by Aneace Haddad, CEO & Founder, Taggo
Loyalty programs have not changed much since the first airline loyalty cards took off more than 30 years ago. Sure, lots of features were added over the years. Co-branded cards were invented, combining a Visa, MasterCard or American Express payment brand along with a retailer or airline brand. CRM became more sophisticated, resulting in detailed monthly statements and targeted direct marketing. Real-time points and mileage redemption appeared at the POS, first introduced over a decade ago and now going mainstream.
I have been involved in many of these innovations, mainly through my last startup venture, a company that became the world’s leading provider of credit card loyalty solutions with bank customers in 30 countries.
I increasingly grew frustrated with how heavy, complex and expensive these systems are. We, as an industry, have lost track of the original business goals of loyalty and have turned the process into a monstrosity. In most loyalty conferences there is inevitably a moment where people get into debating the meaning of the word “loyalty”, seemingly stuck in the emotional connotations of the word. “If you want loyalty, get a dog.” Or this: “Apple doesn’t do loyalty because they produce outrageously awesome products.” The fact that we can get stuck at this level of soul searching is something that is rarely seen in other industries.
Loyalty experts use lots of complicated concepts and jargon, a case of incumbent players creating smoke and confusion to make their skills appear mysterious and valuable. Survey after survey show that in most cases, businesses have no clear way of calculating the ROI of their loyalty programs. Loyalty experts will swear this is not true, and will use complex models to demonstrate ROI of their systems. My company won the ROI of The Year award from The Banker magazine in 2004, something I was very proud of. Years later, I realized that we became so proficient at complex ROI calculations only because loyalty solutions are in the “Nice to Have” category. They are not in the “Pain Killer” or the even more attractive “Cocaine” categories which need little ROI justification to attract buyers. If you own an Apple product, you know what I’m talking about.
Social media is high on the radar for CRM and loyalty specialists. There is a strong sense that CRM and social media could go together very well. An IBM study in 2011, “From Social Media to Social CRM”, discovered significant gaps between what businesses think consumers care about and what consumers say they want from their social media interactions with companies. Consumers rank discounts as the number one reason for liking a business on Facebook, whereas businesses rank discounts as the least likely reason consumers interact with them. This perception gap is quickly being bridged, creating an increasing desire for businesses to find new ways to reward their fans on Facebook.
“The Future of Loyalty is Social”. This is the title (or something very similar) shared by dozens of articles. One of them, a Cranfield University survey of 200 frequent flyers, found that 72% would join an airline social loyalty program. Search for “social CRM” and “social loyalty” and you’ll find lots of examples of companies linking Facebook and Twitter to their loyalty programs. The most common approach is to give bonus points for social sharing. Social media is seen as something new that can be bolted onto existing CRM and loyalty management platforms. All of the original complexity is still there, with an additional layer added on top.
The “Horseless Carriage Syndrome”
The idea of bolting social media onto existing loyalty CRM platforms reminds me of something known as the “horseless carriage syndrome”. Automobiles started out looking exactly like old-style carriages, but without the horse. Engineers initially failed to understand the new possibilities of the new paradigm. After a while, people were able to think about automobiles in a new way, which finally paved the way for massive improvements in design and manufacturing. We are in this in-between stage right now. Loyalty experts add social media to their programs in the same way that 19th century engineers added combustion engines to their existing carriages. They are not re-thinking their solutions in a profound way.
Of course incumbents cannot be expected to jeopardize their revenue streams or investments in CRM platforms with new concepts that wipe out the need for their current solutions. This same resistance prevented me from finding new solutions within my own company. Too much was at stake, we couldn’t afford the risk of destabilizing everything and losing substantial revenue.
After moving on from my last venture, I had a chance to re-think things from scratch, without all the baggage. I wanted to find a way to vastly simplify loyalty programs, eliminating most if not all of the costs and making them much lighter to deploy and manage.
We discovered that fan pages on Facebook could become the heart of new generation loyalty programs. Many merchants are finding that fan pages eliminate the need for web sites, and that clicking like is very much a replacement for filling out a form to get on a mailing list. Web sites already offer the option of logging in with Facebook or creating an account with an email address and password. But what we’re talking about is removing that choice and linking so intimately with a fan page that the only way to join a membership program is by clicking like. Loyalty solution providers don’t go that additional step because that would eliminate a good chunk of their systems. I love it because it’s a big step towards massive simplification.
What was still missing was a simple way to identify a customer at the point of sale. Clicking like is useless if there is no way to easily verify that the customer is a fan. We experimented with tap and go technology, both on cards as well as embedded in mobile phones. Then at the request of merchants, we settled for the mobile number.
No more membership forms to fill out or cards to carry – just click like then give your mobile number to the cashier when you pay. Throw in some basic CRM processing and analytics, and merchants can get 90% of what loyalty programs provide, for a fraction of the cost. Add in sponsorships with payment brands (kind of like the co-branded credit card business model) to eliminate remaining costs and fund additional word of mouth advertising. All merchants have to fund are the discounts or whatever other benefits they want to give.
Bang. A new paradigm.
Any merchant, anywhere in the world, can have their own loyalty program, as powerful as most commercial programs, without any of the costs. All they need is a fan page, which they inevitably already have.
Early results are exciting. Local businesses in Singapore report up to 5x increase in repeat business, up to 7x increase in fan acquisition rates and 10x increase in word of mouth.
“Before launching our Fan Club it took six months to get 200 likes and I thought it would take a few more years to reach a thousand,” says the owner of local restaurant, Rock and Ash. “With the Fan Club, I passed the 1,000 mark in less than six months and 2,000 in less than a year. Now we have close to 3,000 fans, 80% of whom are registered Fan Club members.”
With lots of customers now fans, daily updates on the restaurant’s Facebook fan page reach a large number of people. This makes it very easy to inform customers of special promotions and activities. Thanks to these daily updates, customers are encouraged to come back sooner and more often.
“Our Facebook Page is like a newsletter on steroids,” says the restaurant owner. “Updates appear on fans’ newsfeeds where they can comment, like and even share updates with their friends. It’s very easy to post photos and I can easily do it via my smartphone. My posts are related to meal times and tea breaks. I post food images from my menu to remind fans it is lunchtime. I post images of my specialty coffee and drinks in the afternoon to remind fans that they can visit my cafe during their breaks.”
A small increase in repeat visits can have a significant impact on profits. Previously estimated at 5% of sales, Rock and Ash now sees 30% of sales coming from repeat customers.
“Without the Fan Club, I would have to spend money on other types of marketing which are more expensive and don’t encourage repeat business. I expect that sales would be dramatically lower if not for our Fan Club.”
That’s exactly the benefit that loyalty programs have always wanted to deliver. Now, without all the costs and overhead, ROI calculations are much more straightforward and no longer require complex spreadsheets.
A survey of 200 customers showed that 86% expect to come back more often because of the Fan Club. 57% declare spending more than expected, resulting in an average increase of $10 per F&B transaction. 67% say that they would come back less often without the Fan Club. On the operational aspects, 96% of members say it is easy or very easy to join the Fan Club and 92% say the checkout process is fast or very fast.
Inflation: The Next Big Opportunity?
I used to think that the success of my last startup was due to our software quality, thought leadership, patents, etc. While all this was true, something else was going on.
In 2000, we launched a loyalty program for a bank in Turkey, Akbank. This was one of our first large projects with real-time cash back at the point of sale. Banks in other countries saw what was happening in Turkey and quickly followed with their own deployments using our software. We signed up banks in 30 countries and grew from 30 people to 130.
However, it gradually became apparent that other banks didn’t seem to get as good results as the banks in Turkey. What was different?
Inflation. The Turkish Lira was crashing.
People were buying lots of stuff on credit and racking up and redeeming cash back instantly, a unique feature of our system. They were locking in value before the currency depreciated further, converting cash and credit into hard commodities like groceries, appliances and other things they could stock up on.
That was a decade ago. How about today? If my last business grew substantially thanks to the ignition that was inflation in Turkey, a completely unforeseen cause that wasn’t identified until years later, what could be done this time around with more awareness and intention of purpose? What type of business would benefit from global systemic inflation if and when that hits? A decade ago we didn’t have smart phones. Very few of us had friends on social media. What kind of solution would thrive this time around?
Stocking up is the traditional way of converting cash into commodities. But you have to store everything somewhere and exchange the actual physical goods with friends and family members when they need something you have.
Mobile phones can help do all of this in a much more convenient way.
Retailer top-up cards let people prepay things like coffees and sandwiches, storing dollars on their account. Customers get a discount and retailers get cash flow. Most point of sale systems support the feature, and most retailers could easily use it if they wanted to.
Imagine storing lattes, sandwiches or Carrefour Bucks instead of dollars. Pay $50 now to load 10 lattes to your account. Next month you may need to pay $55, so better load the value now and lock in those lattes.
Smart phones make it easy for customers to manage dozens of these accounts. Social media makes it easy to share and exchange value with friends and family, without needing to store and exchange physical goods.
Payment brands have a key role to play in creating a safe and secure environment, not just for each payment transaction but also to have the insurance in place in case a merchant goes out of business.
Like barter, but nothing like your ancestor’s idea of barter.
Getting past the horseless carriage syndrome will reveal completely new and unexpected applications linking social media Fan Clubs with payment, loyalty, mobile phones and CRM.
Aneace Haddad has spent 25 years focusing on the moment of payment. He has launched several start-ups and is the author of two payment strategy books and numerous articles published in banking magazines and journals. Aneace’s most recent venture, Taggo, brings Facebook to the point of sale.