2015
THE FUTURE OF REWARDS
How Rewards Will Help
Build Real Relationships
> CMOs on Rewards
> Global Experts Speak
> Aimia at Work: Rewards Design
The delivery of compelling, personalized, and relevant rewards
will continue to fuel relationship value. To understand why, we must understand the primary
role of loyalty rewards.
DO REWARDS MATTER? WHY?
By Aaron Dauphinee
I have a love-hate relationship with closed-end questions. On one hand, I melt in the simplicity of being able to distill the options into only two definitive responses: yes or no. Yet I also have a strong distaste for the lack of explanation or context that either of these responses provides. And so, like most everyone else, I have come to learn the benefits of partnering these questions with a simple follow-up question, “Why?”
To cultivate long-term, profitable customer relationships, savvy marketers know that reciprocity plays a critical role in establishing trust and commitment to their brand. Both parties, the customer and the brand, need to perceive that there is value being generated from the interactions with each other. Often for the brand, this breaks down quite simply to revenue, margin, customer retention, increased member spend, etc. For customers, their perception of what drives value can be rooted in any combination of emotional or pragmatic drivers. And while this makes the ‘why’ much harder for brands to understand, Aimia knows that rewards and benefits do have, and most certainly will continue to have, influence in generating loyalty. Here’s why…
In the not too distant future, “Janet” will join a loyalty program at her favourite grocery store and receive a set of bonus points in exchange for initially downloading the program app on her smart phone and also allowing it to track her physical location. While earning points is one driver, the program promises to deliver a real-time, customized benefit catalog to all of her devices that is based on Janet’s stated preferences and redemption behaviour. Through the app, Janet will select the special offers that she would like to receive. Potentially she will take advantage of the program’s data locker, which allows her to select the personal information that she is willing to exchange with the program. The type of data Janet will share with the program influences her ability to earn points and gain access to certain benefits, some of which the brand states openly to all program members, while others Janet will learn about as she increases her engagement.
Janet will engage more and more with the grocer’s loyalty program because she will
like receiving timely push notifications on her phone for sports and entertainment offers. This is a preference filter that she selects to allow her to redeem points for exclusive box seats, which are seats she otherwise would not be able to access. She may receive an offer like this two days prior to her anniversary, which she will quickly redeem on her tablet, allowing her to create a uniquely memorable moment. And, just to say “thank you,” Janet will receive a coupon for a complimentary cup of coffee from her local barista on her way to work. Just a special benefit for being a member of the grocery program. Participating in the program will actively improve her life, and to continue enjoying these benefits, she need only keep shopping at her favourite grocer.
The benefits and rewards clearly matter to Janet. And it’s easy to understand the value exchange in monetary terms to explain why she continues with this relationship. However, this example with Janet also illustrates that there is equal, if not more, emotional consideration to rewarding her. Should this matter to marketers? It’s clear the answer is yes. Why should this matter to marketers? According to the loyalty experts Aimia interviewed for this Bulletin, this scenario represents the future design of member benefits: customized, dynamic, right-time rewards and benefits that demonstrate reciprocity; brands knowingly providing rewards and recognition to those customers who give their loyalty to and are willing to share their personal data with them. Simple in concept, yet layered with complexity to deliver flawlessly.
Read on to learn what some of the best minds in loyalty have to say about the future of rewards and why it should matter to you.
Aaron Dauphinee is General Manager for Aimia Institute.
FOR THE RECORD
Q. HOW WILL REWARDS EVOLVE?
For this issue of the Aimia Bulletin, we asked Aimia experts around the globe to weigh in on the future of rewards. How will technology, market forces, and changing consumer demands impact reward design? Will promotional currency continue to be the best way to build relationship equity? Will loyalty programs survive in their present incarnation? Here’s a sample of what Aimia’s thought leaders had to say.
Vikas Choudhury, Managing Director, India
“Program design will evolve to deliver rewards that are truly tailored to the customer. Rewards will become either monetary or non-monetary, tangible or intangible, and will reward both transactional and non-transactional behaviour. Special offers based on customer lifetime value or potential will deliver significant ROI to retailers through an unexpected engagement with the consumer.”
Martin Hayward, Senior Vice President, Global Digital Strategy and Futures
“Rewards will evolve to help consumers tune out the noise in this always-connected world by using consumer data to offer the benefits of ‘life administration.’ With every retailer soon being able to communicate with customers as soon as they come through the door, reward programs will act as facilitators for the customer by helping them create one set of preferences to manage their affairs and make the journey easier for them.”
Marshall Stanton, Senior Vice President, Head of Customer Loyalty, United States
“The evolution in rewards design will occur around personalization, relevance, engagement, and recognition. Relevance, in particular, is the one compelling reward that marketers don’t yet take advantage of — the idea that you can use one or two data points to deliver a reward that is very powerful. Rewards will evolve toward relevant products and benefits that the customer wants in the context of the relationship.”
Jan-Pieter Lips, Regional President, Europe, Middle East, and Africa
“There will be a trend towards using data to reward customers by delivering a better experience. We will reward them by driving better product propositions, improving the in-store environment, the relevancy of offers, and more. We won’t just deliver rewards as treats — the concept of rewarding consumers will become much more profound than that.”
Kevin O’Brien, Chief Business Development Officer, Canada
“Redemption behaviour will increasingly add value to our data assets. Analytics will inform the delivery of the ‘right’ rewards much more so than today, and will become the key to delivering an element of ‘magic’ in reward design and delivery. The crafts of personalization and product development will align to help members find rewards that delight them.”
Nicola Walker, Vice President, Global Rewards
“We all appreciate being thanked by the words, actions and rewards we receive from others. In making business personal, Aimia is helping companies say thank you on a larger scale. But this approach only works if the words, actions and rewards we offer feel relevant and personal to the individual receiving them and if it recognizes the level of their commitment. This level of personal recognition creates emotional engagement — the very basis of loyalty. Aimia is determined to understand and then predict the benefits and rewards that consumers want from their loyalty program and to deliver these in the format and at the speed that suits their needs.”
VIEWPOINT: THE FUTURE OF REWARDS
WILL REWARDS CONTINUE TO HELP BUILD REAL RELATIONSHIPS?
In the summer of 2014, Aimia’s Knowledge Development team undertook an
extensive set of interviews with over a dozen Aimia subject matter experts (SMEs) around the globe. Our question: What role will rewards, in both currency and non-currency program models, play in building real relationships today and tomorrow? What form will rewards take in the next five years? How will rewards evolve to meet changing consumer demands? Their collective response: While the nature and even the definition of “rewards” is changing, demonstrating loyalty by rewarding and recognizing best customers will continue to be a crucial element of building real relationships.
A recent Aimia survey of 71 CMOs conducted by the Global Strategy team reveals that rewards remain a critical element of the loyalty value proposition. The following insights on the future of rewards represent the collective viewpoint of the 14 Aimia executives we were able to interview by press time. We’ve organized their responses into the following Top Five Challenges and Top Five Opportunities in rewards design and insight. The overriding message: We’ve arrived at an inflection point, in which the old reward models must evolve to meet the changing demands brought on by technology, the market, and consumer behaviour.
TOP FIVE OPPORTUNITIES
1. Researching the psychology around “thank you” and the psychology of rewards. Understanding what factors
drive a customer to earn and redeem within programs, and how redemption influences future buying behaviour, will become critical to marketing success. What psychological levers drive consumers to collect currency? How important is it to say “thank you?” How does a successful first redemption impact customer lifetime value? Are multiple redeemers even more valuable? Can we create dynamic psychological profiles of customers — savvy shoppers, experience seekers, savers, etc. — and build reward portfolios that better target these groups? What is the impact of redemption on brand reputation? How can the latest findings of neuroscience help drive reward portfolio design? By better understanding what psychological drivers underpin loyalty program activity, we can improve both the outcome and the profitability of our loyalty programs.
2. Customer experience as a reward.
The flip side of the confusing and evolving definition of rewards is the opportunity to broaden the definition to one that encompasses the use of data to improve the customer experience, personalize reward offers, and
recognize valuable customer segments — next-generation rewards that form the foundation of real relationships. To seize on this opportunity, leverage customer-centric data to drive better product relevancy, improve the in-store experience, and recognize top-tier customers. Rewarding your customers with an improved experience will build emotional loyalty that lasts.
3. Personal relevance in reward design. The
era of “one-size-fits-all” reward catalogs is drawing to a close. The next era of reward design will feature a customized, personalized reward experience based on customer transaction, earning, and redemption data. Whether it’s building an Amazon-style recommendation engine into your reward catalog, delivering exclusive and tailored rewards to top customers, or leveraging your analytics prowess to offer rewards based on distinctive customer life stages, loyalty
marketers now possess the building blocks to bring personalization of rewards to an entirely new level. Personalization should also extend to the redemption experience itself, so that customers earn rewards at the time and place of their choosing.
4. A renewed focus on soft benefits.
Marketers traditionally focus on the hard benefits side of the reward value proposition for the simple reason that currency programs and economic rewards drive short-term behaviour change. However, as best customers increasingly demand soft benefits — recognition, exclusive access and
services, tiered benefits for top segments — the loyalty programs of tomorrow will feature renewed focus on the soft side of the equation. The power of recognition elements to build long-term emotional loyalty will prove a difference-maker for the world’s leading programs.
5. Reward model innovation.
The industry leaders of tomorrow will develop new reward models that take customer recognition and reward into the 21st century. Whether it’s incorporating dynamic pricing in reward points value; to accessing distressed inventories — theater, sporting event, and concert tickets, for example — and delivering these rewards in real time; to building networks of local redemption partners; to building entirely new non-points based program models; to creating a true virtual currency; these and many other innovations in loyalty program design will help marketers build real relationships with their best customers.
While innovation, new technology, and changing consumer demands will fuel the next generation of reward design, some truths remain eternal: That customers are motivated by recognition and reward; that some customers are more valuable than others and thus deserving of special offers and service; and that real relationships are built on a foundation of trust, commitment, and reciprocity. Far from serving to bribe customers for their loyalty, rewards will continue to serve as the mechanism by which brands demonstrate their loyalty to their best customers.
We’ve arrived at an inflection point, in which the old reward models must evolve to meet the changing demands brought on by technology, the market, and
TOP FIVE CHALLENGES
1. The many definitions of “rewards.”
The term “rewards” has become a catch-all term encompassing everything from promotional currency to short-term promotions and discounts. Because of this confusion, many marketers still consider rewards as a form of bribery, with no impact on the customer relationship. Leaders in reward design and insight must develop a definition of rewards that stresses their role in building real relationships by making business more personal.
2. In building real relationships, rewards are undervalued. Marketers
tend to underestimate the value of rewards in building relationships. This underestimation happens for two reasons: One, because marketers often choose reward fulfillment partners based almost solely on price, they tend to discount the value of effective rewards design; and two, the hype surrounding the potential of “Big Data” often obscures the role of reward and recognition in building relationships. After all, for many customers, reward
redemption represents one of the few points in the customer journey when brand loyalty delivers tangible return. The ability to leverage redemption behaviour to predict future customer value offers untapped potential for marketers.
3. The increasing transparency of rewards value. The ubiquity of loyalty
programs in mature markets has led to a savvier generation of consumers more willing and able to “do the math” when choosing which programs to participate in, and they have more tools at their disposal to do so. As a result, the “perceived value” gap in rewards, which historically has driven program profitability, is shrinking. To combat this trend, marketers should seek new rewards that build perceived value back into the equation.
4. The trend to instant rewards.
Aimia’s own Millennial Loyalty research revealed what marketers are now learning on the front lines: Fully aware of the value of their loyalty, Generation Y consumers now demand both immediate gratification and increased reward value — an equation
that marketers find difficult to balance. This evolution has led to a focus on low-cost instant rewards, discounts, and cash-back programs. While instant rewards can be an important tool in the marketing toolbox, marketers shouldn’t discount the power of promotional currency to both motivate incremental behaviour and deliver long-term customer value.
5. The changing ease-vs.-value equation.
Marketers have long struggled with the “ease vs. value” equation of reward design, which states that the ease with which a program member earns and redeems for a reward should be less than or equal to the perceived value of that reward. A related concept is a program’s “earn velocity” — the speed with which a member can earn a meaningful reward — which often dictates the level of program
engagement. Thanks to the advent of smart phones, consumers now demand seamless, multi-channel earning and redemption, as well as rewards of increasing value — a double-whammy for the bottom line of most loyalty programs.
A recent round of interviews with over a dozen Aimia loyalty experts revealed the top five challenges and opportunities inherent in the future of rewards design.
Top Five Opportunities
Top Five Challenges
1
Researching the psychology around
“thank you” and the psychology of rewards
2
Experience as a reward3
Personal relevance in reward design4
Renewed focus on soft benefits5
Innovative reward models1
The many definitions of rewards2
The role of rewards is undervalued3
The transparency of rewards value4
The trend to “instant” rewards5
The ease-to-value equationTOP CMO GOALS FOR REWARD PROGRAMS
Percent of respondents to select as top 3
TOP CMO VALUE DRIVERS FOR REWARDS
3.3
Average score (1=not important; 2=nice to have; 3=important; 4=critical)
Increase customer retention Grow the membership base Increase member spend Improve customer satisfaction Drive brand engagement Optimize loyalty costs Try out new ideas Know customers better
22%
24%
46%
All capabilities average40%
49%
56%
58%
67%
58%
Increase loyalty program member engagement through an attractive rewards proposition
(e.g. personalized rewards)
Easily change my catalog of rewards
(e.g. for tests/pilots)
Source: Proprietary Loyalty survey with 71 CMOs, January 2014
Enable multi-tendered redemptions
(e.g. points and cash)
Allow my loyalty program members to redeem outside my catalog
(e.g. on amazon.com, at restaurants)
Have a single point of contact manage all my rewards suppliers
3.1
2.9
2.9
2.4
Reduce the cost of rewards by using data-driven optimization
(e.g. promoting high perceived value/low cost merchandise to
individual members)
3.0
Access a broad range of rewards
(e.g. air travel, merchandise, sports tickets, unique experiences)
3.0
Total average3.0
Reduce the cost of rewards by leveraging an at-scale supplier
3.1
Outsource activities that are not core to my business
(e.g. fulfillment)
3.2
EYE CANDY
CMOs: REWARDS BUILD REAL RELATIONSHIPS
In early 2014, Aimia’s Global Strategy team surveyed 71 marketing executives who operate loyalty programs, covering different regions, verticals and company sizes. When it comes to rewards, CMOs are united in both their reward program goals and their highest-priority reward capabilities.
TOP CMO GOALS FOR REWARD PROGRAMS
Percent of respondents to select as top 3
TOP CMO VALUE DRIVERS FOR REWARDS
3.3
Average score (1=not important; 2=nice to have; 3=important; 4=critical)
Increase customer retention Grow the membership base Increase member spend Improve customer satisfaction Drive brand engagement Optimize loyalty costs Try out new ideas Know customers better
22%
24%
46%
All capabilities average40%
49%
56%
58%
67%
58%
Increase loyalty program member engagement through an attractive rewards proposition
(e.g. personalized rewards)
Easily change my catalog of rewards
(e.g. for tests/pilots)
Source: Proprietary Loyalty survey with 71 CMOs, January 2014
Enable multi-tendered redemptions
(e.g. points and cash)
Allow my loyalty program members to redeem outside my catalog
(e.g. on amazon.com, at restaurants)
Have a single point of contact manage all my rewards suppliers
3.1
2.9
2.9
2.4
Reduce the cost of rewards by using data-driven optimization
(e.g. promoting high perceived value/low cost merchandise to
individual members)
3.0
Access a broad range of rewards
(e.g. air travel, merchandise, sports tickets, unique experiences)
3.0
Total average3.0
Reduce the cost of rewards by leveraging an at-scale supplier
3.1
Outsource activities that are not core to my business
(e.g. fulfillment)
3.2
THE SCAN
GLOBAL LOYALTY EXPERTS SOUND OFF ON REWARDS
To accompany our 2014 CMO survey (highlighted on the opposite page), we also conducted interviews with a select, global cross-section of loyalty program experts and consultants outside of Aimia. Here’s a look at what a few of these marketers had to say about the future of rewards in their respective markets.
Australia
“There’s been a debate, more in the industry than by consumers, about the efficacy of cash-back rewards versus points programs. Cash-back programs seem to be growing, but actually cash-back seems the opposite of loyalty.”
— Principal, Marketing and Loyalty Agency
Brazil
“Brazilians want to fly and they want the upgrades. The programs are focused on higher incomes, so members use their points on flights, on restaurants, or on entertainment. We like to eat well. We like to live well.”
— General Manager, Relationship Marketing and Loyalty Agency
Canada
“Canadians love their loyalty programs. They love their points and miles. Coalitions are an expected way of life. The value of co-branding and coalitions are understood by both the vendor and the customer. In Canada, we get it.”
— Vice President, Marketing
India
“In its broadest sense of discounts, rebates, etc., cash-back is still very popular in India. But I would think that selling of points to create greater value for the customer would be critical to success. The largest loyalty programs are building co-branding relationships with some partners such as bank cards, hotels and dining.”
— Professor of Marketing and Consultant
United Kingdom
“Building real relationships is an ongoing goal. There is a movement away from the machine-gun approach to loyalty to collecting data that focuses more on lifestyle and life-stage and delivers appropriate offers. That activity builds trust.”
— Head of Loyalty Marketing and Insight
United States
“Using rewards to build real relationships is essential. Accountants see points as an asset, not as relationship equity between the issuer and the customers. This is wrong. The economic value of the loyalty is the emotional engagement. Otherwise, its value will diminish.”
The Aimia Bulletin is designed to showcase the best of Aimia subject matter expertise, case studies, and innovative loyalty management around the globe. To that end, here’s a brief look at some recent Aimia case studies and research on the topic of using rewards to build real relationships. From improving the redemption experience, to building data-driven rewards catalogs, to conducting research into how redemption activity predicts future customer value, Aimia is positioned on the leading edge of reward design and insight.
Crafting the ultimate reward catalog
To build real relationships with best customers, modern reward programs must thread a small needle: They must provide compelling reward value, deliver a flawless member experience, and offer multi-channel program interaction — all while keeping a lid on program costs. Nowhere is this needle more difficult to thread than in reward catalog design. How do you build a reward catalog with something for everyone, with redemption options at multiple price points, and still build in the perceived reward value required to keep the program in the black? Enter Aimia, which recently threaded this very needle on behalf of a large banking client.
> The opportunity: A large bank
operating an independent rewards program in Asia and the Middle East selected Aimia to help relaunch their rewards program. The objectives: Enhance the customer experience for the bank’s reward program members; deliver higher value to the bank by reducing the cost of reward points; and gain knowledge of the customer through program analytics.
> The solution: To improve customer
experience, Aimia designed an improved rewards category mix that includes lifestyle, electronics, home and family, travel, charity, and instant rewards, with redemption options available at multiple point thresholds. Aimia also launched an improved interactive website with an extensive catalog featuring relevant rewards, exclusive rewards for preferred and priority segments, instant rewards to drive more redemptions, points-plus-cash options, a cashback catalog, online travel redemption, rewards wish-lists, and offer pre-registration. Aimia also crafted a better member experience, with multi-channel redemption through web, mobile and CSR; reward order tracking; and on-time reward delivery.
To reduce the cost of reward points, Aimia helped design a healthier rewards mix by migrating redemptions away from vouchers and increasing merchandise redemptions that offered
higher perceived value for members and lower costs for the bank. Aimia also introduced points-plus-cash redemptions, variable points pricing, and improved vendor negotiations. And to improve customer knowledge, Aimia helped the bank extract analytical insight from customer redemption data, web traffic, and identification of trends in reward selection, reward pricing, and customer behaviour.
> The results: Aimia developed, launched,
and now manages the bank’s reward program, including the web site, the technology platform, rewards management, analytics, and operational support. The program redesign and member experience improvements resulted in a significant reduction in member complaints, a lower cost per-point, and reduced reward costs for the bank.
Data-driven rewards design
When designing a rewards catalog, a number of key questions require answers. How many rewards do you need in the catalog? What categories of rewards will you include? What price ranges do you need, and how many rewards do you need at each price interval? How generous should you be to each customer segment? How do you ensure that your best customers feel rewarded?
Aimia has led the way in using redemption and program behavioural data to help answer these questions in a way that optimizes program value for both members and the program sponsor. Key data sources and analytical approaches include:
> Historical redemption data. Analyzing
redemption patterns by segment can help you devise the optimal number of items in your reward catalog.
> Benchmark redemption mix.
Competitive and cross-industry reward catalog analysis helps you devise the proper category mix, as well as the number of rewards within each category.
> Earn distributions. By calculating
customer yearly spend and earn distributions by segment, you can
AIMIA AT WORK
FUELING NEXT-GENERATION REWARD DESIGN
To build real relationships with best customers, modern reward programs must thread a small needle: They must provide compelling reward value, deliver a flawless member experience, and offer multi-channel program
interaction — all while keeping a lid on program costs.
understand customer reach to properly “price” items by point cost and build in perceived reward value, aspirational appeal, and attainability.
> Points modeling. Points price modeling
can help you predict category and item popularity; ensure that your most profitable customers earn more rewards value; discourage redemption of low-value rewards; generate a
healthier redemption mix; and encourage redemption of rewards with high
perceived value.
An analytical approach to reward catalog design can be as sophisticated as your expertise and resources allow. What’s clear, however, is that the age of the one-size-fits-all reward catalog has ended. Today, marketers understand that reward catalogs are among your most valuable tools for building real relationships with your best customers.
The lifetime value of redeemers
If there was ever any doubt that reward redemption can help brands build stronger loyalty, then Aimia’s analytical research into the behaviour of reward program members helps bring that truism to life. Because we operate or partner in coalition programs around the globe, as well as design and operate proprietary programs for some of the world’s leading brands, we’re able to gather deep insight into member redemption activity. Analytical insight into this behaviour reveals the bottom-line value of reward program sponsorship: Members spend more, remain loyal longer, and exhibit greater lifetime value than non-members. Here are just a few data points to consider:
> Analysis of redemption and spending patterns of loyalty coalition members demonstrates a clear correlation between the size of a member’s first redemption and their long term value to the coalition sponsor.
> An Aimia health check of a large retail banking client’s loyalty program revealed that the average credit card spend of a redeemer indexes 153 percent higher than the credit card spend of non-redeemers — meaning the bank’s credit card is front-of-wallet for redeemers. The higher the profitability of the cardholder segment, the greater the exhibited gap in spend between the redeemers and non-redeemers.
Top redeemers, meanwhile, exhibited the longest tenure of all customer segments.
> Another client’s credit card portfolio analysis revealed that early redemption
is a strong predictor of future member value — provided that the member earns the points through spending, rather than through bonus-point promotions. High potential members redeem within the first 100 days; they spend more and stay longer than average members. Non-bonus redeemers spend about twice as much as bonus redeemers, and churn at significantly lower rates. These data points tell the tale: Reward redemption encourages consumers to engage in profitable, sustainable, and value-added relationships with their favourite brands. The flip side of rewards redemption is, however, increased incremental program costs, as members redeem points and rewards are sourced and delivered. To control program costs, operators may be tempted to encourage breakage — the percentage of program points that are earned but never redeemed — to improve program profitability. But as Aimia Group Chief Executive Rupert Duchesne said recently in an interview with the Business News Network: “What we actually want is for people to use the points and the miles. And the reason for that is that once you use them, you get a great experience, and you earn faster subsequently. Velocity through the program is more important than breakage.”
The importance of ease-to-value
In our article on page 3, “The Future of Rewards,” we identified the changing ease-vs.-value equation as one of the key challenges for reward programs, and research into the psychology of rewards as one of the key opportunities. Aimia recently explored both of these concepts through some recent UK-based focus group research of reward program members. During these focus group sessions, we asked program members to describe their expectations of and behaviour within loyalty programs. Our key takeaway: Consumers now expect more rewards, higher value rewards, and faster time to earn. Here’s what they told us:
> Rewards are now expected.
Consumers now expect to be rewarded by companies with which they spend a large proportion of their household income.
> New customers want rewards, too; just remember the impact on your existing base. Thanks to the proliferation
of cashback sites, social couponing sites, and “always-on” sales, consumers now expect rewards and benefits from companies regardless of their tenure and level of spend. Be cautious to not develop an unsustainable offer to
new customers that might upset existing customers.
> Customers want soft benefits.
Consumers are aware of “tiered” rewards — exclusive access and special privilege — and often mention these soft benefits as a potential means of recognizing their loyalty.
> Customers do the math.
Consumers are increasingly aware of the monetary value of rewards. They calculate the value of their points — and realize that the conversion rate is often poor. In many cases, reward value does not measure up to the effort members must put in to earn them.
> Relevancy increases reward value.
Customers told us that the best way to improve the ease-vs.-value equation is to increase the relevancy of rewards. Customers are also increasingly accepting of data mining to increase reward and offer relevance. Customers value personalised and targeted rewards — and respond with long-term loyalty. As Aimia continues to conduct client work and research into the connection between rewards and real relationships, we’ll continue to cover this activity in future editions of the Bulletin. For many consumers, redeeming for a reward represents the most tangible expression of relationship value — and that makes reward redemption a key inflection point for marketers.
“What we actually want is for people to use the points and the miles. And the reason for that is that once
you use them, you get a great experience, and you earn faster subsequently. Velocity through the program is more important
than breakage.” – Rupert Duchesne
BY THE NUMBERS
A TALE OF TWO COALITIONS
Aimia operates and invests in coalition loyalty programs around the globe. Our global footprint of loyalty programs gives us unique insight into the redemption behaviour of millions of consumers around the globe. Here’s a snapshot look at some redemption numbers from our two largest coalition programs.
822 BILLION
Number of Aeroplan miles redeemed to date
6,294
Rewards issued to Aeroplan members per day, 2013
2.3 MILLION
Rewards issued to Aeroplan members, 2013
79%
Percentage of Aeroplan miles redeemed for air travel, 2013
700+
Non-air travel Aeroplan rewards
4.8 MILLION
Number of active Aeroplan members
24
Number of Nectar cards swiped every second
100+
Online redemption partners on Nectar.com
£2 BILLION
Total amount of Nectar rewards earned to date
49%
Percentage of UK household spend eligible for Nectar points
All numbers courtesy of Aimia.com.
4,000+
Number of UK locations to collect Nectar points
19 MILLION
Number of active Nectar cardholders
REDEMPTION BY THE NUMBERS: AEROPLAN, CANADA
With over 4.8 million active members, Aeroplan is Canada’s premier coalition loyalty program. Aeroplan's millions of members earn Aeroplan Miles with its growing network of over 75 world-class partners, representing more than 150 brands in the financial, retail, and travel sectors.
REDEMPTION BY THE NUMBERS: NECTAR, UNITED KINGDOM
Nineteen million collectors earn points in Nectar, the United Kingdom’s leading coalition loyalty program, when shopping for groceries, doing DIY, booking a holiday, paying household bills, buying petrol and even bidding at the world's leading online auction site. In 2012, Nectar celebrated 10 years of rewarding British shoppers.
QUANTUM LEAP
MARKETERS MUST UNDERSTAND THE PSYCHOLOGY OF REWARDS
By Eric Monteiro
customers behave as they do? Often it seems that the more we know about customers, the less we understand them. Will the first few brands to crack that code build much deeper and more meaningful relationships with their customers? We do understand one core truth: That customers respond to rewards with increased purchases, deeper share of wallet, and greater lifetime value. But to take reward program design to the next level, marketers will need to find partners and providers who deeply understand consumers and the psychology of loyalty. In the coming years, those marketers who know why consumers respond to rewards, rather than simply knowing how they respond, will win the battle for building real relationships. In reward design and insight, three key areas of development will help us begin to understand the “why”:
1. The definition of rewards. As our Aimia
subject matter experts indicated in our article on pages 2 and 3, one of the key challenges for marketers is to evolve our definition of rewards beyond travel, merchandise, and vouchers. While these traditional rewards will continue to motivate consumers, insight into consumer psychology will open up new avenues for reward design: Differentiated customer experiences, special access and privilege, content, and even the ability to join a community will all be perceived as valuable rewards by key customer segments. These new rewards will deliver differentiated value while conveying the essence of your brand.
2.Next-generation rewards design.
In the coming years, marketers will devote much brain power in mapping insight into consumer psychology with new reward categories and tactics: Unique, relevant rewards targeted to specific segments of best customers. The availability of redemption data represents both a challenge and an opportunity. In addition to tailoring traditional travel and merchandise rewards, we’ll be able to leverage member preferences to offer more resonant experiences. Do your members love music? Do they love sports? Are they motivated by fashion? Are they more likely to respond to
instant-gratification rewards, or are they motivated by saving up for aspirational, big-ticket rewards? By understanding the expectations, desires, and dreams of our members, we’ll be able to design reward catalogs as unique and individual as the members themselves.
3.Next-generation reward analytics.
Analysts now have a wealth of data — transactional data, redemption data, offer response, and even social media and other unstructured data sets — to help them improve the impact of rewards on brand engagement and more directly calculate the return on investment. This insight will create a feedback loop that allows us to adopt the dynamic pricing tactics of the ecommerce industry and price rewards to both increase their attractiveness and stretch the perceived-value gap that generates program ROI. We’ll be able to vary reward pricing by member tenure, preferences, time of year, geography, and a variety of other temporal, spatial, or behavioural variables. Travel, merchandise, and even voucher rewards redeemed at the point-of-sale will become more valuable for both members and program sponsors.
Like you, Aimia is at the beginning of this journey to uncover deep insight into rewards psychology. Traditionally, consumer psychology research has resided primarily in the halls of academia. But soon, new analytical tools, new design and capabilities, and new delivery platforms will move consumer psychology out of the classroom and onto the front lines of customer loyalty. From strategy, segmentation, analytics, development, design, delivery, front line enablement, technology, training, and the user experience, consumer insight will fuel every element of reward programs. We plan to be a part of that journey. And just as physicists may one day identify a unified theory that links quantum mechanics with relativity and truly understand why the toolkit works, so too will marketers link consumer psychology with rewards design to build real relationships with best customers. We look forward to taking that quantum leap.
Most modern technology as we know it — everything from computers to mobile devices to leading edge energy and transportation technologies — relies on the field of quantum mechanics. Put simply, quantum mechanics is a toolkit that physicists and engineers use to create these wonderful machines. But in truth, physicists still understand very little about why the universe behaves as it does at the quantum level. We just know what works, and what doesn’t. We possess enough predictive power to use these phenomena, but we don’t really understand why they happen.
So it is with customer loyalty. Over the past decade, advances in computing power and data collection have expanded exponentially our ability to track and measure customer behaviour. But marketers now face a conundrum similar to that faced by quantum physicists: Can we continue to “blindly” apply marketing formulas without truly grasping why
Eric Monteiro is Chief Strategy and Analytics Officer for Aimia.
The Aimia Institute creates forums and experiences centered on loyalty thought leadership for global marketers and business leaders. And we want your opinions. Powering dialogue and debate on business topics relevant to your business, let us be your resource for hearing from both industry and Aimia’s experts on how to place the customer at the core and build real relationships with benefit.
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PROVIDING PERSPECTIVE THROUGH THE LENS OF LOYALTY
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