Epsilon Rounds Out Loyalty Expertise: COO Bryan Kennedy

Epsilon continues to expand its footprint in database and loyalty marketing, merging earlier this month with sister shop Frequency Marketing, Inc. (under parent Alliance Data) and buying e-mail agency Bigfoot Interactive in September (PROMO P&I Nov. 9).

Epsilon COO Bryan Kennedy spoke with PROMO P&I about the current challenges of loyalty marketing, the future of the industry, and Epsilon’s appetite.

Why is Epsilon’s merger with Frequency Marketing, Inc. good for the company?
FMI has historically focused on loyalty marketing, and Epsilon has a long-standing specialty in loyalty management. It made sense to bring those capabilities together and go to market united, with a deeper set of clients and capabilities. FMI has focused exclusively on loyalty strategy and deployment, and the technology of programs. Epsilon includes that, but has other components, too: deeper analytics, creative, general marketing strategy, print production. And Epsilon Interactive [formerly Bigfoot Interactive] brings significant e-mail capabilities.

How is your client list deeper now?
FMI’s focus has been on retail loyalty programs; Epsilon has less focus there. FMI’s clients include Best Buy and CompUSA, brands that in the last few years have used loyalty marketing to drive customer identification and motivate behavior for their most valuable customers.

Epsilon has had clients in pretty much every vertical, but especially travel, non-profits, pharmaceuticals and financial services— we’ve handled customer management, and cross-sell or up-sell efforts as opposed to traditional loyalty programs.

Are you still shopping for acquisitions?
We’re digesting what we have for now, but we certainly have some appetite left for other areas, and will look selectively for certain capabilities.

Sometimes a partnership can bring a better variety of choices to clients. Epsilon isn’t a data company— don’t compile or manage data— we partner with data firms for clients who want acquisition services or demographic data to enrich the information they’ve already got from their customers.

What new applications are you seeing in loyalty marketing these days?
There are some areas of experimentation now—, sports franchises— the possibility of more coalition-based, multi-brand programs.

And there are some emerging industries, such as credit cards; look at Citibank’s partnership with American Airlines’ AAdvantage program. It’s a co-branded program where American holds the currency. We’re [also] seeing more programs issuing their own currency and using that to keep as many transactions as possible on their native cards.

More marketers are using loyalty programs to identify consumer groups and motivate specific kinds of behavior. Not all customers are created equal, so marketers want to identify customers with a higher level of value, then motivate them with additional currencies or other measures. The point is, a loyalty program gives you an agile platform to do that.

It takes tighter targeting to make the most of that doesn’t it?
The natural course is for a loyalty program to grow in size and complexity; if you can monitor transactions and behavior across your core offering and your partners’, you can get a richer view of your customers and offer a higher level of customization. Look at the typical hotel loyalty program. For consumers, it seems simple on the surface, but there could be 8,000 to 10,000 different offers available on a daily basis. One-to-one marketing breaks customers down to very granular segments, and you end up motivating very small pockets of people to activities that end up driving value to the loyalty platform and to the consumer.

As the cost of technology, storage and processing falls and the efficiency of platforms improves, you can look at data in a more granular way.

Are consumers worried about marketers having more detailed data?
We see fewer concerns with loyalty programs than with more invisible retention efforts. [When consumers join a loyalty program], they say, “I trust you with this information about me because I’m eager to get the benefits you’ll award me.” A membership program is pretty free and clear of privacy concerns. We do, however, counsel clients on the type of message and cadence, so they’re not just pushing offers constantly.

Consumers really control their own communication rights; the last thing you want to do is to overload them with irrelevant communications because then when a relevant one comes through, they aren’t paying attention.

What do you think of coalition programs?
It’s a very powerful concept. If you can accelerate the rate that consumers earn credit across a variety of brands, it’s more meaningful for them. If there are more opportunities to earn and a less expensive inventory, you can attract a different demographic and a broader set of participants.

What is marketers’ biggest challenge now?
Any brand that’s considering launching a loyalty program must consider the complexity of operations, the liability of generating a currency, and consumer expectations. If you have a confusing value proposition, or you change [or cancel] the program, you defeat the purpose of a loyalty program and damage the brand.

For existing programs, the challenge is to handle the scale, volume and complexity as a program grows. That’s where we focus a lot of our efforts, taking on the burden of management for clients.

What are you most proud of this year?
Kennedy: That’s an easy answer. The most exciting part of being in this business is hearing clients describe the results we’ve produced for them. Our results are always quantifiable— an ad agency, which has to guess at the results of its work. That’s what’s fun about this business.