My frequent flyer status change almost ends "in tiers"

Nearly every loyalty program operator faces the question of whether to introduce status tiers into their program. If your program has many members with low activity, it's tempting to single out the higher earners and credit them with a superior status, and thus the familiar platinum, gold and silver labels loom as an option.  Although tiers and status levels appear with all sorts of loyalty programs, nowhere is this more prevalent than with frequent flyer programs.


My recent episode with an Australian frequent flyer program (er, a choice of two, and I'm not going to name which one) illustrates the challenges in  handling status changes sensitively and thoughtfully. I'm not the most frequent of flyers, but I had through a long and dusty trail garnered silver status, and for the past year had enjoyed the albeit modest benefits this afforded.

However, the great reckoning, the review date, loomed, and it looked as though I was going to miss out, not by much, but I wasn't going to make it.  I wondered, would they let me down gently?  Would they take into account my near miss, and allow me to hold my status for another year?  Anecdotal evidence from friends and colleagues suggested that this behaviour was possible if not probable.

... and then, I thought all my problems had been solved.  Out of the blue, I was asked to fly to the US, to collect a loyalty award (of course!)  My status was intact - well, as good as - I calculated that there would be a period of only four days when, technically, I fell short of silver status, before I could rightfully claim my retained status. No worries!

Imagine my surprise then, when I received an automated email from my frequent flyer program euphemistically titled "An update to your membership", which stated "We hope you have enjoyed the benefits of Silver membership. We have recently reviewed your flying activity over the past 12 months and you have not quite earned enough Status Credits during your review period to maintain Silver membership. Your membership pack will be with you shortly."

So, with brutal efficiency, I was demoted. Credit to them for detecting that I had "not quite" earned enough credits - well done on trawling their big data to declare that I was officially an unlucky loser.

But what had happened to their discretion, and their insight? Surely they could see that just a few breaths later I was travelling halfway across the globe with them and that this fleeting demotion was a waste of energy?  I contacted them and stated as much. Their response was perfunctory and dismissive; a templated robotic reply from "Terry" which showed "he" hadn't even bothered to look into my membership or my booked flights.

I duly flew to the US and returned (with award!) - while I was away, the new vanilla membership pack celebrating my demotion and withdrawal of benefits had arrived.  But I duly checked online - yep, according to their computer I was back at Silver! But where was my automatically triggered email, with congratulations?  Radio silence. I decided to write back to "Terry".  He replied, almost with a hint of resignation,  "Yes, we can confirm you have been upgraded to the Silver membership tier. As members automatically receive a new card when they move tiers it may take slightly longer to receive notification when upgraded. A new Silver card has been generated and should arrive for you in the next few weeks."

So, a nonsensical explanation for taking "slightly longer" to be notified of an upgrade. And a new Silver card to arrive "in the next few weeks." Next few weeks?!  Why had I been the victim of their ruthless efficiency when knocking me down to no-longer-valued status, and then subject to delays and lack of notification when I regained my status, four days later?

For me, this was a good illustration of what a tricky space status tiers are, in any loyalty program.  Status changes are a hassle - they entail issuing of new cards (two quite needless reissues in my case) and importantly the construction of rules and procedures for demoting their members.  Surely it's an unsavoury element of any loyalty program when you have to tell members that they're no longer as important to you as they used to be.

I've also observed first hand in the past the challenges of setting status tiers, and what ways to rewards status.  It's easier to establish with frequent flyer programs, perhaps harder to set with other programs. The program I was involved in made the mistake of making its silver status too easy to achieve, and was faced with such a groundswell of qualifiers that they couldn't afford to offer them much at all in additional benefits, and couldn't even afford to send them a different card! So much for status!

Final observation is that status tiers are sensitive and emotional for loyalty program members.  Some excellent research a few years back from then Monash Uni academic Nathalie-Chantal McCaughey showed definitively that flyers would regularly and consistently make uneconomic decisions about their flying, in order to maintain or gain status.  You might expect this more if you were tempted to advantage when your employer was paying for the flight, but McCaughey also showed it held true for personal travel.  This stuff is important, and as my own recent experience shows, it shouldn't be handled sloppily!

Aussie loyalty's signs of maturity

I enjoyed a customer loyalty conference in Sydney recently; not a large forum, but certainly one attended by very engaged Aussie loyalty-philes. Pleasantly surprised that loyalty could stand up on its own in a forum in this country, and a testament to the seriousness with which Australian retailers are addressing this topic.

Impressive, too, to see some of the success of relatively new programs - Rebel Sport's "Season Pass" program, with its two-tier pricing and other benefits; and Hoyts new Rewards program, with a swag of treats - just to name a couple. Not only were these and other initiatives garnering impressive take up by customers, I was really impressed with the thoughtful planning and execution.

Intelligently applying a blend of science, cost-efficient tech-wizardry, data deftness and a liberal dose of common sense and pragmatism seemed to provide a recipe for sustainable success. The mix needs to be just right, because it was also very clear that these programs need to be executed in an environment of scarce resources. It seems no program, big or small, has the luxury of large budgets and certainly not large teams. This seems true in programs as diverse as Dymocks' successful Booklover program and the data-intensive Onecard program from Countdown supermarkets in New Zealand.

Academics aren't often touted as draw-cards at these gatherings, so it was a pleasant surprise to take in engaging presentations from John Dawes from UniSA and Nathalie McCaughey from Monash Uni. The team John hails from has been producing solid work on loyalty and related topics going right back to Byron Sharp's quantitative study soon after FlyBuys began, while Nathalie's data-rich expose on what makes frequent flyer programs tick was an absolute revelation.

Loyalty programs are no longer new in this country, but this recent gathering demonstrated that this field is burgeoning, even blossoming.

Only 131 kilometres to my "local" reward

As much as information collected by loyalty programs provides a great opportunity for relevant, personalised communications to, or indeed in these enlightened days, conversations with its members, it's something that occasionally gets lost in translation. With email marketing providing a low cost form of communication, I know from the program I work with, there's often the temptation to batch and blast a message to all and sundry.

But if that's a sin in loyalty land, I reckon an even greater one is attempting to provide a personalised, targeted communication and failing miserably in the execution. And without naming names, one of Australia's most prominent loyalty programs has managed to do that with an email stream in recent months.

A couple of days back I received my "exclusive January offers" promoting the program's affiliates. (Never mind it was received on the last day of January, I'm assuming the offers didn't expire that day). But tellingly the email is headed up "my range of local rewards". And that's where the problem really begins, since each time I have received these emails over the past ten months, they are full of retailers that are anywhere but "local" to me. Some examples:

• Hair salon in Wantirna, 24 kilometres away
• Coffee in Doncaster, 12 kilometres away
• Liquor from Fitzroy North, 16 kilometres away
• Jewellery in Frankston, 50 kilometres away
• Travel agent in Ringwood, 22 kilometres away
• Fruit from Cheltenham, 12 kilometres away

The pièce de resistance came on Monday, with an invitation to pop in for a spot of Japanese at Ballarat Tokyo Grill, a mere 131 kilometres away. About as useful an option for local casual eating as heading to Tokyo itself!

A couple of extra pointers here - it's not as if the above examples are the exceptions among a range of other truly local shopping options; these anything-but-local offerings form the majority. Also, you'll note that none of them are for specialised goods or services that warrant long travel to hunt down. A hairdresser can be found in suburban Melbourne without necessitating a 24 km trip. Fruit can also be quite handy.

However, the most disappointing aspect is this - they know from my purchase behaviour where I DO shop - and it's not in any of the suburbs listed above.

To be fair, the program in question often does a good job in using transaction data, even at a product level, to make relevant offers. In the particular case of the program affiliates, I suspect that there may be other commercial factors that get in the way. But despite ten months for them to get this right, targeting excellence, like these "offers", seems yet some distance away.

How my local coffee shop got loyalty all wrong

My local coffee shop near work has recently got competition, a short walk away. No surprises then, I suppose, that to provide a little disincentive for us to try out, or indeed switch to the opposition, a coffee card appeared. Every ninth coffee free.

The general vibe from customers appeared to be slightly on the cynical side - the shop didn't seem to particularly care about us before they had opposition. But a discount is not to be sniffed at, and pretty quickly we were filling up our cards with stamps.

But then, some strange behaviour. Unannounced, ordering a "medium" rather than "small" earned two stamps, not one. But the next day, "medium" reverted to one stamp. Then, a few days later, again unannounced, I received three stamps for a "small" - an unexpected bonus - customer surprise and delight, even.

But then the bonuses totally disappeared. A sense of frustration not knowing what behaviour I had to exhibit to be treated any more favourably.

Then, today, shock above all shocks, only a matter of weeks on, they are not handing out any more coffee cards! End of program looms! "Head office directive", mumbled the barista. I'm wondering now whether they'll "lose" the stamp, leaving me with unredeemed cards!

The prevailing theory among we, the hapless clientele, is that the coffee shop feels it has weathered the onset of the new competition just down the road. Therefore, they need not "pay" for our loyalty any longer.

Phew! My reflection is that this little whirlwind over the last two months has provided a salutary microcosm concerning things loyalty.

The "launch" phase, while unremarkable, was flawed. The sell-up of the offer seemed to lack a raison d'etre, or sufficient promotion at the least, that it came across as a disingenuous ploy only because decent opposition loomed. Certainly not part of an integrated customer-focused strategy.

Secondly, the rather bizarre, inconsistent crediting of bonus stamps left a sense of confusion rather than goodwill. A loyalty currency, even in the base and unsophisticated form of coffee stamps, can provide a strong mechanism for behaviour change. Yet it was never clear what behaviour they were seeking in order to gain the extra benefit. And having had a brief taste of the complimentary stamps, they disappeared. Such is the challenge for a loyalty marketer that the introduction of bonus points - or any additional benefit - creates an ongoing obligation to keep up that supply. And for it to be crystal clear what a customer has to do to earn a premium.

And finally, this tawdry vignette adds another chapter to the book entitled "it's harder to end a loyalty program than start one". In the case of our coffee shop, the end game could hardly have been executed in a less customer-friendly manner. The fact that it is being shut down so soon after beginning has reinforced a notion that we poor customers have been mere pawns in a brazen and coarse exercise.

Of course, in the larger loyalty landscape there have been any number of much higher profile (and very costly) failures. Any loyalty strategy needs to be finely planned and carefully executed. The ultimate cost for my coffee shop has been customer disaffection and distrust. Any modicum of goodwill that was tentatively established when the cards and stamps appeared has been more than wiped away by the brusque nature of its abandonment. Ironically, from this sad exercise the coffee shop has indeed created a unique "point of difference" from its competitors - just not the one it was looking for!

Counting the beans

Nescafe's Cup of Rewards is a new player in the Aussie loyalty space, and represents a brave play in a loyalty market which has been almost devoid of product-specific programs.

Loyalty watchers are quite familiar with some of the big global players in this space, with My Coke Rewards weighing in as possibly the biggest, with 14 million members in the US. Programs in the FMCG sector (read CPG in the US) have been quietly garnering a corner of the loyalty territory traditionally claimed by retailers. Not that this has been a smooth pathway, as LoyaltyOne's Sol Zia recently neatly summarised.

However, it's not surprising that Australia has to date provided a barren landscape for FMCG programs. Although older Australians may recall exchanging Robur or Lan Choo tea labels for teapots in years past, the simple lack of scale has hindered the economics of such initiatives here.

So will the Nestle program work? The program is simple to join, and the website has a contemporary, friendly feel. A head start of 50 "beans" (plus a further 25 if I refer a friend) means that rewards are instantly within my reach. There's been a deliberate attempt to have the lowest possible bar on rewards, but I think it comes at a cost. Low-level rewards such as $30 off a $130+ Red Balloon experience, or a free game of bowling for every paid one, can come for nothing with existing member benefit programs. The balance of the reward catalogue seems a little sparse at present and surprisingly there appears to be no current link to social media but I expect these aspects will come in time.

The giveback is by necessity generous, given the narrowness of the category. With a 150 gram jar costing $8.50 earning me 150 beans, a $20 Repco voucher or iTunes benefit for 1,900 beans implies a very healthy giveback of just under 20%. Beans remain "fresh" for 24 months.

It's early days for Cup of Rewards. With the increasing appetite of Australian shoppers for private label products, programs like this have potential to provide additional brand stickiness. More than a few bean counters will be watching!

Good one for Myer?

The Myer One program has risen in less than five years to the position of one of Australia's better loyalty offerings. Importantly, Myer appears to "get" loyalty programs. Myer chief Bernie Brookes made a few marketers sit up and take notice when he recently revealed that the department store now spends more money on Myer One than it does on its entire above-the-line marketing. Now, you have to take into account the millions spent on those reward gift cards, but when one considers Myer's massive triumvirate of TV, press and catalogues, that's still saying something.

And for me, the true sign of success of a loyalty program is when it pervades the entire organisation and occupies a position in the middle of the organisation - as opposed to being viewed as a discretionary marketing activity. The Tesco Clubcard is the much-cited international example of this. But Myer One is heading in the Tesco directionin my view. For it is clear that the profound power of the data that Myer collects upon every swipe of the card (and the resulting gift cards) is being used by management to gain insight into all parts of its business - from store selection, to product ranging, to price points across different stores and so on. Additionally, Myer is going to great lengths to speak (generally) in a relevant, timely and appropriate manner to its members.

The recent tiering introduced by Myer (the first attempt in 2004 was a bit of a mess) is a step in that direction, with its best and better customers plonked into Gold and Silver categories. Myer takes this a step further by encouraging each store manager to develop a dialogue and close relationship with that store's best customers. Even chief Bernie gets into the one-on-one action, stating he's had Myer's five best customers nationwide around for dinner.

To Myer's credit it appears to have found sufficient resources to unearth the jewels in the database that Myer One has provided. In this respect, it provides a salutary lesson to its fellow major retailers in Australia. It is the power of the data above all else that will generate a return on loyalty investment. Myer seems to get that point best of all.

Books and cards: an update

Further to my engaging treatise on loyalty in the Aussie book retailing space, there's been some movement. Angus & Robertson, which incidentally failed in its recent bid to buy out the Borders chain in Australia has recently jumped into the loyalty space with its own program. It appears to be a fairly standard spend-$100-get-a-$5-voucher deal, similar to Dymocks Booklover, which rewards you at the same 5% level without the need for the $100 threshold.

A&R ignored my sage advice that they were previously creating a point of difference via their mouth-watering $5 discount tables. Presumably that wasn't doing enough for them, but I wonder if this program is more a defensive strategy. And interestingly, A&R has used as its platform the graphic card interface promoted by NZ-based Visible Results. The neat looking technology rewrites the loyalty entitlements and other marketing info on the loyalty card at each successive visit to the retailer. While this technology has been bouncing around for some years now (Mobil Max, an early competitor to Fly Buys in New Zealand was among the first in 1998), and the Brazin Pulse program is the most "visible" Australian client, it's curious that Dymocks moved on from this technology in favour of a traditional card format when it revised Booklover a few years back. I don't know the ins and outs but presumably A&R is happy to jump into a format that didn't appear to suit its competitor. Can't wait till the next chapter!