1

Building Customer LoyaltyIn The Digital Age

2

Objectives, Methodology, and Participants

Objectives

• Discover how marketing and loyalty efforts have changed in the context of an increasingly technological and transparent environment

• Understand definitions and measurements of brand and customer loyalty

• Determine goals, successes, and challenges regarding loyalty

• Identify specific innovations that have increased loyalty in the current environment

Methodology

Fidelum Partners conducted 30-45 minute telephone interviews with ten senior marketing leaders across a variety of industries from July 26 to September 7, 2011.

Verbatim comments

Throughout this report, specific comments of participants have been cited to correspond to the names and numbers shown on this page.

Company Name Title 1. Best Dorothy SVP, Marketing Western Dowling & Sales

2. General Beth SVP & Electric Comstock Chief Marketing Officer

3. Honest Peter VP of Marketing Tea Kaye

4. Kao David SVP & Global Brands Stern Chief Marketing Officer

5. Memphis Mike Chief Revenue Officer Grizzlies Humes

6. Mercedes Steve VP of Marketing USA Cannon

7. Ulker Ahad Afridi Chief Marketing Officer

8. United Tom SVP & Chief Operating Airlines O’Toole Officer, MileagePlus

9. University of Sundar VP for Enrollment Dayton Kumarasamy Management & Marketing

10. Walgreens Graham SVP & Chief Customer Atkinson Experience Officer

MARKETING LEADER PARTICIPANTS

3

Key Findings Summary

4

Regardless of definition, loyalty is built through individual relationships.

Before modern commerce, people could develop loyalty only through their personal relationships. In fact, recent research suggests that people were the first brands and faces the first logos that helped humans make the choices that enabled their survivalb.

However, as the Industrial Revolution brought mass production and distribution, neighbors were reduced to “faceless consumers.” Mass marketing provided more efficiency – though not necessarily more effectiveness - than one-on-one communication along the way.

Rediscovering the Roots of Customer Loyalty

“How do you define and measure loyalty?”

This simple question produced a broad range of answers. Some definitions of loyalty reflect business goals, others concentrate on intangibles, and yet others combine both.

Loyalty measures range from purchase metrics (purchase frequency, repeat rates) to attitudinal scores (preference, favorability) to Net Promoter Score to Customer Lifetime Value. Many described the difficulty of measuring – but the importance of monitoring – “passion” or “engagement.” Engagement, defined as “emotional involvement or commitment,”a combines elements of both attitudes (positive feelings about the brand) and behaviors (purchase, advocating). At the core, all definitions and measures of loyalty reflect a relationship.

“I really believe it is all about relationships. So when we talk about numbers, they only measure the depth or impact of relationships. If you make it about a number, you miss the whole picture.” 9

“Fundamentally, it’s about building a relationship with your target consumer so they buy your brand more often.” 3

“Affective relationship that exists between an individual and a brand that is separate from but foundational to the financial relationship between a customer and the brand.” 8

“A consumer relationship is like dating…sometimes you’ve got to remind people what they love about the relationship, and it doesn’t take a lot. You’re in this relationship with them, what can you do for them to thank them and remind them? I love [my target consumer], but my worry is that she wakes up someday and says ‘what have you done for me lately? Maybe I should date around.’ Another way to think of a rewards program is as a thank you, a reminder, an honoring of that relationship.” 4

a Source: http://www.merriam-webster.com/dictionary/engagementb Brands as Intentional Agents Framework: How Perceived Intentions and Ability Can Map Brand Perception, Nicolas Kervyn, Susan T. Fiske, and Chris Malone, Journal of Consumer Psychology, forthcoming.

Now, senior marketing leaders, armed with new technology and individual access, are again seeking to develop, track, and nurture individual relationships that go beyond broad campaigns and metrics.

In this way, customer loyalty practices are returning to their roots with a renewed focus on understanding customers as individuals.

5

Loyalty Begins With the Customer Experience

“Our store experience is the ultimate loyalty device.” 10

“Don’t tell them who we are or that we stand for XYZ – show them.” 9

“While there are obviously multiple channels and methods that we use, ultimately, customer experience trumps all.” 8

“In the car space, nobody needs to drive a $100,000 car…it really boils down to experience at that level.” 6

“[Passengers] went of out of their way, paid significantly more...because they wanted to fly with us…that to me is the distilled essence of brand loyalty.” 8

“The competitive nature of our business is that we take care of our customers, that we honor them.” 1

“Regardless of the outcome of the game, I want people to walk away saying that ‘we’ve had a great experience’ .” 5

Customera loyalty to a brandb requires positive experiences.

As with humans, relationships with brands are built over time. Impressions form and develop based on accumulated interactions through multiple touch-points. Products, services, representatives, and communications all contribute to a customer’s perception of the brand.

However, as Ibsen said, “A thousand words will not leave so deep an impression as one deed.”c Of all touch-points, the most critical is the actual experience with the brand. Even the most compelling communications cannot eradicate a negative brand experience. On the flip side, a favorable brand experience has a greatly positive impact in terms of building relationships and eliciting loyalty from customers.

The most successful brand experiences clearly reflect the brand’s core essence or positioning.

To provide the basis for a relationship, a brand experience must be authentic. Authenticity comes only from experiences that reflect that brand’s core essence or positioning. An experience that works for one brand will not necessarily work for another.

For example, the Mercedes-Benz brands stands for luxury, specialness, and safety. A driver instinctively feels these values when behind the wheel. Other brands provide different experiences: Best Western reflects value, Walgreens provides convenience, and Honest Tea delivers an organic, sustainable, transparent experience.

a The term “Customer” is used throughout this report to be inclusive of consumers, customers, or other target constituencies. b The term “Brand” is used throughout this report to be inclusive of brands, companies, or organizations. c Source: Henrik Ibsen, www.brainyquotes.com

6

Engaging Customer Experiences Cut Through the Clutter

The Evolution of Marketing

Despite today’s “information overload” environment, marketing at its foundation has not changed. It is still about intimately understanding the target customers, their core needs, and meeting those needs with products and services better than the competition.

However, the role of TV and other mass media has radically changed. The 0:30 spot is not yet dead, but marketing communications have transformed. The marketing process is far more complex with numerous communication channels and brand conversations. Successful marketers can no longer “market to” the target; instead, they must now “market with” their core customers.

Marketing Has Evolved:• From a one-way “blast” to a two-way dialogue• From a few channels with relatively expensive

budgets to many channels with wide-ranging budgets• From agency dependent to I.T. dependent• From company-led new product development

processes to collaborative ones

“For a brand like ours, that is honest and prides ourselves on being transparent and candid, traditional media doesn’t feel right to me.” 3

“I don’t believe [traditional media] is a great way to build bridges. ” 6

“It’s important to maintain focus on who you’re talking to, what the benefit is, what your product offers, why is it better…it’s almost a return to your basic marketing principles…you only cut through clutter with quality.” 4

Breaking through the clutter also requires that the experiences be relevant and personal. For brands targeting multiple customer segments, mixed approached may be required.

“[We] look at brand loyalty by customer segment, then within that, look at drivers within segments because what drives brand loyalty can and does differ greatly by customer segment.” 8

Engaging Experiences:• Establish an emotional connection with customers• Move customers from passive acceptance to

intentional interaction• Can be good or bad – but are always memorable

Breaking Through the Clutter in Today’s World

People receive and must process a massive amount of information each day, requiring almost constant filtering and prioritizing. Therefore, engagement can occur only when the most relevant and timely interactions break through to the target customer.

7

Today’s Technology Enables Unprecedented Engagement

The Digital Age of EngagementTechnology has now enabled two-way communication that is far more relevant, measureable, efficient, scalable, and timely than in the past. As a result, technology is revolutionizing and reshaping the way customer experiences are delivered – which then allows a greater focus on and understanding of user experience.

Customer-driven technology adoptionDo marketers need to convince customers to use new technology? Not necessarily. If the technology meets a need, it will be embraced.

For example, airlines initially installed airport kiosks as a labor-savings measure, but travelers embraced them because the kiosks removed the necessity of speaking with a ticket agent.

Best practices within technology include: • Don’t overcomplicate: “Keep technology simple if

you want rapid adoption.” 10• Don’t just add technology for technology’s sake; it’s

about “connecting the technology smartly.”10• Keep the focus on the user: “We want to be high

touch using high tech.” 9

“The days of largely mass messaging are quickly passing…to deliver relevant messaging through mobile channels in real-time…clearly we’re not there yet, but that is the Holy Grail.” 8

“We’re putting (our) experts out through social media a lot more…to give access to information and have people hear it from us rather than through other sources.” 2

“We can build a loyal base and keep them engaged on a daily basis with polls and contests.” 5

“For customers, it’s taking those applications and saying ‘How do I turn it into some mechanism that builds loyalty that gives people information that they wouldn’t otherwise have? For example, what if your jet engine had a Facebook page? What if you could have frequent updates from your jet engine?” 2

8

While engaging and building relationships with customers is critical, many brands must also simultaneously build relationships at other levels (e.g., consumer vs. customer, internal vs. external). In the same way people balance multiple types of relationships, successful brands are able to build alliances with constituencies that may have differing needs from those of the customer.

Repeated Engagement Leads to Strong Relationships

Actions Speak Louder Than Words

Meaningful and engaging brand experiences provide the necessary relevance and emotion required for lasting relationships.

Attributing Human Qualities to Brands

How are customers interpreting a brand’s actions from a relationship perspective? Recent academic research has shown that customers perceive, judge, and behave toward brands using the same mental tools they use to interpret their “human” relationships.a

As a result, customers can form relationships with companies and brands without having direct contact with any employees. Those customers infer and attribute human qualities to the brand as a result of their experiences.b

“We really sell the benefit of having that one-to-one connection, building the relationship, the benefits you get in terms of pricing and seat location.” 5

“The explosion of the interaction is only as good as the ability of your people to connect to that consumer.”4

“Our relationship with Whole Foods…we are able to use that relationship in particular and with the natural channel in general to innovate, try new products and new flavors. That experience has helped us expand into the mainstream.” 3

“We positioned our tagline as ‘The World’s Biggest Hotel Family.’ That was based on…understanding that relationship engagement in terms of our owner-operators, that they truly feel that Best Western is their family, that they really try to make their customers feel a part of that family.” 1

a Brands as Intentional Agents Framework: How Perceived Intentions and Ability Can Map Brand Perception, Nicolas Kervyn, Susan T. Fiske, and Chris Malone, Journal of Consumer Psychology, forthcoming.b Customers and Their Brands: Developing Relationship Theory in Consumer Research, Susan Fournier, Journal of Consumer Research, Vol. 24, Issue 4, pp. 343-373, 1998.

9

Strong Relationships Drive Lasting Loyalty

“Our goal is to turn customers into loyalists... and loyalists into zealots.” 6

“We’ve been incubating and developing our next wave of customer loyalty…are we aligning ourselves to how our customers make money? Can we imbed ourselves and prove that we can make them more money? Our basic thesis is that if we can make their business run better, they’re going to be more loyal and have preference for us and value our products…that’s the next frontier.” 2

“There are 500 high schools we have close relationships with, and every single year they send us at least 1 applicant. That is brand loyalty expressed through high schools.” 9

“Traditionally, we would say that customer loyatly is someone that we have a good realtionship with... and over the years, we’ve worked together or we trust them and they trust us. We’re now figuring out how to put more rigor behind that.” 7

Adopting a Long-Term Focus

Short-sighted brands may try to build loyalty by offering strong incentives to customers or by limiting their alternatives. Customers may exhibit positive behavior toward the brand in the near term, meaning that they may purchase the brand or utilize its services. However, the only way to generate long-lasting, voluntary loyalty is to create, maintain, and nurture relationships. Relationships can lead to positive attitudes and behavior that define true loyalty.

Building consistently strong loyalty requires a long-term commitment to building those customer relationships. Yet heavy pressure on companies for short-term financial results can often test their commitment to the customer experiences required build long-lasting relationships.

The next evolution of loyalty may be led by value-driven relationships in which brands become economically indispensable to their customers.

10

Customers Are Actually Loyal to People, Not Brands

Humans are hard-wired to build trust and loyalty to other humans, not to objects or processes.

Loyalty and trust come from what is learned or inferred about the people providing branded products and services.a Their experiences with them, along with pricing, packaging, and merchandising, all communicate something to customers about the warmth and competence of the people that produced them. As with other forms of social perception, customers use clues, short-cuts, and inferences to form opinions of those people, even in the absence of direct contact with them. So, subconsciously, they’re actually becoming loyal to what they know about the people behind each brand.

Since customers judge brands and companies in the same way that they judge people, it’s critical to leverage new technology in ways that reinforce, rather than replace, human interactions. Customers are attracted to brands that are attentive, honest, transparent, and willing to put customer interests ahead of their own.

Therefore, brands should utilize real employees, faces, and names to carry out customer relations and social media activities to humanize the brand.

“We are really trying to engage parents and children on a very personal level.” 1

“We want to impress them with our personal touch. Our parking attendant will be the best in the country to demonstrate who we are through relationship building – giving them the parking spot, welcoming them, and showing them into the building.” 9

“It’s the end result of the world we’re living in. The more the power shifts to the consumer, the more the rules are going to be the same ones that dictate human interaction.” 4

“Loyalty has gone beyond the traditional notions of ‘heavy users’ or ‘most often users.’ Loyalty is that plus the ones who are talking to you in a positive way…the ones who are giving feedback to you in a way you can build off of, and…ultimately even co-create with you.”7

a Brands Are People Too: Harnessing the Power of Brand Warmth and Competence, Chris Malone and Jill Avery, white paper, September 2011.

11

Social & Mobile Apps Are Fueling a Relationship Renaissance

The Return of Dialogue with Customers

In addition to two-way real-time communication, social networks and mobile applications are generating tremendous data on customer behavior, interests and dialogue. Innovative marketing leaders are using these tools and data to deepen their relationships with customers, rather than just target, measure and manage marketing campaigns.

They leverage social and mobile technologies to better understand and deepen their relationship with customers. Most importantly, they enlist customers as advisors, co-developers, and advocates for new products and services, transforming sales and marketing efforts into collaboration. Who better to help design products and services than the customers using them?

Competitive Advantage at a Small Scale

Smaller, newer brands find that individual-level information can enable them to efficiently and effectively compete with larger, mass-scale brands - without a mass-scale budget. New products, points of distribution, and promotions can gain momentum with a relatively inexpensive marketing spend.

“You have a greater capacity to interact with your consumer if you really listen…on the other hand, you have such scale and so many types of market research available that too often, we’re relying on data.”4

“We use information to build relationships, which is building brands and loyalty.”9

“We are very engaged in social media. We use it more as a listening channel to understand our customers needs and to be proactive in resolving any concerns they may have with the brand.” 1

“We tend to tilt [initiatives] more toward the individual because our competitors are so effective at the mass.”4

“We get a lot of consumer letters saying ‘I can’t find my favorite flavor’ [or] ‘do you sell this flavor in a large bottle?’…fundamentally building distribution is going to help further loyalty among current drinkers.” 3

“We found that when you make an initial push [in Facebook marketing], then there’s this exponential return that happens.”7

12

Innovative Loyalty Ideas

13

Mercedes-Benz USA: Emotionally Engaging Experiences

Random Acts of KindnessMercedes-Benz USA conducts “random acts of kindness” for

its owners to ensure they feel the luxury and performance

that the brand embodies.

• “Welcome to the family” program: designed to show

appreciation to new owners, Mercedes-Benz sends a

gift of appreciation

• Many dealers continue to treat owners as part of

the family by sending cards and flowers on special

occasions, as well as offering free car washes for the

life of the car

Mercedes-Benz also leverages its sponsorships to provide unique “money can’t buy” experiences for some owners.

• Invitations to exclusive events, such as backstage and

star lounge passes to NY Fashion Week or trips to the

U.S. Open tennis tournament

• Free parking at the U.S. Open (tennis) for Mercedes-

Benz drivers

• AMG Driving Academy, at which Mercedes AMG owners

can spend a day learning to drive their cars under

extreme conditions from professional drivers on a closed

road course

Building the Emotional ConnectionTo further its emotional connection with customers,

Mercedes-Benz offers driver services through its mbrace

program. Services include:

• Concierge services

• Emergency and roadside assistance

• Automatic text or email alerts when the car is in a

collision or the alarm is triggered

• Navigation, traffic, or weather information

• Send2Benz, in which a destination can be remotely sent

to the car’s navigation system

• Remote door lock and unlock

• Vehicle Finder, providing GPS coordinates of the vehicle

ResultsMercedes-Benz enjoys a 55% loyalty rate among owners,

which is the highest rate of all luxury brands in the U.S.

mbrace

AMG Driving Academy

14

Walgreens: Easing Prescription Pain Through Technology

Simplifying the Prescription Process

The experience of filling or refilling a prescription is not

always pleasant. In addition to visiting the doctor and

providing the prescription to the pharmacy, a customer

often has to wait longer than desired for the prescription

to be ready. The process of calling in a refill can be

cumbersome.

As a part of its mobile initiative, Walgreens introduced

two technological innovations to ease the process for its

customers.

Refill by Scan

Through iPhone and Android apps, customers simply

scan the bar code on a prescription to alert the Walgreens

pharmacy to refill it. This technology both reduces the time needed to actually order a refill, as well as human

error in entering the prescription number.

Text or Email Alert: “Your Prescription Is Ready”

Customers can sign up for an automatic email or text to

be sent when their prescription is ready. This innovation

eliminates the need for customers to wait near the

prescription counter.

ResultsDespite some questions around whether the

apps would be embraced by Walgreens’ repeat

prescription base, the usage has been “absolutely

phenomenal.” Refill by Scan accounted for more

than half of all prescriptions ordered through

Walgreens mobile applications only 4 months after

launch. Over 1 million customers have signed up

for text alerts.

As a testament to how well customers embraced

the initiatives, Walgreens won a 2011 Webby

for the Best Integrated Mobile Experience, and

summed up its program in 5 words: “Walgreens

refills. So beeping easy.”

Additional Mobile Features

The Walgreens mobile app also allows customers to:

• Access prescription history

• Order photo prints direct from their phones

• Find the nearest Walgreens or Take Care Clinic

• Browse products and check in-store availability

• Shop from their phones

15

Kao Brands: Rewarding Customer Engagement

Bioré® Prove It!™ Rewards Program

Bioré®, one of Kao Brands’ leading products, decided

to show its core target audience – females in their

20’s – that the brand understands and appreciates

them. Knowing that these women spend more time

on Facebook than on individual brand websites, Bioré®

launched the Prove It! Facebook Rewards Program in

August 2011. The initiative was designed to go beyond

the typical loyalty program by rewarding customers for

everyday activities related to the brand’s positioning, in

addition to product purchases.

Facebook activities that can earn points include:• Daily trivia questions

• Daily challenges (e.g., “Did you drink 8 glasses of

water today?” or “Did you eat 5 servings of fruits

and vegetables today?”)

• Frequent page visits

• Sharing content with friends

“We have a terrific capacity to interact [with customers] on this brand, to generate ideas and sometimes even products from what we hear.” 4

Results

As a result of significant word-of-mouth, Bioré’s

Facebook page has grown to nearly 200,000 fans.

16

Honest Tea: Demonstrating Customer Trust

“Would You Leave A Buck For A Bottle?”

On July 19, 2011, Honest Tea launched the Honest

Cities initiative: a “social experiment on a large scale” in

twelve U.S. cities. On a hot summer day, the brand set

up coolers full of Honest Tea products. A nearby sign

asked passers-by to leave $1 for a bottle. Were all thirsty

passers-by honest? Video cameras streamed the live

behavior of customers at each location on its website, and

each city was ranked via its online Honesty Tracker.

Results

Chicago was rated the Most Honest City, with

99% of customers paying for their Honest Tea.

Along with sampling product and demonstrating

its trust in people, Honest Tea received significant

print and broadcast coverage, including NBC’s

Today show, USA Today, Chicago Tribune, The

Washington Post, and various local ABC network

affiliates. In addition:

• Facebook likes grew from 30,000 to 72,000 in 24 hours

• Twitter traffic grew from an average of 20 mentions/day to 700/day

• Whoopi Goldberg posted about it on her Facebook page, without request by the brand

The challenge was so successful that smaller

scale experiments are being executed in other

markets. Additionally, Harvard Business School is

interested in evaluating the video and results from

a social psychology perspective.

“We saw a lot of engagement online between blog coverage and tremendous Facebook and Twitter traffic. I’m confident it had an effect on those who already know and love us, and hopefully on the affinity and loyalty of new consumers for the brand as well.”3

17

GE ecomagination ChallengeIn 2010, GE sponsored an open call to action for businesses, entrepreneurs, innovators, and students for the best ideas on how to create, connect, and use power. This $200 million initiative was called GE ecomagination Challenge. Recognizing they could not tackle these challenges alone, GE partnered with four leading venture capital firms—RockPort Capital, Foundation Capital, Kleiner Perkins Caufield & Byers (KPCB), and Emerald Technology Ventures—to find and fund promising technologies.

The first phase, “Powering the Grid,” focused on innovative ideas to help create a cleaner, more efficient and economically viable grid. In 2011, the second phase, “Powering Your Home,” was launched as part of GE’s commitment to improve household energy efficiency through new technologies.

Winners of both challenges received the opportunity to partner with GE and the venture capital firms to commercialize their concepts. The viable business ideas ranged from highly advanced and self-powered water meters to household cooling devices that reduce energy consumption by 65%.

General Electric: Building Loyalty Through Collaboration

ResultsOver the past 2 years, the Challenge has emerged as one of the largest initiatives of its kind, generating nearly 5,000 ideas and creating a community of 74,000 people across more than 150 countries.

• Made 22 investments and commercial partnerships

• Presented ten $100,000 Innovation Awards • In Phase 1, invested $71 million to develop

and commercialize breakthroughs in energy storage, utility security, energy management software, and electric vehicle charging services

• In Phase 2, invested $63 million in 10 innovative home energy technologies

• Committed $20 million to launch region-specific Challenges, as well as to further scale and commercialize ideas

• Developed a $5 million seed fund in Europe with Carbon Trust

• For GE, the Challenge is more than a “contest”; it is about developing real business opportunities, backed by significant commitments through investments and partnerships in combined markets worth over $70 billion. However, the Challenge also has had a positive impact on loyalty by creating new relationships with potential customers, partners, and stakeholders.

“What came out of that from a loyalty perspective is that it helped us target potential new partners. There became this robust new community of about 100,000 clean tech enthusiasts who got involved in the community. Out of that are all kinds of new, interesting business relationships.” 2

Sources: http://www.ecomagination.com/progress/overview/ecomagination-challenge/ http://challenge.ecomagination.com/ideas

18

Ulker: Driving Facebook Fan Growth

Transitioning to a Global Company

Ulker is a $1.5 billion Turkish food and beverage company

that conducts business in 110 countries around the

world. Its brands compete in a wide range of categories,

including chocolate, biscuit and cake, soups, pastas, dairy,

and beverages.

The company is transitioning from a traditional, family-run,

high-growth business to one that’s more sophisticated

with global capabilities, strategies, and best practices.

As a result, Ulker is currently concentrating on digital

media to increase its connections and relationships with

consumers.

Internal “Facebook One Million Challenge”

In 2010, Ulker decided to focus on a single communication

channel to streamline its resources. At the time, Ulker

had only 50,000 Facebook fans in total, across all brands

and corporate. To improve reach, an internal goal was set

of reaching one million fans by June 2011. Each brand,

as well as corporate, had specific goals within that one

million, and developed specific initiatives to reach the

numbers.

ResultsThe effort resulted in a total of 500,000 fans by

May 2011, which then exponentially grew to 3

million fans as of August 2011. Now that Ulker

has achieved “quantity,” its next step is to identify

“quality” – those “Super Fans” who can serve as

both advocates and collaborators to its brands.

“First we were building the connection, now we’re getting into who are Super Fans, what can we learn from them, how do we engage with them in the right way, how do we get to a stage where we can fully leverage them…even co-create with them.” 7

Right now, it’s difficult to measure any specific connection between fans and purchase…but they’re connected to broader campaigns, and those broader campaigns are connected back to business initiatives. So in the scheme of things, we do see positive results in some areas.” 7

19

Defining Value by Segment

For United Airlines’ MileagePlus program, loyalty initiatives

begin with understanding customer segments through

sophisticated customer value analysis.

In addition, deeper MileagePlus analysis has shown that

when its members redeem miles for rewards, their loyalty

increases. A redemption event produces a demonstrable

increase in program engagement.

In addition to thoroughly segmenting and analyzing

its customers, United’s MileagePlus has a deep

understanding of its competitors and related customer

perceptions. Of note, MileagePlus includes not only other

airline programs in its competitive set, but also hotel and

credit card loyalty programs.

United MileagePlus: Customer Value & Reward Redemption

“If you look at a lot of our analyses of brand loyalty, we very quickly move beyond aggregate measures to measures by segment.” 8

“United and MileagePlus have put a lot of work into the Customer Lifetime Value metric, modeling, projections. [We] look very closely at predictors of, drivers of, trends in CLV.” 8

“[You] would be hard-pressed to find a business that has more empirical data to it than ours does. We invest such intense effort and investment in the loyalty program because it works. Once members redeem, we know empirically, unequivocally, their engagement increases.” 8

“We certainly look at Delta, American, and other airlines but by no means do we confine our competitive metrics to just them.” 8

Results

With the upcoming integration of Continental’s OnePass

members, United MileagePlus will become the largest

travel loyalty program in the world.

20

Memphis Grizzlies: Rewarding Fan Tenure & Communities

Recognizing Loyal Season Ticket-Holders

The Memphis Grizzlies men’s basketball team is relatively new to the city, having relocated from Vancouver in 2001. To recognize its most loyal fans, the team’s management created a program to reward season ticket holders based solely on tenure.

All season ticket buyers are given “MVP Status” based on the continuous number of years they have committed to tickets for the entire year. All seats earn the same tenure benefits without regard to price or location. The four levels of status are as follows:

• Rookie: first year season ticket holder• Veteran: 2 to 4 year season ticket holder• All Star: 5 to 7 year season ticket holder

• Legend: 8+ year season ticket holder

Benefits vary by status level, but include:

• Exclusive and early entrance to the arena• Exclusive ticket window• Express concession lines• Pre-sale ticket priority• Seat upgrade coupons• Merchandise discounts• Rookie education program• MVP-only events, recognition, and passes• On-court photo; photo with the team• Free ticket credit• MVP Legends Lounge• NBA League Pass Subscription

ResultsSuccesses and accolades for the Memphis Grizzlies include:

• Selected as a finalist for the 2011 Beyond Sport Awards. The Memphis Grizzlies Charitable Foundation was named as a finalist for Sports Team of the Year, along with only 3 other global teams. The four finalists were selected out of 400 projects from over 125 countries.

• Named as the “Hottest Team in Sports” in 2011 by ESPN The Magazine.

• Ranked as #9 overall for 2011 in ESPN The Magazine’s Ultimate Standings, a composite ranking of all 122 teams in the four major professional sports leagues (MLB, NBA, NFL, NHL) in North America. The ranking is based on how much the organization gives back to fans for the time, money and emotion invested in its product, determined by eight categories: bang for the buck, players, fan relations, affordability, stadium experience, ownership, title track, and coaching.

• Growth of Facebook fans by 235% and Twitter followers by 76% in past year.

• Continued community passion, pride, and involvement throughout the year, regardless of on-court performance.

Maintaining Passion Through Community Loyalty

A challenge for any sports team is maintaining relevance

during the off-season or during off-peak performance

years. The Grizzlies have overcome that test through

significant community presence and involvement.

Since 2001, the Memphis Grizzlies Charitable Foundation

has donated over $25 million to Memphis area non-profits,

specifically focused on youth. Key recipients and partners

include St. Jude Children’s Research Hospital, Memphis

Athletic Ministries, and the Soulsville Foundation.

“It’s a barrier to exit…if they leave, they lose their tenured status and therefore did not get the full benefits package as someone who has stayed with us the entire time.” 5

21

Best Western: Segmenting Loyalty and Engagement Programs

One Size Does Not Fit AllAn offer or experience that’s highly engaging for one customer may be completely irrelevant to another, so programs tailored to the interests of certain segments are needed to break through the clutter. Best Western designed specific affinity programs to complement and enhance its

broader Best Western Rewards loyalty program.

Results

With targeted loyalty programs that tap into customer interests and lifestyles, Best Western is able to deliver engaging experiences and relevant promotional offers. These ties to customer passions lead to greater program enrollment, purchase frequency, and revenue generation.

Best Western Speed Rewards®

Similarly, Best Western’s loyalty program targeting motorsports fans. Sponsorship of Michael Waltrip Racing, including driver David Reutimann, allows Best Western to reward the most passionate fans with once-in-a-lifetime racing experiences. Speed Rewards members enjoy special Race Fan room rates and a broad selection of

reward redemption options.

“We’ve had incredible growth in our program, doubled the size of it, doubled the revenue contribution, and we’ve also focused on value. The economy is pretty fragile and the customer is still value-driven, but we look at our loyalty program in terms of why customers want to play.” 1

“We speak to customers in different voices…so we have a general level promotion, but then we have elite layers. We have a program for motorcycle enthusiasts, we have one for motorsports enthusiasts…so we’re speaking to those people in different voices with different offers with different premiums in terms of trying to drive utilization and adoption into the programs.” 1

Best Western Ride Rewards®

Best Western’s targeted loyalty program for Harley-Davidson motorcycle owners includes rider-friendly hotel services, automatic upgrade to elite status upon enrollment, and discounted room rates. In addition, members of Harley-Davidson’s H.O.G. loyalty program receive even greater benefits upon enrollment, including automatic upgrades to platinum status, 15% more points for each stay, and free room upgrades.

22

University of Dayton: Emphasizing the Human Touch

Competing For the Best

The University of Dayton (UD) is a private, Catholic

university based in Ohio. The school faces intense

competition for students, as only 5 of 100 students who

attend college will be attending one of 3,000 private

universities in the U.S.

In higher education, marketing is typically “cut and paste,”

in that marketing plans rarely change from year to year.

In this environment, “branding” is often viewed as a dirty

word, only done by products placed on a shelf.

At UD, branding is critically important to reach and entice

the best students. The school is changing the game by

delivering an engaging human experience through every

touch-point:

ResultsThe University of Dayton has seen significant

results from its efforts, including:

• Increased response rate from potential

applicants by 100%

• Improved retention rates for incoming

students

• Greater number of high schools who send

applicants every year

• Greatest influence on students who enroll:

campus visits and tours, cited by 83% of

enrolled students

• Multi-million dollar impact from Learn, Lead

and Serve scholarship program

-140 applicants from 30 states with 40

winners in year 1

-Increase in number of high schools

sending applicants

• 10% of students are international, due to a

concerted effort to counteract the domestic

demographic shrinkage of target students

• Improved internal relationships and

communication internally about the

importance of “branding”

• Ensuring all representatives, including the parking

attendant, deliver a warm and personal experience to

every visitor

• Developed a “Learn, Lead and Serve” scholarship

program to increase relationships with high schools

who now send applicants

• Created an interactive digital wall utilizing Xbox Kinect

sensors in the admissions office

-Thought-provoking questions engage the viewer

to take a closer look, which then reveals a

unique journey comprised of the many different

experiences waiting to be had at UD

-The more people who approach the wall, the

more of the story is revealed

• Sending university admissions information in a

custom DHL envelope

• Ensuring that every acceptance letter references the

core essence of the essay that applicant wrote

• Providing “success coaches” to incoming students

“This is about relationship building. We demonstrate that we care. ‘You took the time to write a one page essay, so we took the time to read and acknowledge it’.” 9

23

Challenges & Implications

24

Back to the Future... All Over Again

Increasing Fragmentation and Decreasing Attention SpanIn the 1970’s, people were exposed to approximately 500 commercial messages per day. With today’s technology, the estimates have jumped to as high as 30,000 messages per day. a It’s no wonder that customers are ininformation overload. The overwhelming amount of data generated, fueled by emerging technology, can also distract brands from what matters most - building lasting relationships with customers.

New Talent and Skill Sets Are NeededAs technology advances and two-way communication increases, “one way” marketing skill sets are no longer sufficient to establish and nurture relationships with customers. Savvy marketing leaders must enhance teams with broader skill sets.Social media skills, particularly as relates to Facebook and Twitter, will continue to increase in importance.

Despite Continuing Change, Relationships Will Remain EssentialAs with human connections, brands must strive toward continuous improvement in relationships and show appreciation for their customers. Technology will continue to advance, as will the tools and channels available connect brands with their customers. Despite that evolution, the ability to develop and nurture relationships will always remain the most essential means for building and maintaining customer loyalty.

“The biggest issue is the ongoing and ever-increasing fragmentation of your audience…they are shopping in more places, getting information from more sources, interacting in more locations.”4

“We’re having to build capabilities within all of our teams about how to interact and how to listen.” 4

“We expect all marketing teams to have social media experts.” 2

“Our goal is to blend all of the mediums in order to build a robust relationship model.” 9

“We know we need to stay in direct touch with our consumers and appreciate the value in fielding all the calls and emails from them directly. It’s fundamental to who we are.” 3

“Our primary challenge with Facebook and Twitter is how we monetize it. That’s the biggest question in the industry and the world right now. What will social commerce look like five years from now, from a fan and brand loyalty standpoint?” 5

a Source: http://www.usatoday.com/money/advertising/adtrack/2005-06-19-cannes-box_x.htm; http://www.qsrmagazine.com/outside-insights/dont-interrupt-your-consumer-engage-them

25

Chris MaloneManaging Partner

Chris Malone is Founder and Managing Partner of Fidelum Partners. Chris has over 20 years of sales, marketing, consulting and organizational leadership experience. As Chief Marketing Officer of Choice Hotels, one of the largest hotel companies in the world, with over 6,000 hotels open worldwide, he led the company’s 800 person global consumer marketing, worldwide travel industry sales, e-commerce and reservations organization. Previously he served as Senior Vice President, Marketing for ARAMARK Corporation, a multinational food, facility and uniform services enterprise with over $12 billion in annual revenue. Chris is also co-author of the award-winning book, The HUMAN Brand: How We Relate to People, Products & Companies, which was published by the Jossey-Bass division of Wiley Publishing in October 2013. Chris holds a bachelor’s degree from the University of Maryland at College Park and an MBA from The Wharton School of the University of Pennsylvania.

Carol GsellMarketing Strategist

Carol Gsell is a strategic marketing professional with over 18 years of wide-ranging marketing, consulting, and research experience. She has developed marketing strategy, insights, and solutions for clients in industries including CPG, retail, foodservice, industrial, non-profit, technology, pharmaceuticals, and financial services. Previously, Carol was a consultant at both McKinsey & Co. and Zyman Group. Her client side experience includes roles at The Coca-Cola Company (Customer Marketing on the McDonald’s account) and Pizza Hut (Kids’ Marketing). Her background also includes agency experience, directing sports marketing initiatives for UPS and Coca-Cola while at The GEM Group. Carol holds a dual-major B.A. from Rice University (Summa Cum Laude) and an M.B.A. from the University of North Carolina.

Fidelum Partners is a research-based consulting and professional services firm focused on customer insights, loyalty and growth strategies that help our clients achieve sustained performance. We take pride in carefully building lasting relationships with our clients and keep their best interests at the forefront of everything we do.

For more information about this research or other services of Fidelum Partners, please visit our website at www.Fidelum.com or call us at 610-994-4000.

Fidelum Partners3813 West Chester PikeNewtown Square, PA 19073

About the Authors