I am passionate about loyalty for four reasons:

1. The economic impact of increasing customer loyalty is tremendous.

I was fortunate to be a Partner at Bain & Company in the late 80’s when several of us were working with Fred Reichheld on his groundbreaking analysis of the economic impact of increasing customer loyalty which led to the publication of his first book, The Loyalty Effect. While at Bain, I began to understand the tremendous impact small increases in customer retention and customer loyalty could have on a company’s bottom line.

In their first Harvard Business Review article about the economics of customer loyalty,   Zero Defections: Quality Comes to Services, Reichheld and co-author Earl Sasser, Jr. presented this graphic to illustrate the multiple sources of increased value from loyal customers:

A few years later in an article for Strategy Magazine, Marketers Should Study “Loyalty Math,” I used the example of a family’s annual grocery purchases to quantify the value of each source of value to a supermarket chain. The exercise showed how a loyalty customer could actually be over 600% more profitable thank an average customer to the store over a five year period.

2. I was one of the creators of the data-based coalition loyalty program model, which remains one of the most profitable and sustainable business models ever.

I left Bain to start what became The Loyalty Group, a company formed in Canada to develop, launch and manage the AIR MILES Reward Program.  The AIR MILES Program is a “coalition loyalty program,”  where over 100 companies are given the exclusive right within their consumer spending category and geography (e.g. retail grocers in Western Canada) to issue a common reward currency that can be pooled with points earned at other companies within the coalition and redeemed for over 800 different rewards.

The company now has over 70% of Canadian households as active collectors, sales of over $600MM CAN and employs over 1500 people.  Loyalty’s business model is one of the purest I have seen in my business and academic careers.  While all companies ultimately succeed or fail based on the relative value they provide to their sources of revenue (i.e. customers), the coalition loyalty model is crystal clear:

Coalition loyalty programs only make money if the target consumer believes there is sufficient value in the program to increase their shopping (i.e. loyalty) at program sponsors. If they do so and the incremental profits from the additional shopping are sufficient to provide an attractive ROI to the sponsors based on what they pay for points and program administration, they will increase their promotion of the program and recruit new program sponsors. Adding new sponsors to the program increases the value of the program to the consumer, which in-turn motivates them to buy even more at the other sponsors which turbo-charges the profitability cycle.  If a program with sufficient value for all parties is launched with a breakthrough campaign, then everyone’s goals and value creation are aligned: consumers want to earn points as fast as possible, so they shop at sponsors, respond to offers and buy bonus point products;  Sponsors offer base and bonus points to encourage consumers to spend as much as possible at their businesses and to refer friends and decrease their cost of service; and the program operators profitability is driven by the points earned per member – the more members spend at Sponsors, the greater the Sponsor ROI and the higher the profit per member and ROI to program operators and investors.

Coalition loyalty programs are also great businesses because of the opportunity to use the database by-product of the points system and the opportunity to take advantage of practically every new marketing technology innovation that enters the market.

3. As a consumer and a father, I see daily examples of how behavior follows rewards.

One of  my favorite businesses is an after-school learning program called “Score! Educational Centers.”  Through an innovative systems utilizing dedicated tutors and interactive evaluative and teaching technology, Score helps students advance in both language arts and mathematics.  One of their tag lines is “When learning is fun, kids want to learn.”  Both of my kids loved going to Score and one of the things they loved was collecting “Score Points.”  Students earned points for completing assignments and also for shooting baskets at the end of each session.  The points can be redeemed for rewards ranging from balloons to Bionicals.   Although I know part of their attraction to Score was driven by my kids inherent competitiveness and desire to learn, I also know that the “Scorecards” were hugely motivating as well.  Behavior follows rewards.  Same goes for the points earned on Club Penguin and Webkins.  Even John Della Volpe, the Founder of Social Sphere Strategies – and not a “points person” – admits that one of the reasons he uses Dining In to make reservations is the points he earns for doing so!

4. Far too few businesses get these simple facts.

As you will see in the posts and “White Pages” of Collaboration Evangelist, far too few businesses appear to understand the value of customer loyalty and retention, or the opportunity to join other leading companies to form a coalition to maximize the collective value of a  target audience.

Read Collaboration Evangelist posts on loyalty.

4 T-Shirts in the entrepreneur’s closet

Net: A Year Up student recently asked me if I had any favorite any motivational words or slogans.  I told her about the 4 T-shirts we wore at Sports Loyalty International: Carpe Diem; Never, Ever Quit, No Regrets & Breakthrough.  After speaking with her, I realized they applied to my current role at Year Up […]

Is the U.S. coalition loyalty’s Afghanistan? Overcoming the challenges of the U.S. market.

Net: Coalition loyalty programs are among the most successful and fastest growing businesses created over the past 25 years, with flourishing coalition programs currently operating in many countries around the world. The one glaring exception – the U.S. market. Why? It certainly isn’t for lack of trying. Over $1 billion has been lost by companies […]

Note to Starbucks CEO: Don’t use technology (or loyalty programs) to demotivate your employees

  Summary: While the Starbucks App is cool and makes buying coffee and food quick and easy without dealing with cash, credit or debit cards, the company appears to have developed the app without fully considering the impact on their employees. The app doesn’t offer users the option to tip baristas when making a purchase.  […]

Is the U.S. coalition loyalty’s Afghanistan? Overcoming the challenges of the U.S. market.

Net: Coalition loyalty programs are among the most successful and fastest growing businesses created over the past 25 years, with flourishing coalition programs currently operating in many countries around the world. The one glaring exception – the U.S. market. Why? It certainly isn’t for lack of trying. Over $1 billion has been lost by companies […]

The 4 R’s

When two former Bain consultants and one recently minted Harvard MBA started AIR MILES Canada, we knew a lot about the economics of customer loyalty and how to quickly understand and model the profit drivers of almost any business. We also knew almost nothing about database marketing other than a few buzzwords one of us […]

The 6 A’s of Coalition Loyalty Success & The Virtuous Cycle of Profitability

The 6 A’s of Coalition Loyalty Success & the Virtuous Cycle of Profitability Net: Over a billion dollars have been lost by companies and investors trying to create a profitable coalition loyalty program in the U.S. over the past 30 years. In recent discussions with Sir Keith Mills, who created the original AIR MILES shopping […]

Dear Ace Tickets: Is the customer always right or are you never wrong? Pick one.

Net: Ace Tickets refunded skateboarding tickets we overpaid for through our own ignorance, yet refused to refund “pole view” tickets at Fenway Park they assured us were unobstructed.  Sur La Table re-funded a four year old purchase without a receipt on a product they no longer carry. Both have solid customer ID technology, one used it […]

Hotels.com uses Web 2.0, great service and rewards to score a Collaboration Evangelist trifecta

Net: Hotels.com provides great consumer value, excellent web and phone customer service and has one of the most rewarding loyalty programs I have seen.  The company shows how applying the philosophy and applications of Web 2.0, good customer service and a well designed and implemented rewards program can create customer loyalty.  Why book anywhere else?

Customer service disaster non-recovery; Kimpton’s Hotel Monaco doesn’t get Web 2.0, earns first CHU “Un-recommends”

Net: Despite the fact that user generated ratings and reviews have been a mainstay of the internet since at least 1999, many large businesses fail to provide an easy way for customers to provide feedback and do not monitor and respond to customer comments on the Web.  I recently experienced this first hand from the […]

A Christmas Eve shout out to two dedicated, empowered employees putting customers first

At one of my final annual all-company meetings as CEO of The Loyalty Group, I showed three clips of Michael Jordan, one of my all time sports heroes.  The MJ trait I loved most was his tremendous work ethic.  He was truly one of the most gifted athletes of all times, but he was also […]

Don’t abuse your best customers Part II: Hertz #1 Club Case Study

My first job out of business school was with Bain & Company consulting.  I spent six years at Bain and during that period and my longest non-travel period was two weeks. One of the first things I did after starting at Bain was to join every frequent flyer program and several hotel rewards programs. Although […]

Don’t abuse your best customers Part I: Amazon Case Study

I have a love-hate relationship with Amazon.  Love their product selection, user reviews and especially the ease and price savings of Amazon Prime.  Hate the fact that for some reason Amazon refuses to use the data they have about their own customers in the most simplistic “pre-web 1.0” ways.  We wrote about this in the […]

Case Study: Another Dell misfire demonstrates why Web 2.0 and customer service must be linked

I have been an IBM ThinkPad customer since 1991, about the year they starting making them, but the extremely poor customer service I experienced from Lenovo regarding my X61 Tablet forced me to look at other manufacturers. Although I have never been a fan of Dell laptops, I was attracted to the ads for the […]

Facebook, Amazon and the 4R’s of relationship marketing

When 2 former Bain consultants and one recently minted Harvard MBA started AIR MILES Canada, we knew a lot about the economics of customer loyalty and how to quickly understand and model the profit drivers of almost any business. We also knew almost nothing about database marketing other than a few buzzwords one of us […]