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.

Breakage is the classic crutch of loyalty marketing financial models. As I mentioned here in a recent post, attitudes towards breakage are changing, both from perspective of the loyalty supplier community and consumers.

Brands aren’t missing the boat on breakage, in fact recent moves by Delta Airlines and Points.com over the past two weeks signal additional recognition that the accrued value in loyalty programs is not a ’shiny object” to tease consumers with, rather it is truly an alternate currency that people expect to have liquidity and be able to convert for value.

Points.com announced that it is teaming up with Paypal to allow its Aeroplan® miles, American Airlines AAdvantage Miles® and US Airways® Dividend Miles® to convert into cash in member’s PayPal accounts. It’s one thing to flush your points for questionable value in the form of magazine subscriptions. I’m sorry, but I just don’t call that a good value proposition for most people.

It’s quite another matter to be able to convert miles into cash. In concept it’s a great enhancement for Points.com and a boon for PayPal. The crucial driver of success for the tactic will be the exchange rate set between the two currencies. At this point I’m not privy to the exact exchange rate but understand it will be distinct for each airline. Some consumers are already crying about lack of value and we’ll have to keep a watchful eye here. On the surface, it’s a great idea.

Frequent Flyers didn’t fare badly this week either. Delta Airlines announced that mileage no long expires in its SkyMiles frequent flyer program. This change could be viewed in two ways. The skeptic will contend that infinitely available miles will just make a seat capacity problem that frustrates most frequent flyers even worse. Additionally, it might seem to represent another step in making FFP’s tougher for the airlines to manage from a financial standpoint.

The optimist will opine that eliminating mileage expiration will spark brand affinity for Delta in the short term and, if combined with some additional redemption options (can Delta play in the PayPal arrangement or come up with some other ideas?) will increase customer engagement over a longer term.

I’ll weigh in as an optimist. With our estimates of Consumer 2.0 at or near 150 Million US consumers, brands that shift the emphasis of their rewards programs from breakage to engagement will come out on top. Consumer 2.0 wants attainable rewards on a more liquid basis. Conversion to cash through Social Shopping, redemption at point-of-sale, and Social Giving are all options that this group finds attractive.

It’s good for the industry and for the consumer when we witness brands encouraging engagement rather than hoping for breakage.

In the midst of checking a slew of emails, it would have been easy to ignore this short message from American Airlines:

“We would like to provide you with an important update to the American Airlines AAdvantage® program. Effective July 1, 2010, the Marriott Rewards program will no longer offer AAdvantage miles for stays at Marriott hotels. All qualifying stays at participating properties completed by June 30, 2010 will be eligible to earn AAdvantage miles. It is also important to note the final date to convert your Marriott Rewards points to AAdvantage miles will be June 30, 2010.”

The news registered on several levels. As a consumer and member of both programs, I was disappointed. From a business standpoint, I immediately began to think through the reasons that motivated the end of this alliance between two big travel brands. From a social media point of view, I was not surprised by the immediacy of reaction from frequent flyers but was amazed at the nature of fingerpointing taking place.

I’ve said it myself – establish a loyalty currency in the market with widely recognized value and liquidity and a sponsor’s loyalty model will be turbocharged for profitability. Advocacy aside, my take is that “Rewards as a Business” (the sale of miles to third parties) has its limits and can be jeopardized if not managed carefully.

There are two cautions worth noting:

1. Remember the importance of “liquidity”. The most recognized currency in the world isn’t worth much if it can’t be redeemed easily and for items of high perceived value. The liquidity of airline mileage rewards is an obvious challenge as consumer cynicism over redemption continues to erode the perceived value of frequency flyer miles.
2. How much is too much? There is a threshold at which the price of the miles to partners becomes so expensive that the partner is forced to consider alternatives for investment of marketing dollars as well as which brand they are promoting (mine or yours). It’s quite possible that Marriott was presented a cents/mile price that crossed this threshold and decided to focus on its own brand and points currency to gain additional leverage.

It’s unfortunate that frequent flyers are directing their ire principally at Marriott when it just might be that American Airlines is equally responsible for this divorce.

Marriott would be wise to launch some new travel related promotions around the June 30 deadline that deliver great value and make travellers forget all about AAdvantage miles, just like contrails evaporating in the sky.

In the midst of checking a slew of emails, it would have been easy to ignore this short message from American Airlines:

“We would like to provide you with an important update to the American Airlines AAdvantage® program. Effective July 1, 2010, the Marriott Rewards program will no longer offer AAdvantage miles for stays at Marriott hotels. All qualifying stays at participating properties completed by June 30, 2010 will be eligible to earn AAdvantage miles. It is also important to note the final date to convert your Marriott Rewards points to AAdvantage miles will be June 30, 2010.”

The news registered on several levels. As a consumer and member of both programs, I was disappointed. From a business standpoint, I immediately began to think through the reasons that motivated the end of this alliance between two big travel brands. From a social media point of view, I was not surprised by the immediacy of reaction from frequent flyers but was amazed at the nature of fingerpointing taking place.

I’ve said it myself – establish a loyalty currency in the market with widely recognized value and liquidity and a sponsor’s loyalty model will be turbocharged for profitability. Advocacy aside, my take is that “Rewards as a Business” (the sale of miles to third parties) has its limits and can be jeopardized if not managed carefully.

There are two cautions worth noting:

1. Remember the importance of “liquidity”. The most recognized currency in the world isn’t worth much if it can’t be redeemed easily and for items of high perceived value. The liquidity of airline mileage rewards is an obvious challenge as consumer cynicism over redemption continues to erode the perceived value of frequency flyer miles.
2. How much is too much? There is a threshold at which the price of the miles to partners becomes so expensive that the partner is forced to consider alternatives for investment of marketing dollars as well as which brand they are promoting (mine or yours). It’s quite possible that Marriott was presented a cents/mile price that crossed this threshold and decided to focus on its own brand and points currency to gain additional leverage.

It’s unfortunate that frequent flyers are directing their ire principally at Marriott when it just might be that American Airlines is equally responsible for this divorce.

Marriott would be wise to launch some new travel related promotions around the June 30 deadline that deliver great value and make travellers forget all about AAdvantage miles, just like contrails evaporating in the sky.

Yesterday was April 1. To my surprise, I received these fantastic offers from three of my favorite loyalty programs.

American Airlines AAdvantage sent me an email offering discounts on fares between some of my favorite and most traveled cities. They even distinguished between those cities which I frequent for business and those for personal or vacation travel. Talk about relevancy, a great deal, and a call to action that I could not resist!

Best Buy Reward Zone sent me a snail-mail offer for a Blue Shirt guided shopping experience to help me select the right HD digital camera just like I told them I was in-market for through a recent survey. They piqued my interest and launched me into action to finally make that purchase to create the video content I plan to post on Loyalty Truth.

CVS delivered on my purchase data they have been collecting through CVS ExtraCare for the past 2 years. Instead of offering me discounts on products that I have not bought and in categories which I don’t shop (cosmetics), they gave me a break on that contact lens solution that regularly costs an arm and a leg. I’ll bet they had Bausch & Lomb reallocate some co-op money based on their recognition of my spend in that category. Whatever the reason, I was delighted to receive the discounts right on my purchase receipt.

Alas, yesterday was also April Fool’s day and none of these offers really took place.

With Good Friday in mind, today would be a good day to think good thoughts and imagine a few ways in which loyalty sponsors could charge up their programs and create the win-win of increased sales and customer engagement.

The best starting point would be using their data to deliver the types of personalized offers I fantasized about on April Fool’s day.

Next would be pledging to never provide incentive for any consumer behavior that is not in the best interest of the customer. Rewarding on debit card use with the quiet aspiration to generate increased overdraft fees would be top on the list. Fortunately this temptation will largely be taken off the table as banks are required to invite debit cardholders to opt-in or out for overdraft protection. Bank of America is ahead of the curve and has already announced that it will curtail overdraft fees on debit as of June 19.

Third would be to understand that higher redemption rates mean higher customer engagement, program satisfaction, and translates to higher customer lifetime values. Seeking higher breakage rates is antithesis to a win-win with customers. The fear of increased costs driven by higher redemption rates can be moderated through disciplined financial measurement of a loyalty program and balancing rewards with little or no financial leverage (cash back) with those that have it (experiences).

All of these Good Friday dreams are well within the power of loyalty sponsors to put into motion. The data is there, the ability to communicate exists, and customers have spoken that they are just waiting for their favorite brand to engage in a relationship with more value and relevancy.

Spring hopes eternal!

Almost 10 years ago, I wrote an opinion piece for COLLOQUY questioning whether Frequent Flyer miles were still the most valuable currency in the Loyalty Marketing landscape.  The premise was that the weakening value of the FF mile might open the door for a better offer to capture the loyalty imagination of consumers. The next best high-value loyalty currency was thought to be coming from a US based coalition ala Nectar or Airmiles.

It’s 2009 and time to ask the question once again.

Consumers and the press are piling on with criticism of airline mile programs. Combine the higher thresholds for cashing in for a free ticket, the seemingly steady decline in the quality of in-flight experience, and the airline’s fascination with un-bundling and charging for services that used to be included in a ticket price and it’s easy to make a case for the demise of FF miles.

The COLLOQUY article was cautious in criticism of the almighty MILE, noting that “Americans are so attuned to earning airlines miles that it’s hard to create a value proposition, either in a standalone program or in a coalition, that can equal them.”

Time and change go hand-in-hand however and the challenge of creating that value proposition to match or exceed the perceived value of an airline mile might be easier to tackle as each month goes by. A recent Wall Street Journal article “Air Rescue: Saving Miles From the Ax” highlighted the many ways which airlines are adding restrictions and tweaking program rules to burn more miles before they can be used.

Many of the rule changes highlighted in the WSJ article are activity related and American Airline’s change from no expiration to an 18 month activity related rule has garnered lots of attention. There are two sides to every story and, if you were running AAdvantage or any other big loyalty program, you too would be under pressure to manage program liability more closely. It’s easy to see why stewards of loyalty programs conclude that customers who have not transacted for 18 months are maybe not your customers any more.

The flaw in the activity rule highlights the dirty secret of airline mile programs: that customers are less loyal to a particular airline than the industry would like to believe and carrier choice is often dictated by lifestyle and business changes more than brand affinity.  I’ll share a personal example. At one time, most of my my travel was in Latin America and I was a privileged flyer with American. Later, the work load swung to the US and I rose in the ranks of Delta Skymiles members while I watched my American status diminish. When I ventured back into LAC, I had lost my status with the airline and had to be patient until I became “visible” again.

The airlines should be able to recognize me as an inherently valuable customer and provide some relief for my straying. Through the data collected, the airlines could identify my return, send me a welcome back email and inquire if I was here to stay. I bet most people would respond to such an email with indication of preferences and plans if they were offered incentive to provide the information. That incentive, of course, would be to have the opportunity to earn accelerated status with the airline. In the current situation, I am more tempted than ever to just shop by schedule, price and airport location.

The other main criticism of airline miles is that they are difficult to redeem.  If you’re like me and redeem miles to take the family to exotic destinations like Buffalo or Cleveland, you’ll never have a challenge redeeming your miles. Try to go to New York for Christmas and you’ll have a different story to tell.

It’s possible that the airlines are their own worst enemy. They have given miles to everyone and are still inviting people to join their programs with in-flight announcements. Even the Economist agreed that this non-selective behaviour would spawn MILE inflation:

“Miles outstanding have risen by an average of 20% a year since 1995 – two-and-a-half times as fast as the supply of dollars.”  Equating this inflationary expansion of airline currency to a key global currency, the article continued, “central bankers would suffer sleepless nights at such reckless  monetary expansion were it not for the fact that they are usually up in first class collecting double or triple miles.”

The state of the FF mile is really quite a mess. There are diverging forces at work: Consumers are less interested to wait and accumulate miles as they know that rules will continue to shift against their interests and their ability to redeem will be challenged. At the same time, the cost of using miles to promote a cobrand or reseller relationship is probably the highest among options in the marketplace.

Invest the same cost per mile into a value proposition that promotes YOUR brand and is truly tailored to YOUR customers and quite likely you will have constructed a value proposition that beats the heck out of FF miles.

Turbulent times for the airlines, opportunistic times for smart marketers……

Citibank launched its ThankYou! Network in 2004 and in doing so,  staked out ground as the first top-tier bank to embark on a rewards program that went beyond credit card and included multiple retail bank products like checking accounts and consumer loans.

Credit to the first bank to launch a Relationship Banking program in North America goes to Banco Popular de Puerto Rico which launched its Premia program in 2002. The architect of the Premia program, Fabio Garcia-Passllacqua, deserves kudos for incredible vision and courage in launching Premia and can be proud that the program continues to return strong results to the bank.

Citi has made progress with its program, its alliance with Expedia just one example of extending the value of their ThankYou! points through intelligent partnering.

Two news items sighted this week, however, may signal a change in course for the ThankYou! program and its value for it members.

First, AMR Corp., owner of American Airlines, announced that it had taken steps to raise $2.9B cash to quiet investment community concerns about its future liquidity.  In a press release, AMR revealed details of the cash raise and that it had agreed to sell $1 Billion of AAdvantage Miles to Citigroup, its long standing cobrand credit card partner.

Though Citi reported to treat this advance purchase as a loan, it clearly indicates the importance of the Citi AAdvantage credit card as the flagship product in Citi’s card business and the confidence the firm has in its ability to drive card usage and acquisition by offering AAdvantage miles as a reward.

It also highlights that while relationship banking remains a challenging concept to sell to consumers, credit card rewards programs are like the high-hot heat that got Nolan Ryan into the baseball hall of fame.  Like the fastball, it’s a straight-down-the-middle value proposition that consumers understand.

The second news item that not everyone will connect to ThankYou! is Citi’s announcement that it is concentrating its retail banking business in the U.S. on six key markets. Explained another way, Citi is executing a plan to close branches in many markets and shrink its retail delivery system. Though Citi offered a statement that “Customers, not products, are driving Citi’s strategy for North America consumer banking”, one has to wonder how easy it will be to compete for deposits with the likes of Bank of America and Chase when the only way to open an account for customers outside of the 6 markets is through a website.

The two announcements taken together makes you wonder if the expansion of a relationship banking program can be successful as the institution scales back its retail network, and if the temptation to return to a cards-centric approach to rewards to meet short term goals will put ThankYou! in a back seat.