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.

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.

In the beginning, there were punchcards. Since then, man has created magnetic stripe and bar code cards, smart cards, java rings, and RFID cards. Technology has evolved greatly over the past 25 years, and loyalty sponsors and providers are still seeking the silver bullet of delivery devices.

While we’re busy debating which technology will win out, I wonder if The KeyRing Thing will make a good bridge to the future?

My friend and Loyalty Truth contributing author Jim Kuschill wrote a great article for Colloquy entitled a ”World Without Cards” in which he weighed the pros and cons of whether we needed cards at all. If we’ve learned anything over the past decade or so, it is that the technology or device used as a membership card is the not the sweet-spot of the value chain.

The right strategy, targeting, and value proposition are the keys to engaging consumers in loyalty programs. Get that right, and you could get away with giving members something akin to a gas station bathroom key (the small key attached to a large wooden dowel), and they would carry it.

Admittedly an exaggeration, I hope you understand the point. Sometimes the sexiest technology, after thorough vetting, is revealed to be not much more than a ”solution looking for a problem to solve“.  Jim Kuschill and I debated the added value of smart cards to loyalty program execution for literally years and, in the end, we agreed that it wasn’t the smart card that would make the difference.

What we did learn from our debate was put to the test as we worked with card issuers in Latin America and Europe as they introduced EMV standard chip cards into their markets. The lesson: it was the synergy of technology and circumstances that made the difference.

With many Latin American banks owning a strong acquiring business, we were able to recruit merchants to support POS bonusing and point redemption at POS to pay for purchases. It was this combination of factors that helped us migrate traditional points programs from magnetic stripe to EMV cards and we allowed the smart card to grab most of the glory.

After lots of debate over technology, I appreciate a return to simplicity. That’s why I find a particular brilliance in the Key Ring Thing, highlighted by Good Morning America as part of their coverage of the “best” discount shopping cards. In the GMA piece, Shop Smart Magazine Editor Lisa Lee Freeman profiled the device as she also highlighted her favorite discount cards found on Shortcuts.com.

When I opened my morning newspaper and read another profile of this device, I had to spread the word. The Fort Lauderdale Sun Sentinel chronicled how for $3.97, you can get yourself a high quality PVC card that holds 5 or 6 barcodes of your favorite rewards program. Through the web interface, consumers can select from popular programs or load their own if it does not appear in the list.

Apps to aggregate loyalty cards don’t end there, as My CardStar allows consumers to catalogue their favorites on their iPhone, Blackberry, or Android and JustOneClubCard.com, created by Gregory Pinero, serves as a more casual hobby site for the same purpose.

I like the idea of turning my night-watchman style keychain into something more sleek courtesy of the KeyRing Thing. I like even better having a “wallet” to store all my favorites on my iPhone, though I wonder how many bar code readers are enabled to read from the iPhone screen (an acceptance issue needs to be resolved).

In the end, it just might be that the highest purpose of “high tech” will be to deliver caveman-like simplicity to consumers. For today, the KeyRing Thing delivers on that count.

For tomorrow, who knows? It might even be that the Poken Girl has the answer….

Editor’s note: The build versus buy decision is visited often by loyalty program sponsors.  Formal market studies by COLLOQUY and others have arrived at the conclusion that “internal IT” might be the market share leader among loyalty software providers.  Jim Kuschill is the architect of one of the original – and still market leading – platforms in the industry. He has been asked every question about loyalty software that could be asked and is so well versed that, if you bore him, he’ll go ahead and answer the questions you forgot to ask! This is the first 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.

I’ve spent a lot of time over the years studying loyalty system technology. This includes the consumer touch points such as the web site and IVR, the data touch points that drive accruals and perform fulfillment, and everything between.

At first, second, and third blush, each of the systems looked very different, the only thing in common seeming to be that they all cost too much to operate and never really seemed able to (easily) do what marketing wanted. As a result, I started to wonder if there really weren’t patterns, whether it would be possible to identify and make some sense of them, and if there might not be substantial benefits in teasing them out. In particular, I wanted to see if there might be a way to understand how loyalty systems “grew up,” to be able to predict operating capabilities and costs, and then to leverage this knowledge into more flexible and efficient systems, but most of all, into more cost-effective systems.

An interesting truism relative to loyalty processing software is that they seem alluringly simple to build. After all, tracking points is merely a matter of addition and subtraction and tracking names and addresses is pretty basic functionality as well.  I would go so far as to say that if you sat down with 100 bright software analysts or software engineers that had not previously worked with loyalty systems, fully 90% of them would confirm they could build just what you needed!

While this isn’t a good thing for loyalty software vendors and ultimately it isn’t a good thing for those that operate programs, it turned out to be a really good thing for my analysis. Partly because so many different systems existed and partly because it was easy to see that the vast majority of loyalty software systems started with pretty much the same kernel – typically a little member management, a little points accrual, and a little redemption support.

Then they grew.

And new parts were added.

And they grew some more.

And then parts had to be rewritten.

And those parts started to grow.

This approach to development appears haphazard, but it is actually driven by market forces that influence the needs of the marketer. This in turn drives the software requirements and ultimately the form of the software. Given that market requirements, particularly in the same vertical, will in large part be similar, it’s not unreasonable to assume that the solutions within a vertical will exhibit a good deal of consistency as well. That is, every loyalty system within a vertical should provide similar core functions, albeit perhaps in different ways and to a different degree.

A subsequent comparison between several systems within a number of different verticals confirmed that functionality wasn’t highly variable, but it did not immediately yield insights into the operational cost drivers, much less how such costs might be reduced. This was somewhat of a disappointment, but should not have been unexpected. To some extent I had fallen into the “loyalty systems are simple” trap by trying to categorize at too high a level.

At this point, some functional decomposition was in order and so I took inventory of the major functions performed by loyalty systems. For example, point expiration is a common major function. Similarly, and much more complex, redemption is an obvious “must-have” function. People often refer to these as modules, that is, the points expiration module, the redemption module, and so on.

While modules are readily identifiable, loyalty (and other) systems generally include a large amount of supporting code. In terms of software design, this code is often identified as “shared services” or “service modules”, because the functions are needed (shared) by a number of different modules. For example, handling batch files, logging of data changes, and so on, are typical of shared services.

After a re-review of the systems with an eye towards functional decomposition, 16 major modules and 7 major shared services were identified. Of the 16 modules, 4 were large enough that they could have undergone a similar decomposition process, but rather than complicate the process further, this was simply noted, with an expectation that any findings may not be quite as applicable for these modules.

Now it seemed that some progress was being made as it was possible to break down the formerly monolithic systems into a manageable number of readily identifiable parts. The next interesting question was whether there was a discernable “lineage” associated with the parts. Without a lineage, without correlation, it would be much more difficult to show what type of investments would yield more cost-effective systems.

In our next installment we’ll review each loyalty system against the identified modules and shared services and see if  clear relationships exist between investment in specific sets of modules and more cost-effective loyalty marketing systems.

The consummation of loyalty love is found in the passion of redemption. Too bad that I have heard from far too many people that as hard as they try, they can’t reach this pinnacle of loyalty emotion. “I’ve got a bazillion points and just can’t seem to redeem them” goes the self pitying refrain.

Finding satisfaction in loyalty point redemption has never been a problem for me. My ease of arriving at the intersection of point availability and interesting reward results from a blend of determination, creativity, and unique travel patterns.

Just this past week the mixer was filled with hotel reward points and a rebate gift card to blend up an impromptu weekend away. My intentions for the weekend were simple and partially motivated by the ability to pull it off “for free”. The reality of cashing in the rewards was another story and an instructive one for any program sponsor.

The plan was to drive a short distance from home to partake in a bike race while my spouse enjoyed a lazy morning in the hotel free of daily demands. Checking into the hotel, I asked if I could have a first floor room. Noticing the parking lot mostly empty, I thought this would be a slam dunk to accommodate. After some time spent grimacing at the green screen, the desk clerk groaned and relayed that “my reservation would not permit a change”.

Without saying it directly, I gathered that a “rewards” reservation had some limitations. Like water on a duck’s back, the comment rolled off and we proceeded to the third floor to find our room……next to the elevator. Now I was convicted with the feeling that reward reservations come with an asterisk indicating “place reward guest in least desirable room even if hotel is empty…under no circumstances make an exception”.

Not letting this impact our mood, we ventured out and enjoyed a meal at an attractive local restaurant. When the time came to pay the bill, I tendered my gift card with instruction to the waitress to “run it as credit”. I had read my card carrier conditions and thought this would make things easier on the staff. Incredibly, our server returned to the table moments later, sheepishly telling us that she tried the card twice and it would not authorize. I have always felt that a card decline is bad karma. In this moment, the value of that gift card went directly south.

The next day I called the toll free number on the back of the plastic and was told that Hurricane Ike had knocked out power to the area providing support for the card. Hundreds of customers had called with similar complaints and, given the magnitude of the storm, I was not about to whine further. I was assured that systems would be up within the hour.

On my way to the bike race, I ran into a local CVS to purchase bottled water. The well trained cashier asked for my CVS number and the receipt generated was as sparse as one would expect given the total purchase was less than $2.00. Why then, when I returned home and bought “lunch” consisting of bottled water and a Clif Bar at a CVS near my office, was I rewarded with a 33 inch receipt including offers for 4 products that I have never bought before and probably will never buy?

When CVS calculates its funding rate for the ExtraCare program, do you think they include the cost of the tremendous volume of paper spewed from their POS terminals? More importantly, I am desperately interested to learn the construct of their algorithms which generate product offers. The concept is cutting edge, but the execution is off target. I scan their receipts with great enthusiasm (I’m a loyalty geek) and am consistently disappointed by the lack of product offer relevancy to my purchase history.

Back to the “free” weekend away. Upon our return, we once again dined out and hoped to use the $100 gift card to pick up a free meal. When I noticed the bill was $89, I sensed a problem. Most restaurant card acceptance devices preauthorize for the check amount plus 20% to allow for a tip. I had been warned of this in the card carrier and sure enough the waiter returned with the same sheepish look as the night before. (I wonder if the two were related?) The gentleman listened to my explanation and attempted to authorize the card for only the check amount, but it was not to be. Once again, I paid for dinner from my own pocket.

Despite the loyalty redemption snafus, we had a great weekend. The sun was shining, the bike race was nearly epic, and there was no one around asking us to put gas in his/her car! At the same time, we returned home with something of a bad loyalty aftertaste. Sleeping next to the elevator is always undesirable and the gift card now resides on the kitchen counter waiting for its next, maybe last, opportunity for redemption.

Loyalty program sponsors cannot afford to become complacent with details of program execution. It is not enough to assemble the catalog and enable web based selection of a reward. The customer experience which ensues must also be managed. Reward redemption is the climax of the loyalty relationship, and faking it just doesn’t work.

Bill Hanifin

Grocers have almost universally equated customer loyalty programs with discount shopping clubs. Most of us have the evidence on our key chain, with the slim plastic card carrying a bar code residing next to our ignition key.

The concept is simple enough – scan the bar code on the back of the card at check out and receive discounted prices on select items. This two-tier price program could be successful if executed properly, but most grocers fail to exercise the discipline needed to accurately match customers with items purchased.

Grocery loyalty programs are ostensibly designed to influence consumer choice. Instead of opting for the most convenient store or parsing our purchases by who we think has the best butcher or wine selection, a successful program should be the magnet that draws us back to one chain significantly more than others.

In Western New York, the two dominant grocery chains battle daily on many fronts, their “savings card” programs being one key point of attack. Tops has its BonusCard program (http://www.topsmarkets.com) and Wegmans has its Shoppers Club (www.wegmans.com).

I shopped in both stores recently and the contrast in data collection practices was stunning. Checking out at Wegmans, I told the cashier that I was a Shoppers Club member but did not have my card with me. In previous visits, this triggered the cashier to volunteer their own card or ask the person next in line to swipe their card to enable the discounted pricing.

This time around, the cashier told us politely that they are no longer allowed to accept cards in this manner. We missed our discount that day, but I was pleased to see that Wegmans was working harder to improve the integrity of its data.

Making a purchase at Tops the next day, the cashier readily volunteered her card when I said that I had forgotten my own. “Don’t worry honey, this will save you a few bucks” she said. Actually it saved me $.38 on my measly purchase but I appreciated the sentiment.

Reading my receipt as I walked to my car, I noticed that “2007 Bonuscard Savings” on this card were $6,969,58! My cashier was friendly indeed and obviously was routinely offering her card to store customers to help them out.

Lesson Learned

A Customer Loyalty program is only going to work if customers themselves value the program and what it represents to them. With discounted pricing available to anyone, regardless of their enrollment status, why have a program at all?

If the items purchased are not matched to the individual consumer for analysis and formulation of subsequent promotions, the grocer is missing out on a golden opportunity to glean preferences from all that data.

In short, execution is everything. Well thought out data warehousing plans must be supported by training of store associates and the value of the program should be communicated to each customer. Every store visit should add value to the customer’s perception of the store brand and influence the decision of which store to visit next.

There are a number of ways that grocers can improve execution of their discount savings clubs and turn them into true Customer Loyalty programs which drive incremental revenue and return handsomely on marketing investment.

If you want answers to those questions, please drop me an email……Bill Hanifin

Building a reliable database is fundamental to successfully executing any form of customer centric or loyalty marketing campaign. List rental is a historically reliable method of acquiring names used by direct marketers. Opt-in approaches are a potentially lower cost means of building a proprietary customer database. Product warranty cards, e-newsletter subscriptions and registration cards are examples of commonly used collection methods and can all yield good results.

Ever wonder what it costs to acquire this valuable information? Turn the question around and ask yourself what names and email addresses are worth? To make it personal, what is YOUR information worth to a typical retailer?

How about $.50. Yep, fifty cents is the bounty on your head – at least that’s what I discovered the other day in a national coffee chain.

Standing in line, the manager called an informal meeting among front line employees. She challenged each person to collect 20 names for a bounty of $10. One stunned cashier swallowed hard over the thought of getting out of the comfort zone. Suddenly her expression changed as she asked a colleague “so, if I get 1,000 names, do you think they’ll pay me $500?”

The cost of building databases is an accumulation of several cost layers, with list rental and processing of registration or warranty cards being only the beginning. Assembling the computer hardware and licensing database software are capital costs that have to be incurred before the collection process is ever engaged.

Involving employees to fuel such an effort is sensible and providing incentives is highly recommended to drive results. Just don’t have your “management” meetings in front of your customers. It’s never good to let them know there is a price on their heads.