David Cox is Australia’s only marketing executive with a doctorate in loyalty marketing. Dr Cox, who is general manager relationship marketing for CiEvents, discusses the segment with Miles Clarke.
Q: What is the value of brands and how do they relate to the loyalty marketing arena.
A: Organisations invest heavily in creating, building, positioning and then maintaining positive brand equity. Essentially the value of a brand is determined by the amount of profit it generates for the organisation. Research shows that strong, well-leveraged brands produce higher returns to shareholders than weaker, narrower brands through increased sales and /or increased price.
The source of an increase in sales is obviously the customer, who incidentally is also the target of the organisation’s loyalty program. The link between brand equity and an organisation’s loyalty marketing program is even more significant due to the fact that loyalty programs are positioned to attract and reward an organisation’s best customers, (i.e. those whom engage in frequent repeat purchase activity).
Q: What made you take the topic of loyalty marketing as far as a PhD? What were your key findings and how are they being applied anywhere in corporate Australia.
A: I was becoming frustrated with the growing ineffectiveness of a number of loyalty and incentive programs in the Australian marketplace. In fact there seemed to be a sameness or “me too” approach to numerous programs, particularly those that competed in the same industry sector. One of the fundamental problems with the design of current customer loyalty and incentive programs is the sole reliance on point accumulation for purchases. In fact, the only loyalty that is generated by these programs is often termed polygamous loyalty, where the participant either forms multiple relationships with numerous suppliers, or instantly leaves the program when they have exhausted their point balance. Customers who engage in polygamous loyalty are highly prone to switching behaviour, particularly when a competitor offers more points.
The PhD findings indicate that successful programs that are structured with multiple relationship portals deliver a superior return on investment. Further, choice modelling experiments undertaken on participants in business-to-business loyalty programs have expressed a clear preference for the development and maintenance of an enduring and rewarding business relationship, where the out-take for the participant from the company sponsoring the loyalty program is that they understand and care about my business, that they regard my success and their success and allow me to engage in a preferred relationship. Interestingly, the next generation of business-to-business loyalty programs are migrating away from the sole reliance on point earning accumulation (some are actively planning on withdrawing points accumulation altogether), and are substituting the point liability with additional relationship building structures and benefits that create solidarity, identity, trust, commitment and even use resources to develop business networks sponsored by the organisation.
At CiEvents, we applied these findings to the Australian and New Zealand IBM channel program resulting in a significant return on investment in comparison to previous programs. In fact, we won a SITE award (Society of Incentive and Travel Executives based in Chicago) for the IBM program in 2005 in the category of “Most effective use of an incentive program to solve a marketing problem.”
Q: The past decade has seen the rise of the database to an even more central position within loyalty programs. Where are these going and what should marketing directors be looking for when selecting one for a loyalty program.
A: Without a doubt the greatest development in the operation of customer incentive and loyalty programs has been the evolution of the database. Databases are providing marketing and loyalty practitioners with increased data, valuable insights into program participant purchase behaviour as well as providing actionable data in acceptable time frames in terms of planning and deploying marketing initiatives.
However, the biggest complaint from marketing directors, both via the PhD research and client feedback, is the application of the “off the shelf” database program that many loyalty and incentive agencies force clients to use. Usually these programs have been developed as a generic loyalty application and are on-sold many times by the loyalty agency, thus allowing them to amortise the development costs across a number of clients. As a result they tend to be highly inflexible, are generic in their reporting, do not offer any customisation to industry nuances and fail to cater to the tastes and differences in customer segments. Without a doubt my advice is to beware of the generic database loyalty solution.
Clearly, a loyalty database program needs to work at operating a program that will meet the organisations’ and loyalty program objectives. Therefore consideration needs to be given to:
1. The percentage of participants who engage in online activity, particularly during the purchase cycle of a company’s product or service
2. Reporting requirements
3. Flexibility to make changes and site customisation
4. Data supply and integrity to make real time marketing decisions
Q: Could you spell out how “clubs” can be structured to make them difficult to replicate.
A: The traditional approach to developing a loyalty program is to view it from a transactional perspective, for example, rewarding for transactions with an organisation. The reward could be delayed gratification or instant such as a discount. However, this approach is easily copied and replicated by competitors. The approach that we are adopting in developing incentive and loyalty programs is to focus on building social capital structures that provide networking opportunities, interaction, regular information exchange between participants as well as the company operating the program, creating a common identity, creating a shared language, developing common values and bonds that would exist in a club, whether it be a sporting club or a lifestyle club. These communities exist around the organisation’s brand and within the structure of the loyalty program. This is far harder for a competitor to replicate compared to a simple transaction-based program.
Q: What’s the next trend in the corporate incentive market? What place does travel have in a security-sensitive corporate environment.
A: In relation to the rewards mix of an incentive program, the popularity of self development rewards has increased as well as the emergence of “name your own reward”, a concept where participants are given a certain value and they select the reward they would like, without any limitations. Examples include paying school fees, mortgage booster, individual travel extensions, personal trainers, etcetera. It requires the loyalty agency to introduce a concierge reward service where the participant can literally name his or her own reward.
Travel is still one of the greatest motivators for corporate incentives and is one of the more tax effective options, where business content is also introduced into the itinerary. Whilst we are operating in a security-sensitive corporate environment, travel incentives have adapted to these environmental forces and destinations that are seen as safe and stable have become popular. Further, a number of corporations, who are sensitive to global security issues, are choosing domestic travel destinations.
Q: Are there any aspects of the Australian loyalty-marketing world that has us out in front compared to the rest of the world.
A: Absolutely. In fact CiEvents were recently awarded the global IBM KYI channel program, in a competitive global pitch with four other organisations (one based in the United States, one in Asia and one based in Europe). As a result we now operate the IBM KYI program in Europe, the Middle East, Africa, the Americas, India, Asia Pacific and Australia and New Zealand. As IBM participated in my PhD study, it is probably the best testament that the PhD findings are significant in improving incentive and loyalty programs.
CiEvents is on a continual journey towards developing a new generation of loyalty and incentive programs. We are the most active loyalty and incentive agency in conducting rigorous research with our Academic Institution partners such as UTS (where I am also on staff), UNSW and the University of Maastricht. We have assembled some of the world’s greatest researchers to work on challenges facing our clients. This has included choice modelling experiments to determine the purchase behaviour and brand preference of Generation Y for Contiki, applying goal-learning theory and sales efficacy for IBM and social capital theory in a customer club context for Yamaha and CRT. The fact that as an Australian company we are competing and winning clients on a global scale indicates that we are generating results.
Q: What are your thoughts on experiential rewards, which may be group or individual in their delivery.
A: Without a doubt the emerging trend in experiential rewards has been the growth of corporate social responsibility. Group incentives now include a component where the delegates are able to give something back to the local people. This may be helping to build a community structure or assisting with a clean up. It was very popular with groups visiting Phuket after the Tsunami and New Orleans after Hurricane Katrina and the concept has now spread to other destinations around the world. These corporate responsibility initiatives have the ability to deliver the “wow” factor, albeit in a different format.
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