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.

I don’t normally post on current news releases. There are other sites with more resources to gather and report on current day happenings and I try to stick to broader trends or specific program reviews. The news today, however, calls for an exception.

American Express announced the acquisition of Loyalty Partner today and the coalition landscape just changed dramatically. The EU based company, which owns and operates Payback in Germany and another coalition in India, is one of the crown jewels among established coalition loyalty programs worldwide.

The surprise in today’s announcement is that suddenly what most of us assumed was a two horse race for global loyalty leadership between Aeroplan and LoyaltyOne, just became a three-way fight.

Just about one year ago, LoyaltyOne acquired a 29% interest in Dotz, the leading coalition program in populous Brazil. With just 200,000 members in a country of 190 Million, the growth potential for Dotz is formidable. As the press release stated, “LoyaltyOne’s investment in Dotz marks the beginning of its global expansion strategy that will take the company beyond North America.”

As LoyaltyOne was busy in Brazil, Aeroplan announced its acquisition of Carlson Marketing and launched a new program in Italy. But that wasn’t all…Aeroplan also made a strategic investment in Club Premier, the newly spun-off frequent flyer program associated with Aeromexico. With 2.5 Million members, Aeroplan was justifiably excited about the alliance.

Rupert Duchesne, President and CEO, Groupe was quoted in the press release saying “This is our first investment in an international frequent flyer program. As a result, this transaction represents a strategic breakthrough for our company, marking the export of Aeroplan Canada’s successful business model.”

Accepted thinking in the marketplace was that LoyaltyOne and Aeroplan would resemble two heavyweight prize fighters as their international ambitions developed. These two organizations are the recognized specialists in multi-partner loyalty and no other party had credibility to match.

So what’s a payment card organization doing in this game?

The motivation behind Amex’s interest in the coalition business is probably different than that of Aeroplan and LoyatlyOne. As the press release reads, “The acquisition will deepen American Express’ merchant relationships in select international markets, add more than 34 million consumers to the company’s international customer base and expand its range of rewards and loyalty marketing services.”

34 Million…Pause on that number.

What a great way to assemble a massive base of potential cardholders and to quickly expand the penetration of merchant acceptance in markets where Payback (and other coalitions) exist.

Today’s news tells me (at least) three things:

1. For all the flaws that are cited about loyalty programs, the business model remains one of the most powerful in the market and can yield benefits on multiple levels to any participating business.

2. The business of loyalty itself, is quite profitable and offers high growth potential worldwide.

3. Everyone at Aeroplan and LoyaltyOne will be out buying new racing flats this weekend, because the race pace for “world domination” just picked up!

I don’t normally post on current news releases. There are other sites with more resources to gather and report on current day happenings and I try to stick to broader trends or specific program reviews. The news today, however, calls for an exception.

American Express announced the acquisition of Loyalty Partner today and the coalition landscape just changed dramatically. The EU based company, which owns and operates Payback in Germany and another coalition in India, is one of the crown jewels among established coalition loyalty programs worldwide.

The surprise in today’s announcement is that suddenly what most of us assumed was a two horse race for global loyalty leadership between Aeroplan and LoyaltyOne, just became a three-way fight.

Just about one year ago, LoyaltyOne acquired a 29% interest in Dotz, the leading coalition program in populous Brazil. With just 200,000 members in a country of 190 Million, the growth potential for Dotz is formidable. As the press release stated, “LoyaltyOne’s investment in Dotz marks the beginning of its global expansion strategy that will take the company beyond North America.”

As LoyaltyOne was busy in Brazil, Aeroplan announced its acquisition of Carlson Marketing and launched a new program in Italy. But that wasn’t all…Aeroplan also made a strategic investment in Club Premier, the newly spun-off frequent flyer program associated with Aeromexico. With 2.5 Million members, Aeroplan was justifiably excited about the alliance.

Rupert Duchesne, President and CEO, Groupe was quoted in the press release saying “This is our first investment in an international frequent flyer program. As a result, this transaction represents a strategic breakthrough for our company, marking the export of Aeroplan Canada’s successful business model.”

Accepted thinking in the marketplace was that LoyaltyOne and Aeroplan would resemble two heavyweight prize fighters as their international ambitions developed. These two organizations are the recognized specialists in multi-partner loyalty and no other party had credibility to match.

So what’s a payment card organization doing in this game?

The motivation behind Amex’s interest in the coalition business is probably different than that of Aeroplan and LoyatlyOne. As the press release reads, “The acquisition will deepen American Express’ merchant relationships in select international markets, add more than 34 million consumers to the company’s international customer base and expand its range of rewards and loyalty marketing services.”

34 Million…Pause on that number.

What a great way to assemble a massive base of potential cardholders and to quickly expand the penetration of merchant acceptance in markets where Payback (and other coalitions) exist.

Today’s news tells me (at least) three things:

1. For all the flaws that are cited about loyalty programs, the business model remains one of the most powerful in the market and can yield benefits on multiple levels to any participating business.

2. The business of loyalty itself, is quite profitable and offers high growth potential worldwide.

3. Everyone at Aeroplan and LoyaltyOne will be out buying new racing flats this weekend, because the race pace for “world domination” just picked up!

Listening to execs sharing insights into key airline marketing and business issues at The Mega Event 2010, I put together an airline loyalty marketing  IQ test just for you.

The questions were raised and answered through a compilation of remarks from the following companies including, but not limited to: Aeroplan, American Express, Emirates Airways, Kobie Marketing, Millenium Aviation, Peppers & Rogers, Qantas, Sapient Nitro.

Here’s a Mega Quiz for you:

1. Name a line of business in the airline industry that is barely 2 years old and now accounts for $14Billion annually.
2. Name one aspect of air travel that is getting more attention from the Department of Transportation than helmet on helmet hits are getting from the NFL?
3. Name the second air carrier in the world to spin off its frequent flyer program (FFP) after Air Canada spun off Aeroplan?
4. Name the two most significant sources of profit for Qantas, the largest airline in Australia and the second oldest in the world?
5. According to Google Chief Economist Hal Varian, what will be the sexiest  corporate job over the next 10 years?
6. We have Twitterati, Datarati, and soon will have Loyalarati. Who are these people?
7. What percentage of Twitter conversations will be handled through automated means by corporate tweeters in the next 2 years?
8. What are 3 synonyms for loyalty program “liability”?
9. How important will Privacy issues be to business in the next 10 years?
10. What is considered to be the growth industry of the next decade?

Answers:

1. Ancillary Revenue a/k/a a conscious un-bundling of the air travel experience that generates profits but has potential to undermine customer satisfaction
2. Ancillary Revenue (The DOT is considering implementing new standards for fee disclosures as part of a broad rule-making proceeding)
3. TAM, the Brazilian carrier
4. Profit from its FFP and operation of its low-cost carrier JetStar
5. Statistician
6. Datarati are those companies who make a commitment to using their hard fought customer data to drive business results, while the emerging Loyalarati will be those enterprises which deliver their respective brand promise with a unwavering commitment to customer engagement and enterprise loyalty which honors customers, vendors, shareholders, and partners to create unshakable competitive advantage.
7. 20% minimum
8. a) Deferred discounts (they only get cashed in when points/miles are redeemed); b) Current Asset (If the company has reserved cash to account for some or all of the value of unredeemed points/miles, there should be a stockpile of cash that can be used to drive innovation and business results); c) A “darn good thing” because liability is an outcome of customer purchase behavior and an indicator of the health of customer engagement across the business.
9. What’s privacy? That dies just a little more each day as Millennials share more information and leading social networks leak personal data
10. Loyalty Marketing!

I don’t usually include conference reports as posts in Loyalty Truth, but the quality of content shared by key persons in the airline / banking / loyalty industries during the first day of the Mega Event was so strong that I make an exception.

Rupert Duchesne, President Groupe Aeroplan kicked off the day by talking about – what else ? – The Future of Loyalty.  He noted 3 key trends that in his opinion, will define the business going forward:

1. Duchesne borrowed from an article written earlier this year by Google Chief Economist Hal Varian and stated that the Rise of the “Datarati” would define the winners among operators of frequent flyer programs (FFP). In simple terms, he made clear that the companies which use the data they have collected effectively to drive marketing efforts will come out on top. We agree here in Loyalty Truth.
2. Credit card rewards programs will continue to be under pressure. With the passage of CardAct 2009, the Code of Conduct in Canada, and the looming Durbin Amendment, life as a credit card marketer will continue to be challenging in 2011 and beyond.
3. There will be an Evolution of how Best Customers are defined. Companies will go beyond the typical Recency, Frequency, Monetary Value equation and add Social Influence (using things like a Klout score). Duchesne cited ShopKick and Social Rewards as examples of outfits that are bringing this idea to market.

Lance Blockley, Managing Director Edgar Dunn & Company contrasted Co-branded credit card offers linking “direct” to FFP programs and those credit card offers that consolidate multiple travel awards rather than linking with just one airline, offering up some insightful distinctions between the two models.

The panel discussing “Lessons from the recession” was a pleasure for me to moderate as we had 4 stellar panelists with Air Jamaica and Virgin America represented. Dr. Ricardo Pilon explained how airlines need to refocus their objectives and think about the holistic nature of customer loyalty to meet future challenges. Brett Billick, Virgin America emphasized that airlines should keep the focus on the product, not on the loyalty program itself. Angela Brissett-Martin, Air Jamaica offered a great case study of how the airline reached out to their highest tier flyers to make sure they stayed “on board” during the recent merger with Caribbean Air. Jef Harris added that airlines have to balance their ancillary revenue strategies with overall loyalty strategy.

A panel discussing the new IFRIC 13 standards for managing liability from FFP’s brought new perspective to a subject many would prefer to avoid. Instead of thinking of the value of unredeemed mileage as “liability”, Mikund Srinivasan from Emirates / Skywards suggested that we consider the money socked away to be a current asset that can be used to fund program improvements. Mike Hemsey, President Kobie Marketing, preferred the term “deferred revenue” and reminded delegates that high redemption equates to strong engagement and strong incremental revenue growth.

The day wrapped up with Simon Hickey, CEO Qantas FFP, who talked about how the airline formed its coalition style program and the results it has generated. Earlier in the day, Duchesne had stated that Loyalty was important as Qantas had registered all of its profit last year from two sources: its FFP and low cost carrier, so you knew that Hickey’s story would be a good one.

During the presentation, Hickey announced the airline’s new iPhone app and emphasized that Customer Engagement was key to future success. He wrapped up by predicting that Loyalty would be “the growth industry of the next decade”.

I think I have to agree!

Don Peppers and Martha Rogers gave birth to the concept of 1 to 1 Marketing over 15 years ago. The brilliant marketing innovation is intended to “illustrate the importance of treating different customers differently. (from their website).

From a practitioners viewpoint, 1 to 1 has also been difficult to execute while attaining measurable ROI.  “Mass customization” has been the closest application of the general idea that most marketers have achieved.

In my opinion, Web 2.0 communication tools including social networking platforms finally open the door to communicate with consumers on an individual level without breaking the bank, but a big question remains: how do we gain insight into the customer preferences that drive purchase decisions?

• Yes, you can survey, but the process does not invite accuracy unless carried out within a permission driven environment
• Focus groups are not conducive to promote a diversity of opinions shared with full transparency
• Satisfaction surveys are pretty window dressing that don’t serve as reliable predictors of future purchase behavior
• And NO, there is not just one question that can be asked to determine future customer loyalty

A conversation with a friend provided an example of how bundled preferences can become a purchase-decision reality.

Marketers try so hard to collect and understand personal preferences through qualitative surveys. And, after all the work and investment, we find the behavioral data contradicts survey results on many occasions.

How can we re-engineer our methods of collecting attitudinal data from consumers to achieve better results?

• Could we use social media to encourage people to outline their “dream ticket” of one-stop shopping for grocery, fuel, or mobile phone service?
• Could we create a member community that provides value to Elite level collectors and opens the door to collaborative conversation?
• Could we employ location based marketing and social sites like Foursquare to generate “instant” surveys on favorite haunts?

If we changed our approach to consumer research, what might we find?

Keep asking questions across your customer base and listen more diligently.

The answers will come clear in time.

The proven model worldwide to form a multi-partner Coalition loyalty program is essentially the same, regardless of the local language.

Operators normally chase down the one or two leaders in each high frequency category (retail, grocery, fuel, banking) to form the foundations of their value proposition. With regional coalitions easier to launch than ones of national stature, consider a new path to partner identification and recruitment, one that is practical to execute and could lead to big results.

What if marketers started the identification process with the consumer, not the partner? Imagine if they paused to understand the way consumers feel about individual brands and which ones fit together best to achieve a partner network that connected with large consumer groups on an emotional level?

A conversation with a friend provided me an example of how bundled preferences become a purchase-decision reality. My friend will remain unnamed, but the complexity of his purchase decision making process is worth some server space.

After bragging a bit on his country’s Olympic Hockey Gold medal, he shared an unsolicited opinion about his favorite Canadian rewards program. His description was transparent and blended logic, emotion, and value.

After ticking off  his range of choices for loyalty programs in his market – AirMiles,  Canadian Tire Dollars, Esso Extras, HBC Rewards, Petro Canada’s Petro Points and Shopper’s Drug Mart, he surprised me by saying “I collect everything through my Aeroplan card“.

Why? Not for just one reason, but several:

• He likes the speed and convenience of paying at the pump with a RFID device and chose Speedpass for its ubiquity over Shell’s Easy Pay device.
• He’s a big Tim Horton fan, which has lots of stores within the Esso C-store footprint.
• He’s an RBC loyalist, having banked there since a young age, and Esso tends to have RBC branded ATM machines at their sites.
• His family has always considered Esso to be their “family brand” of retail fuel.
• And, the more he sticks with Aeroplan, he finds he can accelerate his collecting through his Elite status that triggers partner offers.

Through my quick conversation, I found that it was the combination of brands assembled by Aeroplan that made the difference. I realize that my conversation constitutes a “focus group of one” but it is illustrative of how we can re-engineer partner selection processes to launch and operate multi-partner loyalty programs that are more effective.

This little tale provide evidence into why coalitions work but also points to the reality that even individual loyalty program sponsors should consider the power of developing partnerships in the future.

Either way, it is clear that consumer loyalty is not triggered solely by the collecting activity itself but by brand affinities and the customer experience taken as a whole.

In the beginning, there was Air Miles. Actually, according to history, it was three men in a room that started Air Miles.

According to Air Miles corporate history, Keith Mills wasn’t one of those three guys, but somehow later it was Sir Keith Mills that sowed the seeds of the Air Miles brand and business model across continental Europe. Eventually, Sir Keith helped to found Nectar, the successful coalition loyalty program based in the UK.

There is a passage in Exodus when God tells Abraham that “I will make your descendants as numerous as the stars in the sky and I will give your descendants all this land I promised them, and it will be their inheritance forever.”  I am tempted to make a tongue-in-cheek analogy between Abraham and Sir Keith, though the family tree is becoming quite muddled at this point in time and the coming battle between Air Miles and Groupe Aeroplan will ensure that no-one’s inheritances comes easily.

Aeroplan, the spin-off of Air Canada’s frequent flyer program, has not been satisfied to improve its core business, but has set about acquiring loyalty schemes around the world, the most notable of which, until yesterday, being Nectar. Air Miles, to its credit, has apparently been eyeing expansion opportunities and recently announced that it has made a 29% investment in Dotz, the evolving coalition program in Brazil.

Yesterday, Aeroplan announced its planned acquisition of Carlson Marketing. It is not completely clear what the US$188 Million price tag purchased, but presumably Aeroplan has just strengthened it capabilities in offering a complete processing and operational solution for the large companies it is seeking as potential clients. It has also significantly added to its strategic planning abilities assuming that Peppers & Rogers is included in the deal.

The announcement will get the attention of the Air Miles folks in Toronto and its subsidiaries LoyaltyOne & Colloquy will increasingly feel competition in a sandbox that was nearly their own to play in until now. Half the residents of St. Louis will stay awake at night as well as Maritz, MasterCard and others seeking the crown of “leading loyalty solutions providers”  find themselves up against stiff competition and deep pockets.

What is means for the rest of the industry will be sorted out over the coming months. One message that is clear is that there is money to be made in Loyalty Marketing, especially if you are the owner of a currency that becomes valued by consumers and is traded widely.

There is also that the likelihood that consolidation will breed greater need for independent viewpoint, analysis and recommendation. Corporate executives making decisions with long term financial implications would be well served to evaluate the source of their advice.

Aeroplan and Air Miles trace their roots back to the same family tree in many ways. Let’s see what kind of family feud will brew now that Aeroplan has upped the ante of the game.

In the beginning, there was Air Miles. Actually, according to history, it was three men in a room that started Air Miles.

According to Air Miles corporate history, Keith Mills wasn’t one of those three guys, but somehow later it was Sir Keith Mills that sowed the seeds of the Air Miles brand and business model across continental Europe. Eventually, Sir Keith helped to found Nectar, the successful coalition loyalty program based in the UK.

There is a passage in Exodus when God tells Abraham that “I will make your descendants as numerous as the stars in the sky and I will give your descendants all this land I promised them, and it will be their inheritance forever.”  I am tempted to make a tongue-in-cheek analogy between Abraham and Sir Keith, though the family tree is becoming quite muddled at this point in time and the coming battle between Air Miles and Groupe Aeroplan will ensure that no-one’s inheritances comes easily.

Aeroplan, the spin-off of Air Canada’s frequent flyer program, has not been satisfied to improve its core business, but has set about acquiring loyalty schemes around the world, the most notable of which, until yesterday, being Nectar. Air Miles, to its credit, has apparently been eyeing expansion opportunities and recently announced that it has made a 29% investment in Dotz, the evolving coalition program in Brazil.

Yesterday, Aeroplan announced its planned acquisition of Carlson Marketing. It is not completely clear what the US$188 Million price tag purchased, but presumably Aeroplan has just strengthened it capabilities in offering a complete processing and operational solution for the large companies it is seeking as potential clients. It has also significantly added to its strategic planning abilities assuming that Peppers & Rogers is included in the deal.

The announcement will get the attention of the Air Miles folks in Toronto and its subsidiaries LoyaltyOne & Colloquy will increasingly feel competition in a sandbox that was nearly their own to play in until now. Half the residents of St. Louis will stay awake at night as well as Maritz, MasterCard and others seeking the crown of “leading loyalty solutions providers”  find themselves up against stiff competition and deep pockets.

What is means for the rest of the industry will be sorted out over the coming months. One message that is clear is that there is money to be made in Loyalty Marketing, especially if you are the owner of a currency that becomes valued by consumers and is traded widely.

There is also that the likelihood that consolidation will breed greater need for independent viewpoint, analysis and recommendation. Corporate executives making decisions with long term financial implications would be well served to evaluate the source of their advice.

Aeroplan and Air Miles trace their roots back to the same family tree in many ways. Let’s see what kind of family feud will brew now that Aeroplan has upped the ante of the game.