The transition from paper loyalty cards to digital needs to be handled carefully, but the benefits are huge. Photo: Kate Geraghty
Chris Tudehope is a customer many brands would love to have.
The 20-year-old university student and proud 'loyalty card harlot' is, perhaps unexpectedly, a regular international traveller who has five frequent flyer cards, some with top-tier status. He's also in store loyalty schemes including Everyday Rewards and Europe's largest, Nectar founded by Sainsbury's supermarket and BP. But he's loyal only up to a point, getting airlines to match status and always hunting top deals.
'I save money through [airline] lounge access, which can be milked mercilessly,' Tudehope says. His Air France Gold status got his legs under a table at a dinner celebrating 100 years of Le Tour but he laments that despite being Platinum with Virgin, 'I've never got anything beyond the normal perks'.
Which illustrates how traditional loyalty schemes based on demographics struggle to serve some high-value customers and why digital loyalty schemes with their greater personalisation are gaining favour.
Tudehope says that he chooses loyalty schemes based on his own habits and 'works from there'.
'There's no point in me signing up to a mechanic's loyalty scheme where I get free tyres after 10 services because I don't own a car.'
But he is attracted to innovative digital loyalty schemes. He signed on to Virgin's Global Wallet app and also uses Apple's Passbook. He's attracted to programs that acknowledge his social influence. He says organisations should 'look beyond their own companies and to the diversified spending habits of the consumer'.
But not all transitions to digital loyalty schemes go smoothly. 'The coffee store [near work] moved from paper to electronic loyalty without telling anyone. Changing the system and not honouring previous spending is a sure-fire way to piss off long-time customers.'
With 50 years of working life ahead of them, digital natives like Tudehope reflect tomorrow's loyal consumer. Smart technology offers brands new ways to serve customers, learn their habits and share in their goodwill, say customer loyalty researchers Peter Noble and Adam Posner.
BEACONS IN STORE
An example is merchants that use 'beacons'- in-store sensors that identify shoppers from their devices. US luxury department chain Neiman Marcus uses sensors to tell shop assistants when a loyal customer arrives in a store. And its recently revised NM App holds fashion advice and loyalty perks that consumers use to reserve clothes to try on, text or Facetime their personal shopper wherever they are.
'It's a real store but a virtual experience,' says Posner, CEO of customer consultancy Directivity and author of For Love or Money, a study of consumer loyalty.
There is a correlation between those who own mobile devices and how they influence others, their research finds. They say the key to loyalty is to use digital technologies to burrow into customers' histories to 'surprise and delight' them.
'You really have to understand what's important,' says Noble, CEO of e-commerce agency Citrus and report co-author. 'You can't treat everyone in your program the same way.'
iBeacon technology
In Australia, Westpac Banking Group is testing Apple's iBeacon at branches in Blacktown, Penrith and Bondi as part of its 'BankWow' strategy. Westpac head of mobile Travis Tyler says the branches are proximate to be manageable but were chosen because they are different physically and demographically.
'One of the key concepts for us is not only testing the customer experience but also the technology to see how the geo-fencing works,' Tyler says, referring to how iBeacons detect when someone enters and moves inside a branch. 'When we launch a service we need to make sure it's secure, safe and repeatable.'
When a customer enters a store, Westpac sends a welcome to their device with directions to a staff member who is also alerted with basic account information such as their name and products held. The decision to connect is left to the customer, says Tyler: 'We didn't want to be intrusive in any way to start off with'.
'If we had forced people to use iBeacon there would be riots in the streets.'
Tyler says it is inevitable that loyalty apps will converge with mobile wallets. 'It has to be simple and if it can't be done in one click people won't do it.'
Although brands are keen to lock consumers into their loyalty program, the blossoming of digital schemes creates headaches for shoppers who just want convenience, says Beat the Q founder Adam Theobald.
'There's a strong emotive response to that [from brands] but if you think of it from a customer perspective, they're keen to get that portability where their one loyalty wallet is used across multiple outlets,' Theobald says.
And while Beat the Q has a payment and loyalty system (it recently bought loyalty provider eCoffeeCard), it also has PayPal.
'Over the next six to 12 months loyalty and payment are more closely entwined,' Theobald says. 'There are efficiency benefits and they are two services that should be put together.'
THE CASE FOR BIGGER, FASTER DATA IN DIGITAL LOYALTY
Perhaps the main reason brands are keen to fly solo is for the expected windfall customer data they hope to tap. Each business has key metrics such as average basket size, frequency of customer visits and what shoppers add to their primary order to inform its marketing.
But much of this data mother lode has until recently been beyond many Australian businesses that had to invest up-front in costly and cumbersome data warehouses, says Amazon Web Services senior manager of technology services Glenn Gore.
Even mid-market brands tended to chew through historical data when real-time insights are what they crave, he says. Amazon provides on-demand services such as Redshift and Elastic Map Reduce (Hadoop) for business intelligence. It recently added Kinesis to analyse real-time data feeds such as Twitter to detect consumers' feelings to a product, offer or brand - even a competitor's.
'I don't think [brands] are aware of how much data they could collect,' Gore says. 'Everyone focuses on frequent shopper and loyalty cards but look at closed-circuit TV and where people are in a store and send alerts to [them]. I'm more likely to look at an ad when I'm in the right location than sitting at home.'
Cloud analytics ushers an era of playful experimentation, he says. No longer does a business case for running a data experiment have to be written to get funding from the business. The technology is cheap and agile enough to be spun up for an hour by anyone in the business with a theory to test, Gore says.
'These models aren't static, you can't come up with the perfect model and say that's it, my work is done,' he says.
'It changes because society changes, generations change and the competition changes. If you get a head start on the competition do you think they'll sit still and do nothing? Your model has to change as well.'
And that means organisations have to transform to offer rolling, real-time campaigns on a hair trigger, says Brent Spicer, co-founder of Wellington, New Zealand rewards service provider, Collect.
'Because of the richness of data from digital schemes, retailers can plan offers with a wealth of background knowledge, sent out in real time and split-tested to see which ones [are most likely] to be taken up and generate the highest return,' Spicer says.
Cloud point-of-sale maker Vend says the return on investment of a digital loyalty scheme is as high as 500 per cent. Vend is watching mobile wallet technologies closely but has placed its bets on PayPal, says its chief marketing officer Nick Houldsworth.
'We may be seeing a Beta/VHS race going on,' Houldsworth says, referring to the intense 1980s competition between incompatible video platforms. He also says the collection of customer data is 'like a return to the older days when the store knew who you were'.
But even mid-market companies with good resources may struggle making sense of the fire hose of data, which is increasingly coming from third parties like weather data providers and may be unstructured. That's where intelligent dashboards come in, says Peter Klein, joint managing director of business integrator SMB Consultants.
'Everyone knows they have to skin the information and present it in a way that's meaningful, quick and visual to make quick decisions,' Klein says.
MID-MARKET SECTOR LEADING THE WAY
Klein says big brands are starting to follow the lead of small to mid-sized competitors who use cloud systems to power their loyalty, sales and marketing.
'Larger companies had the attitude that we can't use these systems because they're not powerful enough, we need a back-end to do all the heavy lifting. But now we see enterprises with up to 1000 stores realising they can split their business tools into those that need to interact with their consumer and what they need to do the heavy lifting in their business.'
Klein says brands are poised to win big from digital loyalty but 'unless they engage more creatively with their customers, they will lose market share'.
As brands learn more about their customers they must avoid indiscriminately acting on every data point or moving too quickly at the risk of alienation. And although he's not 'wildly stressed' about how his data is used, 20-year-old frequent flyer Tudehope says there's a creepy line that even millennials - who are used to trading privacy for profit online - don't want crossed.
'[Privacy] is always a concern but I generally only [share my information] with companies I know and trust,' he says.
'There was a supermarket loyalty scheme when I was in Shanghai that wanted to know my religion, marital status and sexual orientation, which I found strange.
'I had no idea such things could influence my spend on frozen dumplings and watermelons.'
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