talk

THE ART AND SCIENCE OF BUILDING CUSTOMER VALUE JANUARY 2010

Leadertalk
Loyalty Leaders Tell All:
The Loyalty Killer App: Coalition Programs From Around the Globe

Session Transcript DMA 09 Annual Conference & Exhibition Monday, October 19, 2009 11:15AM 12:15PM San Diego Convention Center, San Diego, California

Published by:

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Leadertalk
Table of Contents

Loyalty Leaders Tell All:

T H E L O YA LT Y K I L L E R A P P

JANUARY 2010

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introducing the Loyalty Leaders Panelists . . . . . . . . . . . . . . . . . 1

David Rochon of Upromise, U.S.; Philip Hawkins of FlyBuys, Australia; Alexander Rittweger of PAYBACK, Germany; Bryan Pearson of AIR MILES Reward Program, Canada; and moderator Kelly Hlavinka of COLLOQUY.

Part I Coalition: Differentiation in a Crowded Loyalty Marketplace 2

To stand out from the crowd, be the crowd.

Part II Coalitions, Data, and Sponsor Value . . . . . . . . . . . . . . . . . . . . . . 5

How coalition data facilitates the consumer-retailer value exchange.

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Part III The Soft Side of Coalition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Exercising best-customer recognition in the coalition environment.

Part IV Coalitions Social Conscience . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Leveraging the power of the coalition for charitable benefit.

Part V The Coalition Frontier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Exploring global loyalty horizons.

The Publisher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
That would be us.

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Loyalty Leaders Tell All:

T H E L O Y A L T Y K I L L E R A P P : COALITION PROGRAMS FROM AROUND THE GLOBE

Introduction
Though the coalition loyalty model has been deployed globally for many years, it is now attracting increasing attention due to its powerful ability to facilitate customer communication, customer data aggregation, and modification of consumer spending behavior. In October 2009, coalition leaders representing programs in Australia, Brazil, Canada, Germany, Poland and the U.S. convened at the DMA 09 Annual Conference & Exhibition to discuss these and other trends in the loyalty arena, including the global future of coalition initiatives. Listen in on the conversation.

Introducing the Loyalty Leaders Panelists:

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Phil Hawkins, General Manager, Loyalty Pacific. Loyalty Pacific manages and operates FlyBuys, Australias largest shopping rewards program, boasting membership in 65 percent of Australian households. Launched in 1994, FlyBuys includes such sponsors as Coles, Shell, National Australia Bank, Best Western and Target. Hawkins has worked in the Australian loyalty market over the past 16 years, and his experience is also drawn from marketing and operational roles with Shell and National Australia Bank. Bryan Pearson, President, LoyaltyOne and AIR MILES Reward Program. AIR MILES, launched in 1992, boasts more than 10 million active collector accounts with over two-thirds of Canadian households active in the program. AIR MILES coalition partners include Shell, Safeway, Rexall, Sobeys and Bank of Montreal. LoyaltyOnes enterprises include the AIR MILES Reward Program; COLLOQUY, a loyalty marketing publisher; Precima, an advanced retail analytics firm; Direct Antidote, a loyalty-marketing agency; and LoyaltyOne Consulting. Alexander Rittweger, CEO, Loyalty Partner GmbH. Two-thirds of German households have a PAYBACK card; PAYBACK is the third most common card in German wallets after the EC payment card and the health insurance card. PAYBACK partners include the Metro Group stores Real and Galeria Kaufhof; and ARAL Group, the fuel retailer associated with BP. Rittweger founded Loyalty Partner in 1998 and launched PAYBACK in 2000. David Rochon, President, Upromise, Inc. A U.S. program with 12 million members, Upromise allows members to direct cash earnings toward college savings and loan payments for themselves or loved ones. Upromise partners include Disney, McDonalds, Procter & Gamble, Expedia.com, and Bank of America. With more than 25 years of industry experience, Rochons background bridges the internet, in-store marketing, retail and manufacturing arenas. Rochon joined Upromise in 2000. Kelly Hlavinka, Partner, COLLOQUY. Hlavinka directs all COLLOQUY publishing, education and research projects. An acknowledged expert in the practice of loyalty marketing, Hlavinkas bylined articles have been published by DMNews, The DMA Insider, BrandWeek and DIRECT, and she is often quoted by national publications on loyalty.

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I. Coalition: Differentiation in a Crowded Loyalty Marketplace

Kelly Hlavinka, Moderator: Im proud that weve assembled executives from four of the best of loyalty coalitions from around the globe: Upromise, from the U.S.; FlyBuys, from Australia; PAYBACK, from Germany; and AIR MILES Reward Program, from Canada. Welcome, and thank you for joining us to share insight into how loyalty coalitions work and how they differ from other models in the marketplace. My first question concerns the growing ubiquity of loyalty programs. COLLOQUY research shows that there are more than 1.8 billion loyalty program memberships in the U.S., translating to 14 memberships per household on average. Yet only 6.2 of those memberships are active. How has this additional interest affected how you engage with your members? David? David Rochon, Upromise: The landscape was far different when Upromise launched in 2001. We were pioneering something that no one had successfully launched in the U.S.a coalition loyalty programand our competition was hotel and airline programs. While its intuitive to assume that competing against so many other voices would dilute individual messages, Upromise hasnt seen a dilution. In fact, in the last two years, weve experienced record levels of membership growth. Yes, members are being bombarded by options, and they have multiple ways of engaging with our sponsors outside of Upromise. But important to our success is that we fulfill a specific deep-seated need within our customer base. Our brand image in the education niche has helped us maintain appeal. The economy has fueled that appeal, as well. People are more worried than ever before. Even in this environment of so many program options, for consumers truly interested in their childrens future, Upromise is the choice they make. Hlavinka: Phil, how does Australias status as a mature loyalty market affect how you engage the FlyBuys collector base? Phil Hawkins, FlyBuys: Its been an interesting journey for FlyBuys. When we launched it 15 years ago, loyalty programs were very new to Australia. The few frequent-flyer programs had a quite narrow membership base. FlyBuys made a splash back then, which led to a number of changes in the industry. For instance, several credit card companies launched programs of varying types. And over the last five years, Australia has seen a lot more activity in retail loyalty programs. Reflecting that activity is the recent launch of Perkler.com, a web site that attempts to serve as one-stop shop describing all Australian loyalty programs. FlyBuys enjoys very high awareness levels amongst Australian households. In fact, Ive tried to estimate the number of times the words Have you got FlyBuys? has been asked by retailers at point of sale, and its billions and billions. The challenge that FlyBuys faces is that on the one hand, were certainly part of the Australian psyche, but on the other hand, we must keep the brand fresh, coming up with new angles, while remaining relevant for our membership. Varying the reward mix is definitely an important part of retaining relevance. When we started as FlyBuys, flights were obviously the only rewards. These days, flights constitute a very small proportion of the program. Still, air travel retains its appeal for a certain part of our membershipthey tell us that if we try to take flights away, theyll walk away. Today, we feature 800 reward choices, essentially creating an internal marketplace. We feature gift cards, hotel accommodations, restaurant visits, and a lot of different merchandise. Instead of pushing one reward versus another, we carefully watch what our members want and keep varying that mix to keep in tune with what Australian households desire. For example, were now seeing that many of our members are turning to utilitarian rewards like gift cards that, for instance, they can use straightaway at the supermarket as a benefit in tough economic times.

Important to our success is that we fulfill a specific deep-seated need within our customer base. Our brand image in the education niche has helped us maintain appeal. The economy has fueled that appeal, as well. People are more worried than ever before. DAVID ROCHON UPROMISE

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The good news is that high proportions of the membership have been very loyal to the program, and are very active. Standalone programs can struggle to retain such activity because they dont have as rich a rewards mix or as many ways to earn points. Hlavinka: In Germany, the PAYBACK program likely faces the same issues of remaining effective while also facing considerable activity in the everyday-low-price categoryfor example, Metro Group participating in PAYBACK versus going up against Aldi and the like. Alexander, how do you keep your program effective for sponsors in such a crowded marketplace? Alexander Rittweger, PAYBACK: Hard-discount food retailers command about 50 percent of German market share, leaving us about half of the market that we can address. For our sponsor retailers, we utilized SKU data to segment customers. Based on those segmentations, we developed a direct-marketing strategy in which we increased the frequency of physical mailings from the twoand-a-half times a year we mailed when the program launched to 12 physical mailings this year. Now every month we send member account statements with personalized couponswere almost like a magazine. This strategy has helped to increase points distribution. People use these coupons and in doing so get more points, see that the program is working for them, and redeem. Email is obviously working, but not as well as the physical distribution, even considering the cost differential. Two factions lose out to hard discountnot only the retailers, but also the branded FMCG [fast-moving consumer goods] companieswhich in the U.S. are known as CPGs [consumer packaged goods companies]. The FMCGs have huge marketing budgets, and using targeted direct mail enables us to tap into those budgets. The retailer doesnt have to pay anything and doesnt have to absorb the discount, consumers get something they want, and the FMCG is happy to devote budget to paying the retailers for the discount. The typical FMCG has a marketing budget of 50 percent of its operating cost and the typical retailer has marketing budget of 3-4 percent of its operating cost, so the math is very simple. Hlavinka: Bryan, when COLLOQUY conducted a census of Canadian loyalty program memberships, we were astounded to see how much more active Canadians are than Americans. As I noted before, the average U.S. household actively participates in only 6.2 programs, while the average Canadian household actively participates in 9.2. Is this a general Canadian characteristic, or is it in part due to the AIR MILES Reward Program? Bryan Pearson, AIR MILES Reward Program: It sounds a bit self-serving to begin by saying the activity is because of AIR MILES, but it is. When the program launched 17 years ago, the only other programs on the landscape were frequent-flyer programs, which were relatively new, and the odd credit card program. Since that time, AIR MILES has established a significant foothold in the country, and our penetration rateswhich are now around 70 percent of Canadian households caused the market to respond with similar currency programs. In AIR MILES, just as in PAYBACK and in FlyBuys, members collect the program currency over time, and then redeem for somethingwhether an airline flight, a gift card or merchandisethats of more value than just getting dollars off items theyre taking to the till. That structure forced competitive response from the other programs because they couldnt come out with discount programs.

Every month we send member account statements with personalized couponswere almost like a magazine. This strategy has helped to increase points distribution. People use these coupons and in doing so get more points. ALEXANDER RITTWEGER PAYBACK

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Loyalty-program development in the U.S., on the other hand, was profoundly different. American loyalty programs had no accumulation models to compete against, so when loyalty programs arose in the U.S., they typically featured a two-tier structure, particularly in the grocery category. In other words, nonmember customers are charged one price, while member customers showing their loyalty cards receive a discount.
Whats interesting is that for years, the U.K. loyalty market was probably the most-developed loyalty market in the world, but I would say that the Canadian market today rivals the U.K. BRYAN PEARSON AIR MILES

Now in Canada, you find that many retail and credit card programs operate using the coalition model of meaningful point accumulation in order to compete in consumers minds. Theyve been forced to step up and not just offer pure discount programs, which could wane over time. The net result is that these programs are generally well run, using well-aligned and well-structured communications. Hlavinka: You might say that Canadians were trained to see that they can get real cumulative value out of a program, and as a result pay attention to other opportunities in the marketplace. Pearson: Thats a fair comment. Whats interesting is that for years, the U.K. loyalty market was probably the most-developed loyalty market in the world, but I would say that the Canadian market today rivals the U.K. After the economic crisis struck, it seems the U.K. started to leap back into discounting. Companies like Boots the Chemist have launched very good loyalty programs, but theyve started to put those programs back on the shelf. Rittweger: There is the interesting case of Tesco, whichas it often doesis doing something counterintuitive with re-launching its loyalty program in the middle of the economic crisis in May and then doubling the points per pound issued to Clubcard members in Augustand capturing additional market share in doing so. Loyalty, as in anything in life, always depends on how well it's executed.
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II: Coalitions, Data, and Sponsor Value

Audience Question: In making the programs more relevant to customers, are you providing additional value to your sponsor retail companies? Pearson: The ability to continually demonstrate results to sponsors is mission critical. We create insights for our sponsors from the coalition data set, which is very powerful because youre looking not only at customer behavior within individual markets but also at their spending across multiple categories. Therefore, we can create a snapshot and a much more robust segmentation structure. The secret lies in leveraging those analytics to create relevant communications.
Our discussions with existing and prospective participating retailers is all around the data. Retailers who arent interested in the data shouldnt be in a coalition. This is not about running a series of shortterm promotions, nor is it something you dabble in for six months. PHIL HAWKINS FLYBUYS

Todays consumer demands more and more. If you dont create relevance, you dont get the kind of response rates you seek. This is a critical focus. Were finding at the secondary level that we can operate across the entire coalition on the basis of relevance, but were also working with individual clients now. Were getting expanded data-sets from our clients, allowing us to work with them on a much deeper and more robust analytical engine to mine the kinds of insights that the dunnhumbys of the world have been doing with retailers like Tesco. That ability is far more common these days than it might have been ten years ago. Hawkins: Our discussions with existing and prospective participating retailers is all around the data. Retailers who arent interested in the data shouldnt be in a coalition. This is not about running a series of short-term promotions, nor is it something you dabble in for six months. Getting retailers to understand the data question is a challenge, though probably less of one than it was 15 years ago when the core retail culture was quite different from what it is now. Interacting with data was quite a foreign concept at the time. Now more retailers do understand that leveraging data is absolutely mission critical. Rochon: One painful lesson we learned and have fixed is that you must do whats needed to communicate to consumers on a relevant basis in order to deliver additional customers and value to the sponsors. For example, we began with a one-size-fits all web site. Consumers came to the web site just to join the service. Creating a personalized web site is complicated and expensive. We started with what we call onboarding. We worked to engage new members as early as possiblecertainly within the first 90 days. Those who engage early typically stay engaged. And then we took care to personalize how we communicate our value to the end userfor example, offers for baby formula are good for young families but not for college students or recent graduates. We learned to change communications depending on how consumers come to us, whether via a natural search or a paid search, through Bank of America, or from the grocery store or any of our other partners, including our parent Sallie Mae. The ability to target, personalize and deliver value is critical to getting the most out of this type of initiative.

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Hlavinka: In coalitions, credit card sponsors can significantly increase consumers earn velocity. Yet in Australia, regulation on interchange feesthe charge for a transfer between the acquiring bank and the merchants bankhas affected banks loyalty-program value propositions. Phil, how does that regulation affect FlyBuys and its value to credit card sponsors?
Free membership is a critical tenet of coalition programs, emphasizing the concept of something for nothing, or a little bit extra for you every day as a result of shopping activities. PHIL HAWKINS FLYBUYS

Hawkins: About six years ago, the regulator dropped the interchange rate by about 40 percent. The interchange rate helps banks finance their credit card loyalty programs, so taking away 40 percent of the funding in one fell swoop upset program economics. Banks responded in a couple of ways, including reducing, capping or otherwise tweaking the issuance rate. Points earned per dollar spent dropped in some cases, which made the value propositions less attractive. Some banks responded by increasing the card feevery interesting, in that it introduced the concept of consumers paying to be rewarded. Australian consumers, after getting used to and enjoying the return on credit card programs, suddenly felt a bit disaffected. Adjusting to the change was easier in our case because FlyBuys doesnt focus heavily on credit card sponsorship. Certainly the involvement of credit cards is fantastic in that points collected when members use partner cards supplement the points they collect from sponsors in other categories. But because of our coalition nature and the number of retail earning opportunities alongside credit cards, the changes in interchange fees didnt affect us as much as it did others. At the same time, the strength of our relationship with our credit card partners meant that the issuing banks didnt have to begin charging fees. In FlyBuys, our sponsor National Australia Bank, for instance, benefits from not having to fund the whole value proposition by themselves. They share expenses with other program sponsors, whereas other banks without that benefit are left to other strategies to keep the loyalty strategy alive. This is important in the context of a coalition because free membership is a critical tenet of coalition programs, emphasizing the concept of something for nothing, or a little bit extra for you every day as a result of shopping activities.

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III: The Soft Side of Coalition

Audience Question: It seems that coalition-program sponsors are very retail-focused and very reward-focused. Does the model work for big-ticket, low-frequency sellers, where rewards would be focused more on recognition than redemptions?
The coalition model certainly provides a basis for individual retailers to employ soft benefits recognition benefits as opposed to cash or merchandise rewards. We can point to examples in our program where retailers work to recognize their very best customers specific to spend. PHIL HAWKINS FLYBUYS

Hawkins: The coalition model certainly provides a basis for individual retailers to employ soft benefitsrecognition benefits as opposed to cash or merchandise rewards. We can point to examples in our program where retailers work to recognize their very best customers specific to spend. For instance, in conjunction with us some of our partners work through the data to identify interesting customer groups and reward them in a different way. They can recognize their collectors by inviting them to openings and offering other soft benefits that add to the ultimate recognition experience. Rittweger: Coalitions have considerable flexibility. In our case, we didnt have a banking sponsor for a long time. Wed looked at the market and just didnt find what we needed. So we launched two products on our owna credit card product and a debit card product. And we just launched a debit card that awards points and doesnt cost the consumer anything. Essentially, coalition programs are communication platforms, meaning that the ultimate question is, how good is the content and how well can you tune into what people want? Pearson: Though AIR MILES uses a common currency, we have 65 different sponsors representing more than 100 different brands in the marketplaceeverything from B2B, large items, small item, services, retail. Ultimately, you must think about working with each partner as if theyre running their own program. Maintaining that philosophy becomes a matter of communicating to the collectors in the specific context of the individual sponsors section of the program. The sponsors are providing a full loyalty experience, and if soft benefits are part of that experience, then you must structure the program to include soft benefits. Nothing about coalitions stops you from doing that. Its not a barrier.

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IV. Coalitions Social Conscience

Hlavinka: Beyond changing purchasing behavior, some coalitions are also working to affect socially desirable behaviors. Can you elaborate on that? David? Rochon: What Upromise ultimately does is coach from the sidelines, trying to help Americans save toward something very important. I joined Upromise in 2000 because I passionately believe in its value proposition. Education is paramount to a greater future, and yet only 28 percent of Americans graduate from a four-year school, which hurts our global competitiveness. In an environment that requires so much more, were moving backwards in terms of accessibility of college because the price of college has gone up so significantlyup to two to three times the rate of inflation. Your paycheck isnt catching up to the ultimate need. Our parent company, Sallie Mae, delivers student loans, and their business is booming because they want to bridge that gap. In 2000, my best frienda former executive of the Marriott Honored Guest program and now president of Fairmontgave us no shot of this working. He told me flat-out, Love you, David, but youll find something else in two years. From his hotel background, he spoke of perceived value versus cost. Lets say that the consumers perceived value of a hotel-room redemption is about $300, but the actual cost, including administration, housekeeping and so on, is, lets say, $50. So the delta becomes the perceived value in the trading currency that hotels sold their program on at the time and still sell it on to this day, even with expanded burn options. Upromises currency, my friend pointed out, is cash. Pure and simple, a dollar is a dollar, except in this case, a dollar might be, for the sake of example, a dollar and quarter of cost to the sponsor after our administrative costs on the back end. The delta is actually negative, in the view of my friend. Whats interesting, however, is that the perceived value lies in the currency of emotion. Let me read you a letter appropriate to what Upromise has been able to build. My reason for loving Upromise is simple. Shes 33 inches tall and 30 pounds. Before I know, it she will be a young woman preparing to go to college because her dad is going to give her one of the best opportunities that this world can offer. When we converted our credit card to Bank of America earlier this year, we worried about conversion rates in light of everything happening in the marketplace and of the uncertainty of credit card conversions. Yet, 95 percent of members active with the previous card have migrated to a Upromise Bank of America card, and spend is up, demonstrating that our core value proposition is fundamental to those members. Also, weve learned that were growing our membership virally. We still market on the web and we conduct all sorts of other activity, but ultimately we grow because of word-of-mouth. Members who talk to other people about joining the service are our very best customers. In 2006, Upromise was bought by Sallie Mae, the largest student loan company in the country, allowing us to expand the Upromise brand from only those people interested in saving for college to people currently going to college and accumulating debt. Suddenly the Upromise brand could speak to a lot more people. At the time, we had seven or eight million members, and now we have 12 million. Now members can use Upromise to pay down their debt, making the program equally relevant to young families with kids and to teenagers and recent grads who are going to be carrying college debt for years.

Weve learned that were growing our membership virally. We still market on the web and we conduct all sorts of other activity, but ultimately we grow because of wordof-mouth. Members who talk to other people about joining the service are our very best customers. DAVID ROCHON UPROMISE

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Hlavinka: Alexander, how do PAYBACK collectors respond to your charitable alliances? Rittweger: In 2000, we began allowing collectors to donate points to charityspecifically, UNICEF at the time. Over the years, customers began telling us that although they love UNICEF, theyd also like to do something for kids in Germany. We considered local charitable partners and recently began working with a large German organization, Ein Herz fr Kinder A Heart for Children. We now have several options that our consumers can choose to donate to. Because Ein Herz fr Kinder is run by the largest tabloid newspaper in Germany, we didnt do much advertising for it ourselvesso we didnt employ a classic TV campaign, for instance. The newspaper did some promotion, and we advertised the campaign in our own media. In our latest promotion, collectors get four times the PAYBACK points they usually earntwice the points for the collector and twice the points for Ein Herz fr Kinder or other charities we sponsor. So far Im hearing that spend is up 20 percent on a weekly basiswhich is pretty much the peak of what weve ever done. What this shows me is that if you get people involved in something close to their heart, much like what Upromise does, theyre ready to walk the extra mile and do much more to earn the points than theyll usually do. For these initiatives, weve integrated interactive components into our web site. For instance, members can vote for where they want their points directed. Collectors can also suggest other charities that other collectors can donate to. People love that element. We have a meter that counts contributions, and the new site PAYBACK donation world has a number of other features that make it almost like a Facebook site that allows people to get more involved, which is what customers tell us that they want.
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If you get people involved in something close to their heart, much like what Upromise does, theyre ready to walk the extra mile and do much more to earn the points than theyll usually do. ALEXANDER RITTWEGER PAYBACK

Our rewards arent true necessities in your daily lifetheyre nice to havebut we can also reward you by making you feel good. Giving back makes you feel good, so enabling people to give back is a great thing to do. Hlavinka: AIR MILES launched a green program this year in two stages. Bryan, tell us about My Planet. Pearson: Our My Planet program recognizes that climate change and the environment have become significantly more important in the minds of Canadians. When we considered this interest, we asked ourselves three questions as a business, Is this a mega trend? Will sustainability in corporate activities come under greater scrutiny? And can we play a role in helping Canadians make better choices in terms of spending and leveraging our partnership network? The answer to all three was, Yes. We designed My Planet to incorporate what we affectionately call Learn, Earn and Burn. In April 2009, we launched the Learn component, our informational web portal, because there wasnt a one-stop place in Canada to get information about how to lead a more sustainable life as an individual, or about the options and government programs available for Canadiansfor example, incentives to insulate peoples homes because, you know, its cold in the winter. At the same time, we launched the second piece, the Burn component that allows consumers a choice for sustainability in rewards selection, by introducing environmentally friendly products certified by a third-party vendor, Terrachoice. The sustainable rewards in the Burn component range from solar-powered cell-phone chargers to electric scooters.

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The final piece is the Earn component, which we launched in September. Now our collectors can earn the same AIR MILES currency on more eco-friendly and greener products. We worked with our retail partners, using the My Planet logo to identify products as better choices and greener alternativesfor example, eco paint or eco cleaning solutions. The retailers reward you for making those choices.
Our programs reach gives us remarkable opportunity to serve as a change agent. The emotional engagement around social concerns can impact segments that we may not have accessed before, in addition to driving additional engagement with our existing customers. BRYAN PEARSON AIR MILES

The watch out with such programs is that consumers are very savvyespecially in the age of social media. When engaging in eco-marketing, you must be authentic or risk being called out for greenwashing. From a company perspective, we ensured that were managing ourselves appropriately. Weve instituted companywide green policies, to the point of integrating green energy in our brand-new call center building, which features the largest roof-top solar-power installation on any building in Canada. Because we affect considerable retail spend, our programs reach gives us remarkable opportunity to serve as a change agent. The emotional engagement around social concerns can impact segments that we may not have accessed before, in addition to driving additional engagement with our existing customers. For example, at a recent meeting, a senior executive from another company told me, I havent been an AIR MILES collector for 17 years, but after you launched the green program, my daughter she handed me an AIR MILES card when she came back from university, and said, Youre going to collect for me, because its important that we make better decisions.

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V. The Coalition Frontier

Hlavinka: Given the reach and impact of coalitions, certainly other countries are looking at embracing this model. Where will the next coalition frontier be? Rittweger: We expanded into Poland in September. Poland is totally different from Germanyits a much younger country in terms of retail development, without the historical burden that Germany has had to bear. Poland has experienced strong retail development since 1989, and in those 20 years they accomplished what German retail hasnt done in 50 years. All our main partners that we work with in Polish PAYBACK had their own credit card and their own loyalty program, so getting established there was much more difficult than it was in Germany. On the other hand, just three weeks into the market, we have close to a million active members, and the new Polish web site has 60 percent of the number of unique visitors that our German site enjoys. Considering how massive our German program is, that proves that what were doing in Poland is working. All our German partners with a presence in Poland joined the new program, and certainly our experience in Germany helped the launch by educating them about pitfalls to avoid, and so on. We got a little smarter, and the initiative is just going through the roof. Hlavinka: Bryan, whats your perspective of the international scope and reach of these programs? Pearson: Every continent has a coalition program, except for AntarcticaI believe the issue is that penguins dont have pockets. We just announced that weve purchased a 29 percent stake in South Americas largest loyalty program, Brazils Dotz. Were helping Dotz evolve its online-only loyalty program to include a traditional retail-based coalition loyalty structure similar to the AIR MILES Reward Program in Canada. With 190 million people and an economy that's been doing well over the past few years, Brazil has a great business environment to launch this type of program. We see a very different operating climate there, patronized by consumers with means. We anticipate that well see the same sort of ramp-up and impact on partners that PAYBACK has seen in Poland. Were also considering expansion into regions in Latin America and Asia, as well as underserved areas of the U.S. The issue in the U.S. is that everyone has jumped into their own programs, as I described before, and its important to the American psyche that companies own itthat is, control the program and its branding. The challenge in the U.S. will be convincing companies that they must move away from the need to own a standalone program in order to control the rewards and the economics, and recognize coalition as a critical differentiator in the marketplace. Upromises approach has been successful because they tap into the philanthropic collective, creating a rallying cry around education to encourage companies to participate in reaching a common goal. The secondary challenge in the U.S. is the difficulty of assembling a mosaic of companies because the country is so big and fragmented. In countries like Poland and Brazil, its easier to secure retailers with full national presence. But in the U.S., the footprint of a retail grocer might not cleanly match the footprint of the fuel partners who want to participate. In the U.S. marketplace, the broad-based coalition model is as yet unproven. However, Im confident that a national coalition will develop in the U.S. Its not a question of if. Its a question of when. Hlavinka: And with that, we conclude our comments, and we thank our distinguished panel for sharing their stories and insights, and our audience for their good questions and their time.
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In this marketplace, the broad-based coalition model is as yet unproven. However, Im confident that a national coalition will develop in the U.S. Its not a question of if. Its a question of when. BRYAN PEARSON AIR MILES

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The Publisher
P U B L I S H E R

COLLOQUY comprises a collection of publishing, education and research resources devoted to the global loyalty-marketing industry. COLLOQUY has served the loyalty-marketing industry since 1990 with over 30,000 global subscribers to its magazine and www.colloquy.com is the most comprehensive loyalty web site in the world. COLLOQUYs research division develops consumer and B2B research studies and white papers including industry-specific reports, sizing studies and insights into the drivers of consumer behavior. COLLOQUY also provides educational services through workshops, webinars and speeches at events throughout the world and is the official loyaltymarketing partner of both the Direct Marketing Association and the Canadian Marketing Association. COLLOQUY also operates The COLLOQUY Network, a global consortium of practitioners certified in COLLOQUYs proprietary methodology. COLLOQUY magazine subscriptions are available at no cost to qualified persons at www.colloquy.com or by calling 513.248.9184. COLLOQUY is owned by LoyaltyOne (formerly Alliance Data Loyalty Services), which works with more than 100 of North Americas leading brands in the retail, financial services, grocery, petroleum retail, travel, and hospitality industries to profitably change customer behavior. Through a team of businesses, each specializing in a loyalty discipline, LoyaltyOne designs, delivers, and manages a suite of loyalty marketing servicesconsumer data, customer-centric retail strategies, direct-toconsumer marketing, loyalty consulting, and more. In addition to COLLOQUY, the companies include:
LoyaltyOne Consulting is comprised of a group of internationally-recognized practitioners who design and implement loyalty-marketing strategies for Fortune 1000 clients. The AIR MILES Reward Program is Canadas premier coalition loyalty program. More than 10 million active Collector accounts, representing approximately two-thirds of all Canadian households, actively participate in the Program. Direct Antidote is a loyalty-marketing agency specializing in data-driven creative campaigns that transform customer behavior to deliver on short-term return on investment, while building profitable relationships for life. Precima is an advanced analytics firm that translates retail customer data into critical insights to better align marketing, merchandising and operations strategies with shopper needs.

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4445 Lake Forest Dr. Cincinnati OH 45242 Telephone: +1.513.248.9184 Fax: +1.513.248.9184 Email: [email protected]
LoyaltyOne, 2010 COLLOQUY is a registered trademark of LoyaltyOne an Alliance Data company All rights reserved

Seeing the true picture has never been easier.

You know what your customers dotheir transactions, activities, survey responses and stated preferences. Yet, your picture seems a little . . . sketchy. Since 1990, COLLOQUY publishing, education and research have helped loyalty marketers reveal the invisible layers of the customer picture. We alert you to the artistry of trends, innovations and best practices that focus the customer portrait with actionable information and analysis. Discover a rich palette of resources at colloquy.com: articles, case studies, opinion, and access to COLLOQUY white papers, workshops, webinars, and print magazine. With colloquy.com, you form realistic customer portraits by filling in the lines . . . the bottom lines.