold Passport ®: 10.2 million members
6. Best Western Rewards ®: 11 million members
7. Choice Hotels Choice Privileges ®: 10 million members
8. Wyndham Rewards ®: 8 million active members
9. Carlson Hotels Goldpoints Plus ®: 5.5 million members
10. Accor A-Club ®: 5 million members in 2 years
* as at Dec 31, 2010
Hotels
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
Retail loyalty programs offer a more straightforward
proposition, with many consisting of direct discounts
in exchange for membership. One of the largest retail
loyalty programs, Borders Rewards (38 million registered
members in 2010), operates in precisely this way; unit
accrual is not a substantive aspect of the program.
In a sense, this would make retailers the leaders in
reducing the lag time between accrual and redemption
– a consumer redeems the rewards of membership with
every purchase. This approach, however, reduces the
amount of choice available to consumers, thereby limiting
redemption in a different way. Retailers could benefit
from offering digital rewards as a way to expand the
reach of their brands and loyalty programs, to gain
far greater penetration and cross-sell opportunities
through promotions, and to create higher margins from
capturing consumer preferences and other information.
Some retailers are taking this a bit farther by establishing
strategic partnerships through their loyalty programs.
This enables them to expand the reach of their brand,
expands the base of consumers participating in
the loyalty program, and increases the value presented
by such a program.
Interestingly, according to Tecmark Loyalty8
, this trend
has not extended to an expansion of the existing
cobranded credit card partnerships currently employed by
many retailers. These are on the decline, and may not
play as large a role in the future of retail loyalty programs.
Social, Mobile and Retail
Social media, digital rewards, and mobile applications
will, however. The same Tecmark forecast predicts
that retailers will dive deeper into – and integrate
more fully – social media as a way to promote loyalty
and customer engagement. In this environment,
the introduction of digital loyalty rewards will reap
significant benefits, including more frequent interaction
among consumers, loyal consumers becoming advocates
for the brand, and potentially more online sales.
© 2011 the first club™ 			 				 				 10
Social Networking and Loyalty*
22% of consumers think social media sites help
them make good decisions about purchases, and
an equal number say that social networking sites
help them make good decisions about their life in
general.
43% of social networkers are using social
networking sites for purposes other than
connecting with friends and family. The diverse
number of ways people use such sites leaves a
window open for financial institutions to make
meaningful connections with unlikely customers
and build loyalty with current ones.
“Nearly one in three social network users
value the opinions and recommendations
of family and friends over industry experts,
or any other source of information.”
Mintel, June 2010
Retail
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
© 2011 the first club™ 			 								 11
Loyalty is a key aspect of all businesses. Every enterprise,
in every industry, is searching for repeat customers upon
which growth can be built. Loyalty programs, designed
specifically to facilitate this search, can often be caught up
in the strategies of the past, but they are changing in the
direction of consumers’ desires – and that direction is
digital.
All of the data – all of it – points toward digital rewards
being the future of loyalty programs.
Digital rewards encourage incremental redemption,
which delivers value to the consumer and reduces the
provider’s liability from unredeemed points. It creates
a market of relevant, exciting rewards with low cost to
the company and high perceived value to the customer.
Digital, incremental rewards help develop intimacy
with the customer while providing businesses with the
tools to recognize their interactions and experiences
and collect valuable customer data. Businesses can then
use these insights, along with the improved consumer
relationship that comes with them, to directly improve
profitability.
68% of consumers still feel that a loyalty program can strengthen
their relationship with the brand.
48% spend more with a company whose loyalty program offers
personally relevant rewards or deals.
65% have purchased digital content online, indicating that digital rewards
contain significant value for this segment.
Overall, this process creates more engaged members
and reduces currency liability by providing a unique
way to “burn” points at a much lower and more
attainable redemption level. A digital loyalty program
is versatile and flexible, and expands brand association
in a positive direction – into the black.
The state of loyalty may be strong, but its future
is digital. Like there was any doubt.
The New Face of Loyalty
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
Denis Huré, CEO and co-founder of the first club™
Denis was born in 1965 in France. His corporate background has included positions
with KPMG, Computer Associates and Claris (Apple’s Software subsidiary). He has
undeniable expertise in marketing, international sales, finance and emerging
technologies.
In 1994, Denis joined Interplay Entertainment Corp, one of the major video game
publishers at the time. He was given the task of handling the European setup as well as
the day-to-day running of their licensing division - Interplay OEM, Inc, by its founder, Jill
Goldworn. Denis was instrumental in the growth and international development
of this group.
In 2002, Denis and Jill both left Interplay to join forces and set up The Licensing Agency
Inc., (TLA). TLA is an international marketing services agency specializing in digital
promotions and brand development. Denis’ and Jill’s integrity, knowledge and hard
work enabled them to develop a strong legacy in the world of entertainment
promotional marketing.
Jill Goldworn, president and co-founder of the first club™
Jill has experience operating OEM and Premium sales divisions in North America,
Europe and Asia, as well as considerable expertise in licensing and merchandising.
Her licensing industry tenure began in 1988, while completing her Master in
Business Administration at the University of Miami. Jill had the opportunity to
meet, work with and subsequently license the name and works of James A.
Michener, author of more than 30 books of fiction and non-fiction, and develop
a board game based on his novels – ‘Bestsell’r: The James A. Michener Game’.
Parlaying this experience into a position with GameTek as Director of Market-
ing began her impressive career with the entertainment licensing industry. In 1991
Jill moved West to become the Director of OEM Sales and Licensing at PC Globe Inc.
From 1992 to 1997 Jill was Vice President at Interplay Entertainment Corp. and
then founder and President of Interplay OEM, Inc. a wholly owned subsidiary of
Interplay from 1997-2002, where Jill and Denis began working together. After ten
years running the most profitable division of the company, Jill teamed up with Denis
to set up international marketing services agency The Licensing Agency Inc., (TLA).
© 2011 the first club™ 			 				 				 12
Denis Huré
T. + 44 (0) 203 318 3103
E. denis@thefirstclub.com
Jill Goldworn
T. + 1 8056880344
E. jill@thefirstclub.com
About the Authors
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
© 2011 the first club™ 											 13
the first club™ is the first global solutions provider to present
a new, better, and more effective way to offer rewards and
build loyalty by delivering relevant, digital content that is
instantly gratifying to today’s consumers.
the first club™ integrated digital solution can enhance loyalty
programs, promotions, incentives and any type of rewards
programs by offering the latest in premium content that will
engage consumers worldwide. Consumers can access the very
latest in digital content including millions of music tracks, mobile
phone apps, games, eBooks, audio books, currently avail-
able in 12 languages and soon the site will be offering casual
games, digital magazines, movies and TV series, to engage
with their favorite brands.
Using cloud-based technology, the first club™ solutions are
easily integrated into existing programs, are cost-efficient
and scalable, helps increase customer loyalty and can
serve to capture additional revenues.
For more information, please visit our B2B site:
- http://www.thefirstclub.net
and our white label consumer site:
- http://www.thefirstclub.com
Contact us
For any media inquiries, please contact:
ThinkInk PR
Vanessa Horwell
T. +44.203.372.4809
T. +1.305.749.5342 x232
vanessa@thinkinkpr.com
For any other queries, please contact your local representative:																			
							
the irst club™
EMEA Headquarters
1 Lyric Square
London W6 0NB
United Kingdom										
				
T. + 44 (0) 203 318 3103
F. + 44 (0) 203 318 3089
E. contact@thefirstclub.com
About the first club™
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
1. http://www.colloquy.com/article_view.asp?xd=5889
2. http://mashable.com/2010/11/15/topguest-partners
3. http://www.loyalty360.org/industry_news/article/loyalty_360_weighs_in_on_11_key_customer_loy-
alty_trends_for_2011
4. http://www.emarketer.com/Article.aspx?R=1008147
5. http://www.emarketer.com/Article.aspx?R=1008145
6. WebFlyer
7. Mintel. http://www.bizreport.com/2010/12/motivate-loyalty-program-participation-with-instant-
rewards.html
8. http://www.loyaltymarketing.com/post/Loyalty-Marketing-Looking-Forward-to-2011.aspx
© 2011 the first club™ 											 14
Sources
Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
Copyright
© 2011 the first club™. All rights reserved.
Designated trademarks and brands are the property of their respective owners.
Images used in this whitepaper are the property of their respective owners and cannot be reused or
resold by third parties.

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Loyalty Looking Forward: Whitepaper

  • 1. Loyalty: Looking Forward The State of the Loyalty Industry and its Digitized, Instant Future By Denis Huré and Jill Goldworn Part 1 of the Knowledge Series from the first club™ © 2011 the first club™ - www.thefirstclub.net
  • 2. In any industry, loyal customers are the cornerstones of successful businesses. In consumer-centric industries, the loyal customer is one that is familiar with an offered product or service, inclined to have a positive impression of the company or brand, and represents the best opportunity for a repeat transaction. For B2B companies, the relationships established with loyal clients will often lead to more clients, and repeat business is the foundation upon which growth is built. These are commonly accepted beliefs of business and are the rationale behind loyalty programs. Loyalty programs are generally acknowledged as necessary and useful, yet everyone seems to have a different opinion on their inherent value. Are they holdovers from a bygone era, where a more diverse marketplace and a less bargain-thirsty customer base necessitated greater effort to create and maintain loyal customers? Or are they integral business tools, still conferring considerable advantages on those companies that wield them well? More importantly, do loyalty programs work in their current state? Is it still effective to offer pieces of main product as an enticement for repeat business? The simple answers are “sometimes” and “somewhat.” The solutions to the challenges faced by loyalty programs and the way forward for the loyalty industry lay in the digital realm: the adoption of digital rewards, the acknowledgement that consumers are seeking more relevant and redeemable rewards at their fingertips, and the implementation of loyalty strategies that leverage the latest technology to meet consumers’ needs and desires. Let’s look at the numbers: some 71% of marketing decision makers said that loyalty schemes have become more vital to successful business over the last two years, according to a study by GI Insight released in early 2010*. The total loyalty market in the US remains incredibly robust, as measured by Colloquy1 at 1.807 billion individual programs in 13 different segments. Yet a survey by the Chief Marketing Officer Council found that 32% of consumers feel that program participation holds “little to no value,” while 37% believed individual rewards held even less value, all of which presents a loyalty paradox. These findings tell us is that loyalty programs are at a crossroads, and that while they seem certain of occupying a position of importance for most businesses, they will take a much different form in the future than they do today. Consumer needs have evolved, technology has evolved and so will loyalty programs, driven by forward-thinking companies in step with technology and consumers’ constantly evolving attitudes, to provide relevant, enticing digital rewards. Denis Huré & Jill Goldworn the first club ™ © 2011 the first club™ 2 The State of Loyalty, today and tomorrow Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 3. When American Airlines rolled out the first frequent flyer program (FFP) in the early 1980s, it was hailed as a giant leap forward in loyalty. Programs to induce repeat business had been around for years, of course, but the concept of awarding miles to loyal flyers in a newly-deregulated passenger aviation market was exciting. Miles still remain the most recognizable loyalty unit, and their influence has spread beyond the bounds of the airline industry into financial services (co-branded credit cards), retail partnerships, and even social media (Virgin America rewards frequent flyers who use the Foursquare competitor Topguest with miles)2 . Though each of these is an approach unique from the others, the dynamic remains the same: consumers are awarded miles or points, the unit of accrual, for participating in a certain activity. This parallels with other loyalty units in related industries. Hotel loyalty programs, or Frequent Guest Programs (FGPs), award points to be used toward room nights. Retailers typically award units toward the price of a product. Loyalty Programs Were Created Equal, or Were They? The significant aspect is that across all industries and types of loyalty programs, the end goal is always the same: accrue enough units to earn one free main product or service. Though cross-promotion and strategic partnerships exist, loyalty programs are overwhelmingly geared toward to the accrual of units, not the redemption of units. This distillation of the loyalty program is perhaps inevitable – after all, “buy two, get one free” is the simplest and best understood form of loyalty strategy – and it highlights its long-term nature. More recently, membership in the loyalty program has been leveraged as a promotional tool and has been used as a vehicle to attract customers into a relationship with short term tactical incentives to drive attention, engagement and action, yielding immediate results. In this case, participation often translates to upgraded service of one type or another. Airlines often use this model in their FFP; those frequent flyers enrolled in a carrier’s FFP enjoy lounge access, a reprieve from certain fees, and preferential treatment in a number of ways before, during and after flight. Having said that, this practice, while newer than miles accrual, is also fading as the ancillary revenue derived from these fees in recent years has become more central to the airline operating model. Hotels have also pursued FGPs for years, though usually without a robust loyalty reward system. These traditional programs have their place, and most enjoy widespread use in their respective industries. And this shouldn’t imply that there is no room for improvement. In fact, the progression of new loyalty strategies, including a more incremental approach to reward redemption and leveraging the value of digital media and other content to create new and more attainable rewards, is well underway. That evolution is being driven by changes in lifestyle needs and attitudes among customers. © 2011 the first club™ 3 Roots and Relics of the Loyalty Program Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 4. The exasperation of the average loyalty participant is well-documented. After all, stories of loyal but frustrated customers make good newspaper copy. But if so many consumers were unhappy with the limitations of their loyalty program’s redemption policies, the programs themselves would be long since defunct. In fact, the opposite is true; loyalty programs are as popular as ever, and the recent recession has only heightened this trend. It seems consumers are driven by the value they receive from the loyalty programs, and not necessarily by the nuances of the redemption process. According to the Gallup Management Journal*, “Brands that deliver functionally and emotionally for customers result in indexed loyalty scores three times higher.” Unfortunately, a number of aspects of the evolving consumer attitude have contributed to the decline of perceived value of loyalty programs, including a lack of relevant and attractive redemption options, a dissatisfaction with the time frame associated with certain accrual systems (FFPs first and foremost), and a certain level of frustration with the often strict redemption processes. Without a change in approach, the loyal consumer will eventually outgrow the loyalty program. The Perception of Value in a Loyalty Program It’s important to remember, however, that consumers are willing to be loyal to brands and companies – but if they participate in a formal reward program, they want to be able to claim their earnings quickly and use them in ways that are appealing, relevant and practical to their lifestyle. Personally relevant deals are the second most frequently chosen reason for spending more with a company, mentioned by 48% of people surveyed in new research by Ipsos Mori and The Logic Group3 . The Loyal Customer The explicit goal of any loyalty program is to develop loyal customers. That’s a no brainer. And the best way to achieve this is by encouraging customer engagement, which yields not only repeat business but trust, advocacy and passion for the brand – all of which are revenue multipliers, and another no brainer. The best way to achieve this significant consumer engagement is to recognize what the loyal customer wants and who the loyal customer is, and to meet their needs. That, it seems, is not such a no-brainer. Today, consumers want things they can use - relevant, valuable, and instantly redeemable digital rewards. © 2011 the first club™ 4 “Today, consumers want things they can use - relevant, valuable, and instantly redeemable digital rewards.” “The best way to achieve this significant consumer engagement is to recognize what the loyal customer wants and who the loyal customer is, and to meet their needs. That, it seems, is not such a no-brainer.” Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 5. Where loyalty programs can differentiate themselves in the digital arena is by embracing emerging technology and offering rewards on a mobile platform. This also represents a significant growth area for loyalty programs. Zoomerang surveyed US mobile phone owners on behalf of mobile marketing firm Hipcricket in October 2010 and found that more than a third of respondents said they would be interested in a mobile loyalty program from a trusted brand. But only 9% were already participating in such a program4 . © 2011 the first club™ 5 Today (and tomorrow’s) consumers increasingly want to spend their loyalty accruals on digital content. The proliferation and revenue-potential of digital content like eBooks, music tracks, games and mobile applications has opened up an entirely new market for loyalty unit redemption. Just as co-branded credit cards revolutionized the accrual aspect of loyalty programs several decades ago, the ability to earn points toward valuable digital content is set to revolutionize the redemption aspect of these same programs in this decade. The Age of Digital Content Digital content has become highly attractive and effective as a loyalty reward for three reasons: 1. There is more digital content currently available for sale in the overall market than at any time in history, resulting in a consumer base that is very familiar with the selection of digital content. New technologies, increasingly sophisticated mobile devices, and the increasing rate of consumer adoption have all supported this trend. Consumers now want to interact and access information at a time and in a way that suits their needs – not someone else’s. 2. Digital content has been monetized to an unprecedented degree. The current information age is not defined by Napster-style sharing, but by the pay-to-play merchandizing model of Apple’s App Store or Amazon. Consumers are primed to pay, and so they assign more value to the earned attainment of digital content. One familiar set of figures perfectly illustrates this trend: IFPI reported a decline in global music sales in 2009 by 16% to $16 billion, while digital sales grew by 14% to $4.2 billion in 2009, representing ten times the value of the digital market in 2004. 3. The quality of apps, games and even traditional media like music and movies has increased dramatically, again increasing the value assigned to them when used as rewards. Of course, most airlines, retailers and hotels are not in the business of creating digital content, not for their own loyalty programs or for any purpose. This is the limitation inherent to using digital content as a reward incentive – it requires a reputable partner and provider. Digital Love Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 6. Content and the right content partner(s) is the most important aspect of implementing digital rewards, and this is where relevance comes into play. Consumers will not be incentivized by an offering that is not attractive or relevant to them, and so whichever provider a company partners with to supply content becomes paramount to the participation and redemption rates enjoyed by the loyalty program and its members. Companies that facilitate digital loyalty rewards often provide convenient, well-known and current catalog of content that consumers will immediately recognize and value. In other words, offering digital content that consumers will really want to redeem their reward points for is key. Give Consumers Content They Want According to the Pew Internet & American Life Proj- ect, 65% of online Americans have paid for intangible digital content over the web, just under the 66% who told Pew earlier in 2010 they had made an ecommerce purchase of physical goods5 . More importantly for loyalty programs, however, is the fact that these consumers purchased a spectacularly wide array of digital products. This means that loyalty programs need not be pigeonholed by a selection of digital reward offerings that might not suit their customers’ tastes. That is, digital content that consumers find relevant (and therefore useful as a loyalty incentive) is not limited to music and movies; it spans a range of offerings, including apps, news, software, eBooks, audio books, digital magazines and games. Have Content, Now What? It’s clear that loyalty is in a state of flux, is evolving across sectors. Each sector will approach the new type of loyalty program from a different direction, as consumers have differing expectations of what a digital-reward-centric loyalty program should entail, depending on whether it is offered by a large airline or their local supermarket chain. A few industries deserve deeper examination, as they utilize loyalty programs to the furthest extent, and here we take a closer look at these industries: airlines, hotels, and retail. Downloading Digital Content: By The Numbers Music, software, and apps are the most popular content that internet users have paid to access or download, although the range of paid online content is quite varied and widespread, as evidenced by a 2010 survey from Pew Internet & American Life Project: 33% of internet users have paid for digital music online 33% have paid for software 21% have paid for apps for their cell phones or tablet computers 19% have paid for digital games 18% have paid for digital newspaper, magazine, or journal articles or reports 16% have paid for videos, movies, or TV shows 15% have paid for ringtones 12% have paid for digital photos 11% have paid for members-only premium content from a website that has other free material on it 10% have paid for e-books 7% have paid for podcasts 5% have paid for tools or materials to use in video or computer games 5% have paid for “cheats or codes” to help them in video games 5% have paid to access particular websites such as online dating sites or services 2% have paid for adult content © 2011 the first club™ 6 Content is King Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 7. Airline FFP revenues can be divided into two distinct cat- egories: currency-based revenue (or the sale of points), and fee-based revenue. With the airline industry adopting tighter loyalty currency accounting standards since the International Financial Reporting Interpretation Committee’s IFRIC 13 was instituted in 2008, airlines now must offer attractive redemption options for orphan points in order to realize the revenue from their initial sale to partners like co-brand credit card banks. InarecentsurveyconductedbyAirlineInformation/Collinson Latitude, loyalty managers representing 40 international airlines were asked to describe their strategies to generate more revenue from their loyalty program members. Interestingly, 27% of FFP managers planned to increase their number of partners and encourage both earning and spending of points, while another 24% of managers plan to emphasize non-flight partner point redemptions only. Manyairlineshavealreadyinstitutedalternativeredemption options for miles, perhaps the most recognizable is upgrades, but also rental car fees and other non-air services. Some have even integrated mile redemption into their onboard retailing strategies. But few have engaged in the sort of redemption-friendly, high-yield digital rewards that are poised to constitute the new loyalty landscape. © 2011 the first club™ 7 Airlines are the undisputed kings of loyalty programs. Every major airline has a frequent flyer program, with the largest (the new Delta/Northwest) boasting more than 81 million members. American Airlines AAdvantage®, the original FFP, currently has 62.8 billion members, who, in 2009, redeemed 150 billion miles for 6.9 million awards. These are big numbers, and FFP participation represents an overwhelming percentage of the larger passenger aviation market. Yet this is the industry that garners the most consumer complaints about limitations and restrictions on award redemption. Even reporting on the industry’s reward availability is fractional at best, due to a lack of transparency among airlines. Airlines normally consider member accounts with enough points for the minimum flight redemption in an FFP to count against their liability calculations. Therefore there are a significant number of so called “orphan points” outstanding in accounts belonging to members that have not earned enough for flight rewards. Orphan point holders, according to airline consultancy Airline Information “represent a significant revenue growth opportunity for frequent flyer programs.” The Problem with Orphan Points and Loyalty Programs In an effort to address consumer concerns airlines have generally liberalized their FFP reward restrictions over the past several years, expanding expiration periods and adding last-seat redemption options. However these improvements although welcomed by genuinely “frequent” passengers, do not completely address the significant and growing segment of orphan point holders who, according to Airline Information, can easily exceed 50% of an FFP’s membership base. Coupled with the fact that 54% of all airline loyalty points are earned from non-flight activity6 (led by the financially lucrative co-branded credit card), orphan point holders represent a major portion of an airline loyalty program’s bottom line. “Air travel is a largely commoditized product, and we see tremendous revenue growth potential in the business of currency-based loyalty.” Airline Information Airlines Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 8. How Will Airlines Integrate This Into Their Existing Loyalty Programs? Third-party providers will play a leading role in this process, as airlines will find the process of partnering with key content partners expensive and time consuming. Ultimately, though, the modernization of FFPs to include digital rewards will substantially decrease airlines’ exposure to financial liability (by encouraging the incremental redemption of miles), will resonate with consumers who clearly desire more value from their loyalty program participation, and will generally encourage more repeat business in a market increasingly defined by price-based competition. “It’s bigger than an accounting liability issue, airlines are in the loyalty business whether they like it or not, and the bottom line is that loyalty is driven by rewards.” According to the Airline Information/Collinson survey, 24% of airlines want to increase their profit per FFP member. The most effective way to do that is to engage a largely ignored segment of most loyalty program memberships by offering small transaction rewards. That is, low-level redemption rewards that can be redeemed often and while members are travelling. © 2011 the first club™ 8 “Revenue from redemption fees and selling elite levels etc are also lucrative and can be realized immediately due to their non- currency affiliation. But an FFP serious about sustainable ancillary revenues needs to take care of its core business, rewards business of currency-based loyalty,” Airline Information AIRLINE LOYALTY PROGRAMS Collinson Latitude research in conjunction with Airline Information, October 2010, revealed that: • 100% of airline industry respondents wanted to have more redemption content in their portfolios • Almost 50% of respondents have redemption offers which deliver them profits rather than costing them money • 1 in 10 industry respondents are not communicating with their customers about their redemption offers • Two thirds feel that customers who engage with redemption programs are more loyal to the core loyalty program By The Numbers: Frequent Flyer Programs Delta Air Lines SkyMiles ® - 81 million members in May 2010 American Airlines AAdvantage ® - 62.8 million members in May 2010 British Airways Executive Club ® - 5.1 million members in October 2006 United Airlines Mileage Plus ® - 56 million members in May 2010 Lufthansa Miles&More ® - 15 million members since 2008 Air France/ KLM Flying Blue ® - 13.5 million members in September 2009 Virgin Atlantic Flying Club ® -1.4 million members in March 2008 Airlines Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 9. These two statistics alone indicate that hotel loyalty programs, like airline programs, would be very well served by adopting redeemable, relevant rewards, including digital rewards that are delivered to the devices consumers use throughout their daily lives. © 2011 the first club™ 9 The lodging industry is another with a long and successful history of loyalty programs. One of the largest hotel loyalty programs, InterContinental Hotels Priority Club Rewards ®, serves more than 52 million members who account for nearly a third of the chain’s total hotel stays. Hotels have followed the airlines into profitable loyalty-based ventures like co-branded credit cards, which have significantly boosted accrual, as has the industry trend toward consolidation, brand segmentation and chain dominance- (loyalty programs are most effective when a brand has a presence in many geographic markets). Hotelloyaltyprograms,however,relymoreontheimproved or increased services that are offered as benefits of program membership. That is, a Marriott Rewards® member enjoys an increased level of service than a one-time lodger simply by participating in the program. Unit accrual is also a component of this strategy, by a notable emphasis has historically been a part of most hotel loyalty programs. Hotels and the Digital Realm Relying heavily on increased services inside the hotel puts hotels at a disadvantage when consumers are shopping. Discounts and savings, according to the CMO Council study, top loyalty participants’ priorities across sectors (at 66%), while “recognition and appreciation” and “more individualized attention” rank toward the bottom (18% and 12%, respectively). To wring the most value out of their loyalty programs, hotels should emphasize reward redemption over preferred service. One way is to engage in digital rewards. This is partic- ularly appropriate for hotels, where there is generally a longer window of time and more channels through which consumers can immediately enjoy their digital rewards. Moreover, as room nights carry a substantially lower av- erage price versus a plane ticket, digital rewards are a more natural analogue, and can be redeemed after a single stay, and are thus perceived as greater value by consumers. Nearly half of all consumers – 47% – said they were more motivated to join loyalty programs that provided instant gratification7 . The same survey by Mintel indicated that fewer and fewer consumers found value in loyalty programs that award travel units, like airline miles or room nights (just 7% responded that such rewards would be an incentive to choose one loyalty program over another). What Consumers Want “In any sector that utilizes loyalty marketing, loyalty programs are fast becoming a very important part of the relationship with the customer,” said Susan Menke, VP and behavioral economist at Mintel. “It seems that now is the time to focus on adding or improving loyalty programs to help engage customers and maintain, and even grow, their relationship with the post-recession consumer.” Loyalty program members are quite often the most profit- able customers for marketers, and those who use loyalty programs tend to be more brand-loyal,” adds Susan Menke. “By personalizing redemption opportunities and offering easy to redeem savings, companies can lure and retain more customers.” AT A GLANCE: Top 10 Global HOTEL Loyalty Programs* 1. InterContinental Hotels Priority Club ® Rewards: 52 million members 2. Marriott Rewards ®: 33 million members 3. Hilton HHonors™: 26 million members 4. Starwood Hotels Preferred Guest ®: 25 million members 5. Hyatt Gold Passport ®: 10.2 million members 6. Best Western Rewards ®: 11 million members 7. Choice Hotels Choice Privileges ®: 10 million members 8. Wyndham Rewards ®: 8 million active members 9. Carlson Hotels Goldpoints Plus ®: 5.5 million members 10. Accor A-Club ®: 5 million members in 2 years * as at Dec 31, 2010 Hotels Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 10. Retail loyalty programs offer a more straightforward proposition, with many consisting of direct discounts in exchange for membership. One of the largest retail loyalty programs, Borders Rewards (38 million registered members in 2010), operates in precisely this way; unit accrual is not a substantive aspect of the program. In a sense, this would make retailers the leaders in reducing the lag time between accrual and redemption – a consumer redeems the rewards of membership with every purchase. This approach, however, reduces the amount of choice available to consumers, thereby limiting redemption in a different way. Retailers could benefit from offering digital rewards as a way to expand the reach of their brands and loyalty programs, to gain far greater penetration and cross-sell opportunities through promotions, and to create higher margins from capturing consumer preferences and other information. Some retailers are taking this a bit farther by establishing strategic partnerships through their loyalty programs. This enables them to expand the reach of their brand, expands the base of consumers participating in the loyalty program, and increases the value presented by such a program. Interestingly, according to Tecmark Loyalty8 , this trend has not extended to an expansion of the existing cobranded credit card partnerships currently employed by many retailers. These are on the decline, and may not play as large a role in the future of retail loyalty programs. Social, Mobile and Retail Social media, digital rewards, and mobile applications will, however. The same Tecmark forecast predicts that retailers will dive deeper into – and integrate more fully – social media as a way to promote loyalty and customer engagement. In this environment, the introduction of digital loyalty rewards will reap significant benefits, including more frequent interaction among consumers, loyal consumers becoming advocates for the brand, and potentially more online sales. © 2011 the first club™ 10 Social Networking and Loyalty* 22% of consumers think social media sites help them make good decisions about purchases, and an equal number say that social networking sites help them make good decisions about their life in general. 43% of social networkers are using social networking sites for purposes other than connecting with friends and family. The diverse number of ways people use such sites leaves a window open for financial institutions to make meaningful connections with unlikely customers and build loyalty with current ones. “Nearly one in three social network users value the opinions and recommendations of family and friends over industry experts, or any other source of information.” Mintel, June 2010 Retail Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 11. © 2011 the first club™ 11 Loyalty is a key aspect of all businesses. Every enterprise, in every industry, is searching for repeat customers upon which growth can be built. Loyalty programs, designed specifically to facilitate this search, can often be caught up in the strategies of the past, but they are changing in the direction of consumers’ desires – and that direction is digital. All of the data – all of it – points toward digital rewards being the future of loyalty programs. Digital rewards encourage incremental redemption, which delivers value to the consumer and reduces the provider’s liability from unredeemed points. It creates a market of relevant, exciting rewards with low cost to the company and high perceived value to the customer. Digital, incremental rewards help develop intimacy with the customer while providing businesses with the tools to recognize their interactions and experiences and collect valuable customer data. Businesses can then use these insights, along with the improved consumer relationship that comes with them, to directly improve profitability. 68% of consumers still feel that a loyalty program can strengthen their relationship with the brand. 48% spend more with a company whose loyalty program offers personally relevant rewards or deals. 65% have purchased digital content online, indicating that digital rewards contain significant value for this segment. Overall, this process creates more engaged members and reduces currency liability by providing a unique way to “burn” points at a much lower and more attainable redemption level. A digital loyalty program is versatile and flexible, and expands brand association in a positive direction – into the black. The state of loyalty may be strong, but its future is digital. Like there was any doubt. The New Face of Loyalty Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 12. Denis Huré, CEO and co-founder of the first club™ Denis was born in 1965 in France. His corporate background has included positions with KPMG, Computer Associates and Claris (Apple’s Software subsidiary). He has undeniable expertise in marketing, international sales, finance and emerging technologies. In 1994, Denis joined Interplay Entertainment Corp, one of the major video game publishers at the time. He was given the task of handling the European setup as well as the day-to-day running of their licensing division - Interplay OEM, Inc, by its founder, Jill Goldworn. Denis was instrumental in the growth and international development of this group. In 2002, Denis and Jill both left Interplay to join forces and set up The Licensing Agency Inc., (TLA). TLA is an international marketing services agency specializing in digital promotions and brand development. Denis’ and Jill’s integrity, knowledge and hard work enabled them to develop a strong legacy in the world of entertainment promotional marketing. Jill Goldworn, president and co-founder of the first club™ Jill has experience operating OEM and Premium sales divisions in North America, Europe and Asia, as well as considerable expertise in licensing and merchandising. Her licensing industry tenure began in 1988, while completing her Master in Business Administration at the University of Miami. Jill had the opportunity to meet, work with and subsequently license the name and works of James A. Michener, author of more than 30 books of fiction and non-fiction, and develop a board game based on his novels – ‘Bestsell’r: The James A. Michener Game’. Parlaying this experience into a position with GameTek as Director of Market- ing began her impressive career with the entertainment licensing industry. In 1991 Jill moved West to become the Director of OEM Sales and Licensing at PC Globe Inc. From 1992 to 1997 Jill was Vice President at Interplay Entertainment Corp. and then founder and President of Interplay OEM, Inc. a wholly owned subsidiary of Interplay from 1997-2002, where Jill and Denis began working together. After ten years running the most profitable division of the company, Jill teamed up with Denis to set up international marketing services agency The Licensing Agency Inc., (TLA). © 2011 the first club™ 12 Denis Huré T. + 44 (0) 203 318 3103 E. denis@thefirstclub.com Jill Goldworn T. + 1 8056880344 E. jill@thefirstclub.com About the Authors Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 13. © 2011 the first club™ 13 the first club™ is the first global solutions provider to present a new, better, and more effective way to offer rewards and build loyalty by delivering relevant, digital content that is instantly gratifying to today’s consumers. the first club™ integrated digital solution can enhance loyalty programs, promotions, incentives and any type of rewards programs by offering the latest in premium content that will engage consumers worldwide. Consumers can access the very latest in digital content including millions of music tracks, mobile phone apps, games, eBooks, audio books, currently avail- able in 12 languages and soon the site will be offering casual games, digital magazines, movies and TV series, to engage with their favorite brands. Using cloud-based technology, the first club™ solutions are easily integrated into existing programs, are cost-efficient and scalable, helps increase customer loyalty and can serve to capture additional revenues. For more information, please visit our B2B site: - http://www.thefirstclub.net and our white label consumer site: - http://www.thefirstclub.com Contact us For any media inquiries, please contact: ThinkInk PR Vanessa Horwell T. +44.203.372.4809 T. +1.305.749.5342 x232 vanessa@thinkinkpr.com For any other queries, please contact your local representative: the irst club™ EMEA Headquarters 1 Lyric Square London W6 0NB United Kingdom T. + 44 (0) 203 318 3103 F. + 44 (0) 203 318 3089 E. contact@thefirstclub.com About the first club™ Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future
  • 14. 1. http://www.colloquy.com/article_view.asp?xd=5889 2. http://mashable.com/2010/11/15/topguest-partners 3. http://www.loyalty360.org/industry_news/article/loyalty_360_weighs_in_on_11_key_customer_loy- alty_trends_for_2011 4. http://www.emarketer.com/Article.aspx?R=1008147 5. http://www.emarketer.com/Article.aspx?R=1008145 6. WebFlyer 7. Mintel. http://www.bizreport.com/2010/12/motivate-loyalty-program-participation-with-instant- rewards.html 8. http://www.loyaltymarketing.com/post/Loyalty-Marketing-Looking-Forward-to-2011.aspx © 2011 the first club™ 14 Sources Loyalty: Looking Forward, the State of the Loyalty Industry and its Digitized, Instant Future Copyright © 2011 the first club™. All rights reserved. Designated trademarks and brands are the property of their respective owners. Images used in this whitepaper are the property of their respective owners and cannot be reused or resold by third parties.