Loyalty marketing is about much more than “marketing”. The essence of influencing consumer behavior has its nexus at the intersection of marketing, payments and technology. If Hanifin Loyalty had a business address that was indicative of focus rather than where we receive our mail, it would be at that interesting little corner of commerce.

As smartphone penetration increases across Consumer 2.0 (nearly half of the US population) and as new payment technologies continue to emerge as challenges to the legacy payments networks (principally Visa and MasterCard), the way consumers shop will change dramatically.

The famous tagline from American Express “don’t leave home without it” referred to their own portfolio of credit cards. The new moniker that will catch the attention of consumers might be something closer to “leave everything at home except your phone”. Lousy copy-writing, I agree, but at the least, the thing we can’t leave home without will be transformed from a plastic card to a mobile handset.

LevelUp is a reasonably new market entry that combines a network of local merchants with a smartphone enabled payment device that seeks to add speed and convenience to the consumer shopping experience while offering rewards to consumers who play the game. The first three markets opened up include Boston, New York, Philadelphia, and San Francisco.

Signing up for a LevelUp account gets the user a personalized QR code like the one shown in the graphic to the right. The QR code can be displayed at participating merchant locations to complete a purchase transaction.Merchants participating in the program offer rewards for first time visitors (for example $10 off purchase of $50 or more) and receive subsequent offers as they continue to shop within the network.

Users are required to register a credit card with their LevelUp account and payments made using the QR code are charged to the affiliated card. That points to a conundrum in this concept – the card is not eliminated, only pushed to the background and not physically required to be presented at the time of purchase. In other words, its not really an alternate payment system, unless we agree to redefine that term. On the plus side, LevelUp members can “double-dip” as they earn whatever rewards are offered by LevelUp merchants in addition to those from a rewards card linked to their account.

LevelUp is something that Foursquare could have built as an enhancement but has not done to date. I’ve read recently that the future of pure location based check-in systems like Foursquare is dim. All I can say is that they may have missed a huge opportunity if this is true. Foursquare was there first but never gave merchants the tools needed to really turn the system into a marketing channel nor added payment or other features.

Dwolla is another location based system that offers an alternative payment method, but in their case they truly offer an alternative to credit cards. I’ve done a comparison of several social shopping methods and will have a report for you next week or so. Meanwhile, give thought to whether the future of social shopping lies in registered card models, smartphone enabled payment methods, or channels using ACH that are low cost but still hard to understand for some people.

One aspect of social loyalty that seems clear is that the value proposition will certainly go beyond points. In fact points may be the third or fourth element of the value proposition behind mobility, payment methods and offers which are instantly redeemable. Throw in the increasing importance of recognition and status within online communities and we might see “Whuffie” become an alternate online currency.

The only thing we know about this changing loyalty market is that it is sure to continue to change.

What do you do when you have a solution in your hand in search of a problem?

If you’re the creator of the solution, you sell, sell, sell, crafting magnificent stories describing the power of your solution to change lives and create profits. That approach is mandated by fiduciary responsibility to those investors who brought your solution to market. The effort and persistence are admirable, but in time the substance of your solution will come clear, as will the reality of market demand for that which you are selling.

There are lots of examples of solutions seeking problems to solve. At the moment, contactless payment, many online reward applications, and almost every piece of exercise equipment sold through infomercials come to mind. One exception in the exercise category is TRX, which I’ve used and think is worth every penny.

I’m also thinking of QR codes.

I’ve written about QR codes before, highlighting the digital curiosity they can create and some practical uses they can provide to connect local merchants to their customers and enhance the value of print media at a time when it is teetering on the edge of destruction.

American Airlines seems to agree with my take, as the envelope I received this month with my AAdvantage frequent flyer status inside carried a big fat QR code on the back. If you own a smartphone and have just a wee bit of marketing curiosity in your blood, I don’t know how you could not click through the code.

I did and it took me to a landing page online which featured special fares and offers that American Airlines is promoting at this time. It took me all of 30 seconds to look at the offers and, while it wasn’t for me this time, I would check back for future offers if presented in the same way.

American’s use of the QR code is a practical example of how to create customer engagement and how to reap a little better return out of every piece of direct mail stuffed in the box. After all, there was nothing but white space on the envelope before this QR experiment, and the ROI calculation must be astronomical as the denominator (cost) is minuscule.

While solution sellers carry on with big promises, brands and marketers are wise to sit back and determine how they can put new technologies to use to meet their own needs. Often the answer is not the one being sold by the creator of the solution.

Some new technologies won’t survive your next brainstorming session. Others, like the QR code, can be selectively used to create customer engagement and help create incremental revenues.

Loyalty Truth has been giving a lot of thought towards the shaping of loyalty and rewards programs to engage the interest of Millennials and the broader digital consumer group we are calling Consumer 2.0.

With many merchandise offerings lacking imagination as well as value, and airline miles tough to redeem given capacity restraints on available reward seating, cash back has earned renewed popularity as a quick-to-earn and easy to understand reward.

The problem is, rational can be boring. And easy to understand sometimes means too easy to label. With Groupon offering a 50% off “deal of the day”, a 1% deferred cash reward seems to be teetering on irrelevancy.

A 2010 paper written by an esteemed group of professors from Harvard University, University of Virginia, and University of British Columbia, pointed out that, in most cases, people enjoy experiences over things. While an item purchased can bring temporary pleasure, it is an experience that leaves a lasting impression.

Music is experiential and has been described as a “time machine” by some people. Most of us can attest to the impact of hearing a favorite song on the radio. The opening notes can transport us back in time and bring us vivid memories of first dates, world events, or just plain old good times.

If you don’t believe that music is important to human beings, is pervasive in our culture today and can be used to shape purchase behavior, then at least factor in these statistics:

• MP3 players — Just under half of American adults (47%) own an MP3 player such as an iPod — a nearly five-fold increase from the 11% who owned this type of device in early 2005  – Aaron Smith, Research Specialist, Pew Internet & American Life Project October 14, 2010

• 16 percent of Americans age 13 or older are using devices other than their home computers to download software applications (apps), music, video, and other entertainment content from the Web – NPD Group, May 2010

• 75 percent of iPhone and iPod Touch users are connecting to the Web to download entertainment content and apps – NPD Group, May 2010

Rewards and Music have been linked in an interesting way so far. Several digital content providers, including iTunes, have made forays into the loyalty industry. Reward administrators were asked to pre-purchase exclusively download codes to offer music as a reward, and the redemption process was often cumbersome as it required consumers to leave the brand sponsor’s web environment to collect their music.

To my knowledge, there hasn’t been a fully integrated platform to deliver music and other digital content as a reward until PointTunes™ was announced last year. The platform makes it possible for a loyalty program participant to redeem points or miles directly for music, eBooks, software and games with a patent pending transaction process named PointRobot™.

I had the opportunity to interview the founder of PointTunes™, Bill Cunningham, who shared that PointRobot™ can be used to create a customized digital rewards offering where program administrators have complete control over their digital rewards options.

He told me that PointTunes™ has its origins through his work as a Product Manager for one of the largest employee rewards companies in North America. “During that time I was never presented with a viable digital solution by our vendors” said Cunningham, and “myself and other rewards administrators were looking to add digital reward options to help control costs and find new clients.”

If you understand the shift taking place towards customer engagement, you understand how breakage, while a tempting element of a rewards financial model, can have negative impact on customer relationships. With pressure on reward costs, digital content is attractive to brands sponsoring loyalty programs.

Something had been missing from the previous method of including music as a reward in most loyalty programs and Mr. Cunningham “believes digital rewards is a perfect fit for the loyalty market both from an incentive (do this get that) and a loyalty (points, miles et al.) angle.”

Considering that Consumer 2.0 is perfectly at home with social networks and location based marketing (Gowalla, Foursquare, Facebook, Twitter et al.), using digital rewards that are as mobile as your customers makes sense. To meet the need, Cunningham said a mobile rewards platform is planned for launch in 2011, allowing consumers to redeem for music right from their mobile handset.

Loyalty is evolving to become more social and to meet the needs of the brands that sponsor the programs. PointTunes™ is a group to watch as the “Social Loyalty” continues to unfold during 2011.

Marketers spend a lot of money tracking what we buy so they can tailor promotions to our specific needs. Now, we consumers can take that tracking into our own hands, and at home.

Enter CoupSmart, a mobile application wherein consumers scan the UPC codes of products they already purchased and in return receive customized packages of free samples and coupons each month. The brainchild of a former Kroger Co. executive in Cincinnati, CoupSmart has connections with retailers and manufacturers that make such fulfillment possible. The information is shared with these partners anonymously.

The app (available only on iPhone now, but coming to Blackberry and Android) is designed as an alternative to paper coupons, but has the added benefit of delivering rewards to consumers. Smart, because this in turn establishes a more intimate connection between shoppers and their brands.

For instance, every month CoupSmart gives out prizes to members who have scanned at least 30 items. It also gives out weekly and daily rewards and includes fun charts on its site showing the top scanners.

To join, consumers sign up at Coupsmart.com – this will require some personal info such as home address, in order to create an accurate profile. Next, they download the app and prepare to scan.

Marketers have set their sights on mobile marketing as the next frontier, and that territory is quickly becoming settled. Fortunately, this rapid advancement provides consumers with a powerful tool, underscored by the fact that mobile phones are literally held in our hands.

At a time when privacy is an increasingly looming concern, among consumers and government agencies, giving us more control is a big step toward assurance.

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Lisa Biank Fasig is Director of Public Relations at JZMcBride and Associates

After spending two days documenting my recent experiences with location based service Foursquare, I thought it was time for another type of check-in – this time with the threat of data theft in our world and the many ways we are exposed to this important risk.

I’m a JP Morgan Chase customer and suffered through last week’s online banking outage as mystified as everyone else. For me, the banking app was out of service for almost 7 days. At the outset, the bank did not acknowledge it had a problem, posting a message that the site was down for “maintenance”.  After a few days it revealed more, but not all of the circumstances, of the problem only after being pushed by heavy consumer outcry in social media channels.

During the summer, Citi revealed that it found a security flaw in one of its key online banking apps for iPhone. Attesting that no customer information was improperly accessed, the bank noted they had released an update which prevented customer information from being saved to hidden files on the iPhone.

A recent report on CNN attempted to strike the chord of consumer fear, telling us that digital loyalty cards are not secure. The story behind that headline made clear that it was not the digital apps or the loyalty programs that are the problem. It’s the WIFI networks that people use in cafes and other public places that invite risk. Whether you are checking in on Foursquare or checking your online banking account, you are in peril due to the thin security layer of most public WIFI networks.

In August, ConsumersUnion.org reported that consumers could be at risk of losing money through the proliferating number of mobile payment applications hitting the market when mistakes are made by merchants and processors or as a result of fraud.

All of this could be written off as a series of interesting but unrelated events and opinions, except when we recall that TJ Maxx suffered a massive breach of debit and credit card information. In our “what’s important today” world, the 2007 incident is nearly forgotten, except by TJ Maxx shareholders who saw earnings take a $.25/share hit in just one quarter from the $118 Million charge needed to rectify the problem.

Database marketing is by definition enabled by collecting transactional data from consumers. Loyalty programs thrive on pairing this behavioral data with attitudinal data to create value propositions and drive incremental profits. Location based marketing mandates that consumers give up a certain level of personal information, including their exact whereabouts, over vulnerable public networks.

The incidents I’ve mentioned provide only a hint of the potential for calamity from a massive data intrusion or theft by cunning hackers and organized criminals. If you think it will never happen, then you probably thought tech stocks would never cool off or a housing bubble was impossible.

The problem is not completely out of our control. Wise brands will ensure that information collected for marketing purposes will be properly encrypted and that usable account numbers will always be masked by ‘reward account numbers”. Loyalty program sponsors will ensure that their providers are PCI compliant and will place equal emphasis on security as with other bells and whistles of the software being sold.

A big wildcard is how consumers will react if a big data theft does occur. Our responsibility is to ensure that we protect the consumer data we collect and that we take extra steps to communicate what we are doing to bring value to customers while mitigating risks.

If you want to build holistic or enterprise loyalty, you’ve got a big job on your hands. Enlisting the cooperation of colleagues from marketing, IT, and data security in your company when planning your next marketing campaign should ensure that the job doesn’t get unnecessarily bigger.

When I’m working with any of my business partners in the Customer Strategy Network, whether from the UK or New Zealand, I’m used to being treated as a second class citizen.

There is something about the British-influenced accent and manner of speech that simply makes everything they say sound more intelligent than my best shot. At the least, we like to jab each other about this in fun, but the truth is, my foreign counterparts have a knack for getting their message across.

Yesterday as I opened white mail from Office Depot’s Worklife Rewards® and email from Best Buy’s Reward Zone®, I was struggling to put my finger on how the two programs contrasted in their management of member communications. My English friend cleared it up for me in one pithy phrase by saying “people don’t like fiddly things”.

When it comes to maintaining customer engagement with rewards and loyalty programs these days, nothing more telling could be said.

That day, I received a threefold brochure from Worklife Rewards informing me that I had earned a reward for $11 and included a plastic card that I could take to the store and use to redeem against purchase. The brochure provided a mini-statement of my account as well as some partner offers from 1-800 Flowers, Ameriprise Financial, Budget & National Car Rental, and LaQuinta.

The communications piece was easy to read, got to the point, and the delivery of the reward got my attention.

On the same day, I received an email from Reward Zone informing me that my account needed activation. This was strange to me as I have had an account with Best Buy since the program opened over 5 years ago. The next day I received an email from Best Buy offering me their cobrand credit card, but referencing a different reward account number. Strange as well.

I’ll save you the details by saying that a duplicate account had been created through one of my purchases and only after multiple attempts to login to both accounts and a phone call to the customer service center was I able to resolve the matter.

The good news is the matter was resolved. The bad news is that I don’t think many people would have taken the time and exercised my patience to endure the process. I’m a Loyalty Geek and had I not been looking into this for business reasons, would have disconnected with Reward Zone and given the program no further attention or energy.

Loyalty program sponsors and operators need to constantly seek out the “fiddly things” in the member experience and seek to streamline and simplify that experience with the objective of keeping consumers in love with their brand and their rewards program. Best Buy had a few too many Loyalty Asterisks in the process for my taste and I’m sure these Fiddly Things would have driven the average customer mad, causing them, in English parlance, to “bugger off”.

Don’t let that happen to your brand.

The beauty of business travel has to be the opportunity to see life through a different lens. At least I am claiming this as a benefit as there has to be an offset to long airport security lines, expensive food, and uncomfortable airline seats that compose the rest of the experience!

When we remain sequestered in the US, we tend to believe that the way we do things is the “only” way. But while we naval-gaze on how we can leverage the continual wave of innovative technology to add efficiency and cost savings to our business, we miss the bigger point. There are still lots of gaps to be closed in markets outside the US and quite a few of them can be closed with minimal effort or thought. For example, when I find reward program operators hoping to add online rewards redemption or upgrade technology, I can confidently provide advice without stretching the limits of imagination.

On the other hand, I often encounter situations where technology is more advanced or a business model different enough that loyalty program operations are enabled well beyond what we can execute within our borders. The fact that many banks are both issuers and acquirers of cards opens up all sorts of possibilities for POS messaging and reward redemption that is a much bigger challenge to implement in the US.

At the end of a busy day in Toronto this week, I was seeking a little caffeine boost and stopped into Tim Hortons, Canada’s favorite coffee and donut provider. Waiting to pay, I saw a sign on the counter informing me that Debit cards were not accepted at Tim Horton’s “to maintain our high speed of service“. I posted the photo on my Pikcur account and share it with you here just in case you don’t believe me.

I’m really not sure how to interpret Tim Hortons’ policy on Debit Cards. Visa had a long running campaign illustrating how debit cards bring speed and convenience to daily shopping experiences and the launch of contactless debit cards several years ago raised the ante on moving the “Q” through check out.

Maybe its really not speed that Tim Horton is worried about. In fact maybe their policy is less about adding convenience to the customer experience and more about reducing processing costs. Even that argument falls short as the cost of cash-handling has been proven to be significant in the QSR world.

Sometimes we don’t have all the answers, but we can observe and document for the moment, hoping that the dots are connected somewhere down the road. For now, I’ll just put Tim Horton in my “Questions about Debit Cards” file.

The beauty of business travel has to be the opportunity to see life through a different lens. At least I am claiming this as a benefit as there has to be an offset to long airport security lines, expensive food, and uncomfortable airline seats that compose the rest of the experience!

When we remain sequestered in the US, we tend to believe that the way we do things is the “only” way. But while we naval-gaze on how we can leverage the continual wave of innovative technology to add efficiency and cost savings to our business, we miss the bigger point. There are still lots of gaps to be closed in markets outside the US and quite a few of them can be closed with minimal effort or thought. For example, when I find reward program operators hoping to add online rewards redemption or upgrade technology, I can confidently provide advice without stretching the limits of imagination.

On the other hand, I often encounter situations where technology is more advanced or a business model different enough that loyalty program operations are enabled well beyond what we can execute within our borders. The fact that many banks are both issuers and acquirers of cards opens up all sorts of possibilities for POS messaging and reward redemption that is a much bigger challenge to implement in the US.

At the end of a busy day in Toronto this week, I was seeking a little caffeine boost and stopped into Tim Hortons, Canada’s favorite coffee and donut provider. Waiting to pay, I saw a sign on the counter informing me that Debit cards were not accepted at Tim Horton’s “to maintain our high speed of service“. I posted the photo on my Pikcur account and share it with you here just in case you don’t believe me.

I’m really not sure how to interpret Tim Hortons’ policy on Debit Cards. Visa had a long running campaign illustrating how debit cards bring speed and convenience to daily shopping experiences and the launch of contactless debit cards several years ago raised the ante on moving the “Q” through check out.

Maybe its really not speed that Tim Horton is worried about. In fact maybe their policy is less about adding convenience to the customer experience and more about reducing processing costs. Even that argument falls short as the cost of cash-handling has been proven to be significant in the QSR world.

Sometimes we don’t have all the answers, but we can observe and document for the moment, hoping that the dots are connected somewhere down the road. For now, I’ll just put Tim Horton in my “Questions about Debit Cards” file.

Now and then, it’s good to know you’re ahead of the game.

A few months ago, I had written about CVS ExtraCare and, along with an overview of their program, made note that I had measured one receipt in excess of 36″. If receipts were as much fun to catch as Tarpon and Bonefish, this one would have been a World Record.

Yesterday’s front page article in the Wall Street Journal, has brought the subject of the increasing size of retailer receipts front and center. Supporting this WSJ story is another take from MSNBC that you might want to read.

From my point of view, messaging on purchase receipts should be evaluated on the relevancy of the message. In CVS, there are a series of specific product offers as well as CVS ExtraCare Bucks offered to consumers. The “Bucks” are always welcome and drive bounce back to the store.

The accompanying product offers are relevant in theory, though as I noted previously, CVS has some distance to travel before it connects purchase behavior with offer. To date, I receive offers for products that I have not purchased previously and would never be on my list. In short, my hope is that CVS will do better with its data in the future.

In another example in the WSJ story, Home Depot was chided for devoting 4″ at the bottom of their receipts for survey invitation. The Home Depot spokesperson quoted said that 500,000 responses are received each month and that this medium drew much higher response rates than in-store customer comment cards used in the past.

If customers want their voices heard, I am not sure why they complain about being asked for their opinion. Yes, there is a paper-waste issue, but at least Home Depot cares enough to ask and is willing to put a $5,000 gift card on the line for participants each month.

There are two issues at work here: store operations and customer identification. I would encourage the operations people at all retailers to review the layout of their receipts and do their best to minimize the footprint. The customer identification issue is an old one that has plagued many retailers and can be addressed in large part by a customer loyalty program.

Whether you like points, miles or widgets, you should understand that by introducing any form of membership club with benefits allows the retailer to identify customers and lay the foundation for more personalized and relevant communications. If Home Depot knew who I was, they might not have to print their survey offer on my receipt, but could send me an invitation by email instead.

By using customer data in a positive and proactive manner, there is cost savings, environmental impact, and better customer experience at the register. In the longer run, there is the opportunity for delivery of relevant offers that will lead to higher share of wallet and incremental profitability.

Editor’s note: The build versus buy decision is visited often by loyalty program sponsors. Jim Kuschill is the architect of one of the original – and still market leading – platforms in the industry. This is the Second in a several part series about loyalty software and it will be sure to fascinate loyalty junkies whether working for software vendors or internal IT teams.

In the first installment of this series, we saw that it was possible to decompose loyalty software systems into 23 separate major functional areas – 16 modules and 7 shared services.

In this installment we’ll take a look at how shared services impact modules and whether a developmental lineage can reasonably be established across a wide variety of loyalty software systems.

In general terms, modules interact with users while the shared services support the modules and interact with the operating environment (e.g. the database system). As a consequence, the capabilities provided by (and observable in) a system are largely dependent on the modules. But, how (well) those capabilities are provided is often highly dependant on the shared services. In particular, if a shared service does not exist, is poorly implemented, or minimally implemented, then the capabilities, reliability, or some other aspect of the system will be compromised.

Because shared services can affect large portions of a system, some correlation always exists between overall system flexibility and efficiency and the depth/quality of the shared services. However, if there was little correlation between shared services implementations, we’re again in a position where it would be difficult to show how investments would yield more cost-effective systems.

At this point, it was time to revisit each of the loyalty systems and identify whether they implemented a module or shared service, and if so, how. As this work progressed, it was possible to see patterns across systems that once appeared to have very little in common. Not only were there patterns, but there were also common approaches to the implementation of modules and services. Certainly not with 100% correlation, but with fundamentally similar approaches.

Upon a review of the results it also seemed as if there were 23 timelines, each illustrative of the lineage of a separate technology. In essence, each of the 23 timelines contained a version 1, a version 2, and so on. Each of the versions essentially indicated how “mature” the functionality of a module or shared service was.

This seemed a little too good to be true, so further research was done on the history of some of the systems. To do this, I spoke with developers and others who had insight into the modules and services of previous versions with any eye toward whether those versions fit the patterns identified. There was not 100% correlation, but the patterns were unmistakable, with well correlated progressions in every area.

Once the maturity levels were identified, it was then possible to consider the associated operational characteristics to understand the benefits, problems, and most importantly, the costs of operation for being at a specific maturity level. It was also possible to anticipate what more advanced maturity levels would look like, functionally and operationally, even if they had not yet been seen in a deployed system. Finally, it was possible to estimate the cost of enhancing a system from one maturity level to the next, a critical component of any ROI analysis.

Even with all of this, it was not yet possible to evaluate whether a particular loyalty system was inefficient at handling the job it was tasked to do. For that, it was necessary to understand the demands on the system, which requires us to consider such things as the vertical market, membership size, and program complexity.

By observation is was clear that each vertical market had a fairly distinctive pattern of needs and these tended to correlate with membership size and program age. This provided a baseline read but analysis of the following elements was especially useful:

• Reviewing the current software to identify its level of maturity
• Survey the loyalty program’s recent operating history for insight into the functions being performed and the associated costs
• Scan the strategic plan for the loyalty program (ideally a 2 or 3 year vision) to understand what maturity level of software is required to reliably and cost effectively implement the vision

The form of analysis yields a reasonably quantitative illustration of how well a loyalty system aligns with marketing realities and also where any gaps exist relative to the future marketing vision. Comparison of the gaps against the frequency of the needs and the cost of enhancement provides good insight into the areas into which investments should be made.

In Part III of this series, we’ll look at why a loyalty software maturity model is a necessary step and explain why being able to configure 95% of a solution is still not enough.

Stay tuned.