A not-so mythical conversation between Ritz Carlton executives:

Sr. Exec: You’ve got to be kidding me, we’re launching a points program?

Marketing Exec: Yes sir, it’s really going to help our business.

Sr. Exec: But we’re Ritz Carlton, our service speaks for itself, we don’t need a fussy points program to drive business like the lower-end chains.

Marketing Exec: With occupancy and average daily room rates declining  steadily over the past 3 years, we have to do something and besides, our guests like them.

Sr. Exec: Our guests aren’t interested in anything as pedestrian as points. You’ve got to have a better idea if you want to keep your job.

Marketing Exec: Pardon me sir, but if our guests don’t like rewards programs, then why do they continually check in with rewards cards. Our guests may be affluent, but they know value when they see it.

Sr. Exec: What do the folks at Marriott have to say about this?

Marketing Exec: Actually, they told me that Marriott Rewards is one of the key drivers of their brand value and has helped them weather this economic storm.

Sr. Exec: I’m still not excited about this, give me one good reason to launch this loyalty program.

Marketing Exec: One word Sir:  our CUSTOMERS …. our business IS about serving the customer, isn’t it?

Whether a conversation like the one above ever took place, noone will know, but Ritz Carlton’s decision to launch The Ritz Carlton Rewards this week is a good one and illustrates some fundamental lessons about the value of loyalty programs:

1. Well executed Loyalty Programs increase business value:

As mentioned in a Wall Street Journal article about half of all stays across all Marriott brands are attributed to loyalty-program members. According to Laurence Geller, CEO of Strategic Hotels & Resorts, (owners of Ritz Carlton, Four Seasons & Fairmont properties) “major brands with loyalty programs outperformed” others during the past economic slump. As the WSJ reported, he went on to say:  “We have been encouraging brands to have them.”

2. A Loyalty currency with established market value is a strategic weapon:

Any sponsor who has invested smartly enough to build recognizable value for its loyalty brand (delivered in points, miles, or other measurable units) has a loaded weapon that can pulled from the shelf for strategic reasons or just to support shorter term business objectives.

Even though Ritz has positioned its program as distinct from Marriott Rewards, it seems obvious that they have in fact re-skinned the core program with appropriate creative elements, partners (Abercrombie & Kent, Neiman Marcus, Vera Wang, National Geographic Expeditions) and rewards to meet their customer demand.

Considering that there are in excess of 30 million MR members, borrowing from a strong program base significantly reduces risk in launching a “new” program.

3. Listening to your Customers is good business:

Ritz Carlton’s launch constitutes is a big “yes” to its customer base asking for rewards and the luxury chain can continue to add value with personal service and other things core to its brand. Just because Subway, Best Buy and now Ritz Carlton each has a points program doesn’t mean that they have to be anywhere close in appearance or perceived customer value.

Worrying about who else has a points program is evidence of too much naval-gazing and not enough customer-centricity. It also leads down the wrong strategic path. A better plan is to look at the marketing mix of direct competitors. In this case,  Four Seasons does not have a program and apparently has no plans to launch one anytime soon.

Should Four Seasons decide to jump into the game at a later point, they will have to do more than copy Ritz and the challenge will be palpable.

A not-so mythical conversation between Ritz Carlton executives:

Sr. Exec: You’ve got to be kidding me, we’re launching a points program?

Marketing Exec: Yes sir, it’s really going to help our business.

Sr. Exec: But we’re Ritz Carlton, our service speaks for itself, we don’t need a fussy points program to drive business like the lower-end chains.

Marketing Exec: With occupancy and average daily room rates declining  steadily over the past 3 years, we have to do something and besides, our guests like them.

Sr. Exec: Our guests aren’t interested in anything as pedestrian as points. You’ve got to have a better idea if you want to keep your job.

Marketing Exec: Pardon me sir, but if our guests don’t like rewards programs, then why do they continually check in with rewards cards. Our guests may be affluent, but they know value when they see it.

Sr. Exec: What do the folks at Marriott have to say about this?

Marketing Exec: Actually, they told me that Marriott Rewards is one of the key drivers of their brand value and has helped them weather this economic storm.

Sr. Exec: I’m still not excited about this, give me one good reason to launch this loyalty program.

Marketing Exec: One word Sir:  our CUSTOMERS …. our business IS about serving the customer, isn’t it?

Whether a conversation like the one above ever took place, noone will know, but Ritz Carlton’s decision to launch The Ritz Carlton Rewards this week is a good one and illustrates some fundamental lessons about the value of loyalty programs:

1. Well executed Loyalty Programs increase business value:

As mentioned in a Wall Street Journal article about half of all stays across all Marriott brands are attributed to loyalty-program members. According to Laurence Geller, CEO of Strategic Hotels & Resorts, (owners of Ritz Carlton, Four Seasons & Fairmont properties) “major brands with loyalty programs outperformed” others during the past economic slump. As the WSJ reported, he went on to say:  “We have been encouraging brands to have them.”

2. A Loyalty currency with established market value is a strategic weapon:

Any sponsor who has invested smartly enough to build recognizable value for its loyalty brand (delivered in points, miles, or other measurable units) has a loaded weapon that can pulled from the shelf for strategic reasons or just to support shorter term business objectives.

Even though Ritz has positioned its program as distinct from Marriott Rewards, it seems obvious that they have in fact re-skinned the core program with appropriate creative elements, partners (Abercrombie & Kent, Neiman Marcus, Vera Wang, National Geographic Expeditions) and rewards to meet their customer demand.

Considering that there are in excess of 30 million MR members, borrowing from a strong program base significantly reduces risk in launching a “new” program.

3. Listening to your Customers is good business:

Ritz Carlton’s launch constitutes is a big “yes” to its customer base asking for rewards and the luxury chain can continue to add value with personal service and other things core to its brand. Just because Subway, Best Buy and now Ritz Carlton each has a points program doesn’t mean that they have to be anywhere close in appearance or perceived customer value.

Worrying about who else has a points program is evidence of too much naval-gazing and not enough customer-centricity. It also leads down the wrong strategic path. A better plan is to look at the marketing mix of direct competitors. In this case,  Four Seasons does not have a program and apparently has no plans to launch one anytime soon.

Should Four Seasons decide to jump into the game at a later point, they will have to do more than copy Ritz and the challenge will be palpable.

A Mosaic is defined as a decorative art involving small pieces of glass, stone, or other material. It is an art form that represents the product of human creativity and captures the eye. Mosaics date back to AD 64 when In Rome, Nero and his architects used them to cover the walls and ceilings of the Domus Aurea. The size and color of each individual tessera, or small tile of stone or glass used to make a mosaic, is determined by the artist and it is unlikely that any two mosaics are exactly the same.

This aspect of singular design is shared by the proprietary planning methodology employed by Hanifin Loyalty to arrive at a Customer Loyalty Mosaic™ , a desperately needed and innovative approach to Loyalty Program design.  Any business with the will to listen to its customers and adapt its product or service offer to serve their needs is, in theory, on the road to success. To build long term brand loyalty and improve lifetime customer value however, a business must go further by matching transactional and qualitative customer data as the basis of a value proposition that is defensible and set apart from the competition.

Every business is capable of creating its own Customer Loyalty Mosaic™, the components of which range from brand message to operational efficiency, quality, and price. If you visualize the Customer Loyalty Mosaic™ (CLM) of familiar companies as a mix of shapes and colors, the idea takes shape.

Walmart’s CLM would emphasize tessera (elements) related to price and distribution, while Apple would have larger stones representing Innovation and Service. Federal Express might have larger components of Operational Efficiency and Distribution, while American Express would showcase Brand Message and Service.

In today’s difficult economy, it seems that the mosaic pieces of Service and Customer Satisfaction are increasingly in the spotlight. There is a unique challenge to consumer facing companies – do more with a diminished marketing budget and somehow meet the needs of customers who not only understand their value to the business, but carry a sense of entitlement about being recognized for their patronage. In other words, business is challenged to provide stellar service and more individual attention to customers when resources have never been more scarce, and work forces more skeptical about pitching in for the good of the enterprise.

Business Week recently chronicled this service phenomenon and noted that business resources are quietly being shifted to retain and delight more valuable (“best”) customers while deemphasizing acquisition plans. The magazine noted a renewed emphasis on segmenting customers by tiers and designing service and benefit packages customized to these tiers to improve retention. Business Week formed its own methodology to rank the top “Customer Service Champs” in 2009. Tops on the list was Amazon.com, followed by USAA, Jaguar, Lexus, and The Ritz Carlton in the top 5.

The trend towards customer retention and a more sincere approach to customer service is heartening as both are core elements of the Customer Loyalty Mosaic™. Loyalty Marketing is desperately in need of innovation. Let’s hope that the leadership exhibited by the companies on display in Business Week strike a chord for a more holistic approach towards building customer loyalty. Both consumers and business will benefit as these ideas filter throughout industry and, more importantly, have staying power as the economy improves.