Mark Johnson, CEO of Loyalty360, spoke with Don Smith, EVP, Chief Consulting Officer at Brierley, about defining and measuring success, trends Brierley notes for 2024, and what generative AI means for brands.
Mark Johnson, CEO of Loyalty360, spoke with Don Smith, EVP, Chief Consulting Officer at Brierley, about defining and measuring success, trends Brierley notes for 2024, and what generative AI means for brands.
Good afternoon, good morning. This is Mark Johnson from Loyalty 360. I want to welcome you back to another edition of Loyalty Live. In this series, we talk about leading agencies, technology partners and consultants in customer channel and brand loyalty about the technology trends and best practices that impact a brand's ability to drive unique experiences, enhance engagement but, most importantly, impact customer loyalty. Today's focus is on trends that will shape the customer loyalty industry in 2024 and beyond. We have the pleasure of speaking with Don Smith. He is a global consulting officer and chief consulting officer at Brierley, which is now part of Capillary Technologies. He's going to discuss some of the challenges and opportunities in the year ahead that he's seeing. So, don, welcome. Thank you very much for taking the time to talk to us today.
Don Smith:Yeah, mark, thanks for having me. Glad to be here.
Mark Johnson:Absolutely. Over the last 12 months, we have seen several brands improve, redo, revamp their customer loyalty efforts. Some have been accepted well, some like Delta, maybe not as much they're adding functionality, changing program structures, changing the benefits. Is this something that you are seeing and, if so, what changes have your clients been focused on?
Don Smith:It's definitely something that we're seeing and I think it's part of healthy loyalty evolution. We really believe that if your loyalty program is going to stay fresh, you have to continually inject new elements, new experiences and features to revitalize it so it stays brand fresh and the member can stay engaged in the program and so. But it goes in lots of different directions, right, and so in our consulting practice, one of the things we spend a lot of time on in current redesigns for some brands is really focusing on the most desired behaviors that the brand needs to happen. What are the highest margin or the highest growth or stickiest categories, and can you find ways to recalibrate the program formally or informally, to drive those desired behaviors and really guard against delusion? And so we spend a lot of time on that, changing up some of the program structures, and I think we spend a lot of time helping our clients think about gamification. But remember and I think gamification sometimes gets a bad name because people think, oh, that's spin to win, that's playing a game. Well, that can be one element of it, but really done correctly, gamification is all about let's put a challenge out there and try to drive people to stretch their behavior, move to their next best action and appeal to their sense of accomplishment and competition, but also let the consumer believe that she or he is gaming the system. Look at me, I'm getting hooked up, man, I'm double dipping and I think, done correctly, that's kind of a win-win.
Don Smith:And so we're working on that and we're continuously auditioning different AR solutions. You know where they make sense. I happen to love some of them, especially for cosmetics and fashion, where, my gosh, you've got a virtual mirror and you can see what something looks like on you. I can take my dimensions and find out what size clothes before I go shopping or look at online. And I think new technologies being auditioned as well. I'm still big and leaning into biometric solutions, whether that's facial recognition, optical or other. I think they are the future of how customers will securely do business, and loyalty programs would do well to innovate and adopt those. And finally, zero-party data. Every program we work on, we emphasize get profile data from customers and honor that social contract to use that data in a meaningful way, and if you do it, you've got something special.
Mark Johnson:Excellent. When you look at these enhancements, you think that are top of mind or should be top of mind for brands. A big challenge with next-gen customer loyalty, or customer loyalty going forward, is kind of defining it and measuring success. So when you add iterative technologies into the stack or you add gamification or zero-party data, you know opportunities. How should brands look at measuring the kind of the ROI on the program? How does that change the ROI on the program? And you know how are you helping brands with that opportunity?
Don Smith:Yeah, we spend a lot of time. It's a big onus. We get a lot of folks who have existing programs coming to us going. Help me figure out what's working and what's not. Tell me the ROI but, more importantly, tell me if I'm moving the needle on desired behaviors. And so our first rule of thumb, before you even worry about an ROI model or try to go deep, is focus on the theory of action that underlies the program changes that you made. In other words, if you made structural changes or enhancements to the program, it was probably to drive certain desired behaviors. And so go in very quickly and start making comparisons pre and post.
Don Smith:If you introduce new features, are customers using them? What's the take rate? What's happening for those customers who are using them? Do they try it once and drop it, or does it contribute to stickiness? And should we be propagating those features and adopting more?
Don Smith:And so often that's the low-hanging fruit of going and look at what you tried to do with the changes and see if they happened. And then you can go into some of these other things, and while you're doing it, the number one reason to make changes to a program really should be to recalibrate in a way that enhances the member experience. You may be trying to fix the profitability and that's valid, but if you're not doing it in a way that creates a more impactful and engaging solution for the member, it's probably not going to work. So one of the first things we recommend doing is measure your rational and your emotional loyalty Right. Look at whether or not customers trust the product, the brand and what they're saying and their NPS. Fine, that's rational, but go deep on emotional. If you've changed up your program, you want to ask those questions about how much customers love your program.
Don Smith:We use our measure, the BLQ, the Brierley Loyalty Quotient, and we think it's pretty effective. It's the first pulse that we take pre and post program changes, because we need to see emotional loyalty tick upward as a result of program changes without undermining the rational loyalty that's at the basis of that. And then, finally, you can go into program ROI. It does take some time, mark, to get a clean measurement on ROI change and there's a time serial component to it, like it or not. But we're just. We've always been big believers at Brierley Capillary in triangulating the research design. We want to do cohort analyses, preferably with member and non-member data, where possible nearest neighbor algorithms but match it up with some econometric approaches that really do the best of modeling to track those changes. And well, and treat it like an interrupted time series from pre and post program change to really measure that effect and don't expect it to happen overnight. You have to have a patience and a methodology to consistently measuring and tracking ROI and stick with it, and I think all of those things are critical components.
Mark Johnson:Okay, when you look at measuring efficacy, you talked about measuring irrational and rational loyalty, doing pre and post with regard to program changes and then how to be challenging to get a true ROI in the program. We hear that pretty consistently from our brand membership. When you look at measuring the efficacy of Customer Loyalty Programs, what do you believe are the top three or four metrics brands should focus on?
Don Smith:Well, and I think you know what there's, the and we think about. I think there's the customer or member centric component and then there's the things that are indirect indicators of that and how well it's working. Our number one answer is start with emotional loyalty. If you work with our consulting group, the first thing that we will do when we're looking at your program is ask to do the BLQ, look and measure your rational and emotional loyalty, and you absolutely have to go in and diagnose that and find out where you're over and under indexing relative to your competitive set. And I think this is so. My number one answer is look at emotional loyalty but contextualize it with the competitive set with which your current customers are splitting and they're almost always splitting and understand that and what you've got, because you should be trending upward and using your loyalty assets to shore up your program. But then I think there are other pieces as well. We have a battery of proprietary.
Don Smith:My second number one metric is what's called the baller. It's the becoming active to lapsing out ratio. I won't go into all the statistical nerd porn that I've inclined to do there, but the idea is every brand really ought to be when they're thinking about cost of acquisition. They ought to be looking at the health of their funnel and going who's coming in and joining versus who's dripping out and attriting. And am I hiring and sourcing more profitable members that I'm losing due to attrition? And then the third component of that is with my retained base.
Don Smith:Everyone says retention is an essential metric and I think retention is not an dichotomous concept. So my third metric would be retained member velocity of the customers that are sticking with you, period over period, year over year, quarter over quarter. What are they doing? Are they spending more or are they spending less? Are they going deeper into your product and service hierarchy or are they becoming one trick ponies? Getting a pulse on what happens in that retained member audience is essential to understanding the health of your program. And finally, there is that profitability and ROI piece that is essential that you have to be going after and really trying to understand, and a focus on customer profitability is one of the things that we preach. We see too often programs valuing people as high value, who are actually contributing the lowest margin behaviors and in many ways gaming the system or program, go after that high margin profitable customer, clone her or him and treat them like gold.
Mark Johnson:Excellent. Are there different reports or different metrics that your clients are asking of you? I know you obviously have the ones. You just spoke to our clients asking for different types of metrics, different types of reports, dashboards today than they may have a year ago.
Don Smith:Oh, absolutely, and a year before that. I mean there's a continuum. So obviously, the emotional loyalty and breaking it out which we've talked about, we're seeing an increased focus on truly understanding share of wallet and potential for share shift, and we spend a lot of time through Voice of Customer trying to get a really representative sample of members and customers and understanding where else they shop and why and what the brand's true right to win for share shift and conversion is and really focusing on that modeling and focusing on it. And we're seeing a lot of emphasis on non transactional engagement rates right now of all the ways that a customer can interact with your program or your brand without spending money. Are they doing them? Are they taking advantage of features in the app? Are they looking at product reviews? Are they going on the side of the watching videos? Are they playing games? Are they doing any of the things that you've populated?
Don Smith:Understand how those are working, which ones are the most appealing, and lean into them or come up with a strategy around them, and so we spend a lot of time. If we have badges and other things that have gone into the mix, let's go in and understand that and really see how those are doing, and we are big, big big in product and service indexing, and I think those reports and those views are becoming essential. What are the stickiest products and services that you're selling? When a customer sources into one of those, she or he will come back time and time again, and they are the gateway to a greater customer relationship, and really understanding what satisfied customers are buying compared to what less satisfied customers may have purchased is critical to understanding how you recalibrate those relationships and really lean in to best products. And so I think we're seeing a lot of folks go a lot deeper into the metrics. They're not just looking at retention, they want to see retention broken out within their product category and hierarchy and really understand that, and I think that's the right focus.
Mark Johnson:Excellent. Well, when you look at new trends, what innovations are you seeing your clients that you work with that are looking to implement in 2024 and beyond?
Don Smith:Yeah, I think lots of them and I you know stop me if the list goes on too long, but I think you know certainly experiential rewards and experiences in general. But under this larger vector of reward, choice is becoming big. Consumers want to be in control of their own destiny, certainly in terms of how they earn, but more importantly and how they burn and how they redeem and how they get rewarded as well. And giving a customer a choice is big and you're seeing more and more of this work its way into program constellations and I think an out shoot of that is I would answer digital wallet propagation. Right, you're seeing more and more.
Don Smith:I love, as a member even when I'm in an airline program and I've already hit my status for the year I love that they're depositing new things into my wallet that I can consume at different milestones and I'm like, ah, I have a choice. I can use this for some upgrades or I can use this for some partner benefits and it's kind of delightful and engaging and it makes you feel good. The more of that we do and the more single use things that get pumped into wallets, I think, the more fun. But if you talk about trends, I know everyone's going to say it, but we say it because it's true. Generative AI is critical, and for us, it's really about generative loyalty as well taking that AI and consuming it and making programs better. If you do not have a clear path for incorporating artificial intelligence into your loyalty program, you're going to be left behind.
Don Smith:This is the future, and the technology just continues to evolve, and the final ones would be, I think, digital is becoming increasingly important as well trying to find ways to take digital assets and then reinforce the physical goods and the in-store experiences, and finding that synergy. These programs are going to become increasingly app-based and hypermobile in terms of their focus. We love it and finally, I'm predicting it Coalition loyalty is on the rise. It's happening overseas, it's happening across the world. We're spending a lot of our time working on program coalitions right now, and that's because I think that brands are approaching it in a much more consumer-centric and friendly way. That makes it ah, it's very win-win. The rising tide of loyalty across brands lifts all boats and we're going to find more and more suppliers and CPG brands who want in and are willing to sponsor and fund those programs, because they want the data, insights and the customer relationships and the targeting that come from that, and I think it's going to be a whole new world for those types of authentic partnerships enabled by coalitions.
Don Smith:Absolutely I agree with that wholeheartedly.
Mark Johnson:When you look, at opportunities for brands to stand out, make their programs diverse. We know the brands are looking to redo their program, add functional enhancements to address this kind of sea of sameness, which comes with a lot of loyalty programs. Many people who run programs think their program is not differentiated. So when you look at sea of sameness, is this something you see and what advice would you give to brands looking to elevate and differentiate their customability and reward strategies?
Don Smith:Yeah, we talk a lot about the sea of sameness, and I think you know. But when we start with the design and we go in early, we'll typically look at a brand and we have a method for actually looking at their program structure as well as their consumer experience, and we score it all on a spatial map of how rich is the value proposition versus how many experiential, fun and engaging elements are in that, and a lot of times you will see no surprise that in a particular vertical there's one leader and then ding, ding, ding, ding, ding. You see all the copycat programs that have moved around it and brands are going well, you raised yours, so I had to raise mine, but there's not a lot of differentiated elements, right. And so I think what truly sets a program apart, and I think it's okay to have a similar program structure to your competitors In fact, you should probably never have the richest one, you should have the most differentiated member experiences, and so what's really important is loyalty programs set up data assets and they enable relationships with members and consumers, and the true mark of a good loyalty program is consuming those data assets and doing special things talking to the customer, giving her a chance to try something new, mapping in new benefits and perks that are really tailored to her or his proclivities and what they want and their needs. Paid, and brands that do that, you can have a similar looking program structure but a completely different member experience. That's constantly pulsing new opportunities and that's really what brands need to do. Let's make better experiences, because if you do that, you will have better outcomes for your business. You know, absolutely yeah, and our advice is typically let's listen to customers and let's see what they want. And so when brands come in and they say we want to enhance our program, we want to spice it up, we typically generate a list of things. They all have to have a business purpose and there has to be a theory of action behind doing them.
Don Smith:Never adopt something just because it's a trend. That's terrible rationale. I mean, it's the classic case right now of the NFT. Can it work for a few brands like Starbucks and Lufthansa? Yeah, I think it's, like you know, a conversation piece and a mediality, but at the end of the day, if brands were really crushing it and going, I've got to have NFTs. Good luck with that.
Don Smith:Right, you ought to have a business case that's tied to a financial model and if I can adopt this, I will cause this behavior which will result in this outcome. And then you need to take those things in that theory of action, test them through voice of customer research and make sure they would resonate with your members and your customers and then you ultimately start going out and listening and going. What's the love hanging fruit? What are the high perceived value things that I can do on trend? You know that will ultimately be the lowest cost and if you can find high perceived value, low cost, you've got a winner. And often for brands on a budget, that's what they need to do. They need to lean in and make sure that there's a financial and causal theory of action that underlies anything they do when they invest in trends.
Mark Johnson:You talked a little bit about artificial intelligence and its potential for marketing and customer loyalty efforts, and that brands aren't engaged in it. Now they are falling behind. First off, is there a definition of AI that you think brands should be kind of looking at, and also there are a couple examples of brands who are using AI to impact customer loyalty experience and customer loyalty in a way that is a good story?
Don Smith:Yeah, let's start with the definitions. I think AI in and of itself is pretty simple, right. I think of AI as it's really the science of making machines that can think like humans. You know, they can be smart, pattern recognition, decision making and judgment are really the goals but they can ingest massive amounts of data that humans can't in order to be able to do this, and so I think to me that's AI. But the wrinkle of this is generative.
Don Smith:Ai is the buzzword that's capturing the lion's share of attention right now, and, I think, for good reason. Right, and generative AI is using AI to create text or images, content, whatever media, but it's using generative models. And generative models you know, I'm a statistician by training in a former life and I love that. They've blown up. Generative models are just algorithms and they learn the structure and the pattern of what we would call input or training data right, the way we used to manually build predictive models. But the great part is that they do this, they get a result and then you put the campaigns or you put the models of the program and market. And generative AI means that I can generate these new models and I'm constantly casting new data. I'm looking at the response rates. I'm looking at what happens, and the algorithms continuously adapt and build new data sets and tune and optimize the parameters and the results, and they can audition multiple methods for looking at it, and so it's a constant evolution and perfection, and that's really what generative AI is.
Don Smith:And so I think, for loyalty marketers who would be listening to this, think of generative loyalty right. It's the idea of taking that logic of continually getting better, and, as loyalty marketers, we've got something almost no one else has. We have the best set of data assets tied to a customer. We have first party data that customers are increasingly sharing about what they love. We have well, we have first party data from transactions, zero party data from profile attributes, and we've got third party and other things that come in as well, and contextual variables, even like a weather API, that get thrown in, and we have all of this tied together and we're constantly talking to customers, seeing what they're doing with our programs, how they're interacting, and the idea is train your program, get better and better and better at tailoring it to your members and creating a more authentic experience, and that really is generative loyalty for us. And so you see it in a lot of different ways as brands optimize and start talking to customers differently. So we love lots of those, those solutions and I won't mention any specific clients because I'm not supposed to, but I think our framework that we've built out is very specific about serving up.
Don Smith:Hey, guess what Carly, or guess what Mark? You know we've served up. You've got this many points or this many rewards sitting with you and here's some options that have been tailored just to you and it's ways to stretch your reward or do something more special with it. And it's an opportunity for you to take the existing, what used to be boring, static, earn and burn attribute and now you have a chance to make it work harder for you by trying something new. And it gives you a chance to feel like you're winning and gaming, and it helps the brand drive desired behaviors by moving you into another product category. I mean, we love those kinds of continual enhancements and evolutions. They're sexy and they're fun. The consumer wins, the member wins, the brand wins.
Mark Johnson:When you look at opportunities for brands, you know there's the whole right brain, left brain on the creative side and analytics and strategy potentially on the other. You know how can brands integrate them more effectively into their programs. And you're looking at data and science with strategy and execution, with content and creative, and what's the opportunity to take that from a kind of a full picture to help brands, you know, execute better customer loyalty opportunities.
Don Smith:Yeah, I mean, I think all of this, those things go together. And here's the thing about AI I think there's a fear out there that it will become this Bayamuth big brother that runs on its own and will have SkyNap taking over the world, right, and I don't think that'll ever be the case, because everything needs to start with theory and strategy when it comes to AI, and your AI focus needs to be driven by what you're trying to do for your brand and understanding. Here's what I need to do to grow a customer and make her or him more profitable, get them more involved in my services, right, and create true lifetime loyalty, and everything I invest in that mix will be amortized over an extended customer lifetime value. And sitting down theoretically and strategically and saying what are the desired behaviors, what are the outcomes that that will lead to as we go forward that's really probably one of the most important things that we work on when we do this.
Don Smith:So, I think laying that theory of action out is just absolutely essential.
Mark Johnson:Well, when you look at some of the opportunities in the field of customer loyalty, you know strategy, technology, organizational buy-in, you know what are one or two that you think that the brands are maybe most likely to commit or are committing and how can they address and what are some quick wins for brands that want to improve the efficiency of the programs.
Don Smith:Well, I think, listen to your customers and take a recalibration Quickly. What are customers like about your brand and your program and what are your opportunities? And so I like to go in again. It's that high perceived value, low cost. What's the low hanging fruit? Let's go in and find it and start testing and learning quickly into the laboratory of democracy.
Don Smith:I always try to counsel clients. Don't try to boil the ocean with loyalty. Don't assume that you can do everything overnight. Focus on some things that will have a clear impact on your business. Lean into them and start optimizing them. Get them into market, see how they work, fix them, recalibrate them, get better and then you can rule out from there. And often these are simple adoptions or new experiences that get moved in and we see all brands leading into personalization and hyper personalization.
Don Smith:Without question, consume the data and I think the challenge right now for brands. Everyone wants to hyper personalize. Brands are making great strides in terms of doing that, but nevertheless there is a what's at odds is a lot of brands are still addicted to spray and pray marketing, where they're sending out multiple emails every day and it's really cluttering. You know the calculus of the consumer who's like I can't consume all of this. It's being lost in the shuffle, and so I think a little bit of restraint and discipline will enable what brands really want to do, which is hyper personalize, and done correctly.
Don Smith:That hyper personalization is enabling client telling, and what I mean by client telling is that's the in person connection with the store associate, the customer service representative that you're talking to, and it's taking that AI and that hyper personalization and knowing what the next best action is for you, or what you love and what you don't love, problems that you've had, and serving all of that up and empowering an associate at the point of human interaction. That's really the sweet spot and the special spot and that's what we're preaching and that's where I think more brands are embracing, as they want to get digital. We want to be driving people back into stores and experiences as well, and we need to empower the people who are the true face to face brand representatives. So I don't know if that answered your question completely.
Mark Johnson:Now, I definitely think it does, and one quick question I have is kind of a follow up. One of the things that we hear from our brand community is that, with realization that the economy or people may be changing right, how the buying patterns may be changing, keeping them involved without always pushing a sale can be somewhat of a potentially right in understanding that if kind of that share of wallet gets to be interrelated questions also, people have kind of moved away from a certain product. I'm the example with shoes, right, I mean I used to be a tennis shoe addict. I have a hundred of them.
Mark Johnson:I haven't bought tennis shoes now in three years and I still get offered them tennis shoes because I just I don't feel the need for those anymore. Right, because I have stuff that literally I can wear them till I die and they'll still be new. So it's beyond utility at this point. How can brands do that? Because there's a big push on sustainability, right, there's a big push on corporate social responsibility, but obviously you need to optimize sales to keep the lights on. It then gets back to that challenge of listening that you put forth as well. Right, a brand can still have an opportunity. The customer wants to engage with the brand, but if you keep pushing shoes on someone or they don't want shoes anymore, it may kind of turn them off. So how do brands navigate that situation?
Don Smith:Well and it's part of the perennial challenge is really around relevance, and so one of the first things there has to be a buy in philosophically to creating a good customer or member experience, right, and so one of the things we preach is it can't always be about the next sale. If a customer comes in and shops with you and makes a big purchase, we ought to be empathetic and understand that was probably a big deal for that customer. They may have made a decision to do something with you. The next communication should not be hey, and here's a coupon for 10% off. Come back again and they might feel like, wow, I just came in and so, I think, the curation of content. So let's take the example of someone who came in and wardrobeed with you and they just bought a lot of new clothes for work and going back to the office, it was a big purchase. Don't send them a coupon for accessories and try to sell them. The next thing the authentic dialogue ought to be hey, here's how other customers who bought this dress or this sweater are rocking it and here's ways to style with that. And if you do that in a way that's engaging and empowering, it starts to build that relationship like oh cool, here's three different ways I could wear that belt and have it look differently, and mix and match. I think those are the things that kind of go into the mix.
Don Smith:And you still have to have opportunities for offers and figuring out what a customer's in the market. But it shouldn't just be constantly pounding the customer to purchase from you again and again, and again. And that's the challenge. And AI can help us identify need state and what's transitioning. And you've got to be listening to customers and understanding, because products that were once highly habituated and working their way through the constellation may not be so as much later on and you may have to adapt. But if you're finding fun ways to engage and see, trial and give someone early access and make them aware, that's the magic sauce and it's just taking advantage of what they need when they need it and knowing that those buying patterns may change. And if you're doing AI right along with smart marketing, those things should be synergistic and identifying those patterns and recalibrating. But you cannot just set course on one channel and assume I'm going to hammer home the discount. It's a path to delusion and it often feels tone deaf.
Mark Johnson:Absolutely Well, Don, thank you very much for taking the time to talk to us today. It was great getting your perspective on trends for 2024 and beyond. It's always quite informative and a very passionate discussion as well. So thank you again for sharing your wisdom with our audience. Very much appreciated.
Don Smith:Yeah, thank you, mark, I appreciate it, and happy holidays.
Mark Johnson:Absolutely. Thank you everyone for listening. Make sure you join us again for another edition of Loyalty Live. Until then, have a wonderful holiday season and we'll look forward to seeing you everyone in 2024.