Partnering for Points

Tony Hart was in the airport, shopping online while waiting for a flight, when it dawned on him. He was eyeing a book on Amazon.com when he realized he could earn points in his own loyalty program if he bought from Barnes & Noble instead.

So Hart switched retailers. And with a click, he added to his Goldpoints Reward Network balance.

Then he got back to work as director of Goldpoints Plus, the new hotel overlay to nine-year-old Goldpoints Reward Network.

Goldpoints Plus replaces three brand-specific programs at Carlson Hospitality Group. It’s just the latest example of an umbrella loyalty program replacing brand-specific work. Retailers, hotel chains and casinos have rolled single-brand programs into corporate-wide programs across several brands to cater to busy consumers and to promote shopping within a company’s own portfolio of brands.

Carlson, Gap, Inc., Macy’s and MGM Mirage have all recently bundled brand-specific loyalty efforts into umbrella programs. Meanwhile, CitiGroup has signed 200-plus retailers and brands for its six-month-old ThankYou rewards program, a leap beyond affinity credit cards.

“It’s a practical, lifestyle focus,” Hart says. “We look at the total consumer lifestyle: People have to manage the logistics of their lives. Well, now they can earn points doing all the things they already do.”

Meanwhile, coalition programs like UPromise and BabyMint build by pooling disparate brands behind a single loyalty currency: Cash, deposited directly into savings accounts (see sidebar).

Both formats give consumers variety and convenience. Corporate umbrella programs also boost “velocity,” quickly awarding enough points for members to reap rewards.

“Velocity is extremely important to the longevity of loyalty programs, because consumers will lose interest” if they wait too long for a reward, says Mike Capizzi, VP of loyalty marketing consultancy Frequency Marketing, Inc., Milford, OH. “The higher the velocity, the more engaged consumers are.”

Meanwhile, marketers gain efficiency (in money, time and staff) and a better way to keep shoppers in their own stores.

But aren’t there too many programs already for shoppers to keep straight?

“There are lots of loyalty programs,” Capizzi concedes. “But people want to consolidate their points, so the companies that give more options to build points will get more shopping,” and the companies with the biggest, most diverse portfolios will win.

They also get a better portrait of their best customers — which spurs better-tailored offers, which deepens the relationship, which strengthens loyalty. That complete picture is crucial to the “shopper marketing” strategy that will dominate retail marketing in the coming years.

Minneapolis-based Carlson launched Goldpoints Plus in January to replace separate programs for its four hotel chains: Radisson, Country Inn & Suites and Park Plaza (coupled with Park Inn). Macy’s debuts Star Rewards this month to replace its five regional programs as its 423 stores adopt the Macy’s name nationally (184 convert from hyphenated names). Both companies rolled current members into their new national programs — millions of members for Carlson, 14 million for Macy’s.

Macy’s finishes mailing new cards to customers by mid-March, and breaks local TV, newspaper and direct-mail advertising touting the name change in affected markets. Special events break mid-month, including shopping days to benefit local non-profits and mini-Macy’s parades in Atlanta, Columbus, Memphis, Seattle and Miami, and fireworks displays in Cincinnati, Columbus, Indianapolis, Pittsburgh and Birmingham.

Carlson launched Goldpoints Plus with direct marketing and print (both handled in-house) and TV (via Minneapolis agency Bolin Advertising). Ads build Carlson’s own brand and showcase all four chains to consumers who had thought of the hotels separately. Marketing broke in January to preempt competitors’ renewal notices, which go out in February.

Piggybacking Goldpoints Reward Network — that coalition is run by Carlson’s sister company, Carlson Marketing Group — gives members an even bigger wallet, and more options for redemption. It also boosts traffic for retailers in the coalition and amortizes costs.

“With so many partners, we can keep enhancing the infrastructure and spread the cost across participants, rather than having the hotels spend millions to build out their own systems,” Hart says. “We can be more responsive to that larger audience by adding partners and improving the technology.”

Hart won’t discuss spending, but he says the roll-up didn’t cut Carlson’s loyalty budget: “We were lagging behind other hotel programs and made the conscious decision to spend more to demonstrate to customers that we want them to come back.”

Citigroup has signed 8.5 million cardholders to its ThankYou rewards program since its summer 2004 launch. Citigroup set low redemption thresholds for smaller items, like CDs or song downloads, and lets members bank points for bigger rewards, like airline tickets. Members can combine points across several Citibank credit cards, and 200-plus “ThankYou Merchants” give bonus points on Citicard purchases, an “accelerator effect” that keeps members engaged, says Citigroup senior VP Bill Borden.

Citigroup’s research showed that consumers worried their frequent-flier miles would be worthless if financially troubled airlines scotched their miles programs. That bodes well for coalition programs with a wide range of redemption options.

Citigroup wants to build its network of brands for distribution and redemption: Brands without their own retail infrastructure can redeem ThankYou points even if they can’t distribute them.

“We’re trying to increase the depth and breadth of offers for our members because we want to appeal to all of America. This isn’t a high-end, segmented program,” Borden says.

Citigroup is also working to cement ThankYou points as a currency. “People know what a mile is and what a rebate is, but what’s a ThankYou point?” Borden says. Humorous introductory TV and print ads “got people asking ‘What is ThankYou?’” and subsequent ads detailed the rewards program.

The Full Picture

Investments in loyalty marketing reduce advertising costs because loyalty data can improve pricing, merchandising and churn, argues Spencer Hapoienu, president of marketing agency Insight Out of Chaos, New York City.

Just spreading the cost between brands lightens the load, says Capizzi: “Any investment to run the program is enhanced when it’s spread across several brands.”

It helps, of course, if consumers already shop across sister brands. Gap Inc. looked at its databases before launching its cross-brand GapCard credit card in October, replacing brand-specific cards for Banana Republic (six years old), Gap and Old Navy (each four years old).

Cardholders already were spending twice as much as other customers, and liked to mix and match brands: 65% of Gap cardholders shopped Banana Republic and Old Navy, and 75% of Banana Republic cardholders shopped its sister stores.

“Some shoppers were in all three databases,” says Capizzi. “That increases the value of that customer to the holding company. By combining the efforts — and the funds — of three brands, they’re giving a greater value proposition to consumers. Now it’s not a $300 a year Gap customer you’re talking about, it’s an $800 a year holding company customer.”

The cross-brand GapCard — a first for specialty apparel retail — lets cardholders accrue points from all stores in one account, then spend their 5% rebate ($10 for every $200 in purchases) at any of the chains.

When GapCard launched, current cardholders got a coupon for 10% off their first purchase. (New cardholders get 10% off, too.) They get free shipping for online purchases of $50 or more. Gap, Inc. also runs brand-specific promotions targeting cardholders. Gap Inc.’s Direct division handles the program in-house, with an assist from GE Consumer Finance.

Brands that pool data (tracking transactions across all brands) get a richer profile of each member.

“Customers tell you about themselves by what they do. As one complete system, we get more insight into guests and what they like,” Hart says.

Marketers commonly tag a “primary brand,” the one that brought a member into the program. They get this by asking consumers, or by tracking purchases.

The percentage of data gleaned from tracking versus asking varies by program, but “a good marketer will do both,” Capizzi says. Hotels, for example, can track date and length of stay, room rate, services used and method of payment. That helps tailor future offers to each guest.

Transactional data sometimes is housed separately from “survey” data, but a good database engine synthesizes both.

“Consumers don’t lie in surveys, but they often say what they think the surveyor wants to hear,” Capizzi says. “Transactional data is a truer indication of behavior.”

Do consumers resent being watched? Not if the rewards are relevant. Besides, “people don’t have to opt in if they don’t want their data tracked,” Capizzi says.

“If you show consumers they can trust you, they’ll tell you more about themselves,” Hart adds. “That opens the door to more permission-based marketing.” Carlson analyzes Goldpoints Network purchases, not just hotel stays; a member who buys toys might be ripe for leisure travel. “Behavior is a great cue to talk about other things that might interest that member,” Hart says. “The coalition program gives us insight beyond hotel stays and airline flights.”

Brand Egos

Still, it can be tricky convincing brands to work together. After all, doesn’t cross-shopping cause cannibalization?

“That was brand managers’ argument three or four years ago,” Capizzi says. “But transactional data shows that if a shopper was worth $700 a year across three brands, that grew to $800 a year later, and then more. When consumers are rewarded across all your brands, they’re cross-shopping your portfolio, and not your competitors. That’s where the lift comes from.”

But there’s still “brand ego” to overcome, he warns. MGM Mirage had to convince marketing managers at its seven casinos that its corporate-wide Players Club, re-launched in summer 2003, would benefit them all.

The company wanted to consolidate 17 loyalty programs (and 16 databases) to boost velocity and trim costs; when it merged the casinos’ databases, there was a lot of overlap.

“This shocked the brand people,” Capizzi says. “They had lulled themselves into believing their brands were so unique that consumers wouldn’t cross from one to another.” Cross-property play has grown 40% since Players Club launched; the program has nine million members, who earn hotel rooms, food, entertainment tickets and retail goods by gaming.

“If a truly engaged Players Club member comes to Las Vegas, he wants to do lots of different things. He’ll go to three, four, or maybe seven places over a three-day stay,” says Carolyn Leveque, MGM Mirage director of loyalty marketing, speaking at the October 2004 Direct Marketing Association conference. “I’m looking for cross-property play. I know that if [members] play at three properties, then maybe I have 40% to 50% of [their] wallets, and maybe more.”

Brand managers balk less if funding comes from corporate, not brand budgets, and if the umbrella program gives brands reasonable flexibility to tout the brand to their own core consumers.

U.S. consumers suffer from “brand ego” too, which keeps coalition programs from being as robust here as they are in the U.K. and Canada.

“We think our brands are king and are reluctant to subjugate them to a coalition,” Capizzi says. Plus the U.S. has so many brands, it’s tough to recruit cornerstone brands in key shopping categories. Markets with fewer brands — Europe, for example — can more easily bring the No. 1 or 2 brand in several categories together.

But consumer spending is higher here anyway, so brands can afford proprietary loyalty programs, Capizzi explains. That makes corporate programs — spread across several brands, but still controlled in-house — even more feasible.

Still, Hart sees an upside to working with a coalition: like-minded colleagues. “It’s nice to work with other people who are focused on loyalty and marketing, and not just people thinking about hotel guests.”

Staff writer Amy Johannes contributed to the reporting for this story.

The Coalition Conundrum

Packaged goods companies, avidly focused on shopper marketing, can’t pull off a loyalty program because they can’t track individual consumer behavior. Transactional data must come through retailers.

But grocers’ loyalty programs are geared to category sales, not brand sales. Supermarkets can track brand-level sales among loyalty-card holders, but grocers want to goose the category — and private label — regardless of national brands.

That’s why CPGs play in coalitions like UPromise and BabyMint, at low cost with no investment in infrastructure.

Loyalty points can be a tiebreaker for shoppers in low-interest categories (think groceries, gas, banking), especially if a brand gets category exclusivity.

But there are pitfalls. “There’s no exiting a coalition” without losing shoppers to the competitor that replaces you, says Mike Capizzi, VP at loyalty marketing consultancy Frequency Marketing, Inc. U.K. grocer Sainsbury learned that the hard way when it dropped out of Air Miles and was replaced by Tesco. Shoppers promptly switched to Tesco, Capizzi says.

And brands can get lost in a crowded coalition program if members value their rewards more than a brand’s own attributes.

“Coalitions are a cop-out,” says Spencer Hapoienu, president of marketing agency Insight Out of Chaos. “Brands are just joining a club. Consumers care about accumulating points, not in the value of the brand.” Successful coalitions share some basic elements, according to The Loyalty Guide 2004, published annually by Wise Research Ltd., Somerset, U.K.:

• Rapid market penetration.

  Programs that launch with major partners in key industries (grocery, gas, bank, telecommunications) can quickly enroll 50% to 60% of their target consumers.

• First to market.

  Once 50% or more of target households have started collecting points, they’re not inclined to switch. Launching second? Court partners with their own loyalty programs who are willing to pool members.

• Velocity.

  The quicker shoppers earn rewards they value, the more they’ll shop. Aim for six to 12 months to earn high-value incentives.

• High-profile launch.

  Heavy advertising and promotion jumpstarts interest.

• Customer service.

  Members should be served by mail, by phone, online and in person. Partners should insist on excellent customer service: It reflects on their brands.