Q. Tell us a little bit about your background and how you came to found Loylogic.
Hofer: Many years back, I was a consultant collecting miles from loyalty programs, and I quickly found that flying and upgrades were not enough to use all of my miles and points. My co-founder and I saw a need for offering reward solutions to the leading loyalty programs in travel and payments with global membership bases. We could only achieve this vision by building a marketplace for global merchants – something like the eBay or Amazon of loyalty. That’s what we’ve built: a platform with hundreds of merchants delivering rewards into more than 170 countries worldwide. Today, we provide to loyalty programs across verticals and countries a market-leading reward experience and rich global reward content, tailored to their member segments.
Q. What changes have you seen in the loyalty industry since you founded Loylogic?
Hofer: For me, the most impactful development in the loyalty industry is the recognition of loyalty program valuations. It has become clear that loyalty programs are extremely valuable - airline programs, for example, are by far the most valuable assets of airlines today. That's because frequent-flyer programs offer fantastic value drivers at very low fixed costs, while the underlying airline business pretty much offers opposite economics. CEOs of leading airlines now understand the power of monetizing their frequent flyer community – it's a better business than flying the planes.
With those valuations, loyalty marketing today is constructed less around Fred Reichheld's theory that keeping a customer is much more profitable than winning a new one, and more around the understanding that loyalty marketing is the preferred model for global leading consumer brands with large communities to tap into new revenue streams coming from their customers' overall spend.
Q. How do you see member engagement evolving in the earn and burn process of loyalty programs?
Hofer: On the earn side, members today have a ton of earn options that don't really move the needle. It's difficult to track all the partners, the earn process is cumbersome, and thus members disengage from the program. Meanwhile, managing multiple earn partners can be a nightmare for program operators. There's opportunity and value in large brands engaging in fewer, deeper, and longer-term co-brand partnerships that result in effective member engagement.
On the burn side, technology will drive engagement. The technology is ready, but many company CFOs are not yet ready to invest; they instead view points-burning primarily as a cash-out rather than an opportunity to build a long-term relationship. They consider breakage a positive result, and very often define it as a program KPI even though the definition contradicts the purpose of loyalty programs. Burn economics will evolve either through courageous CFOs who view generous burn as an opportunity to differentiate in the marketplace, or through new regulations around the treatment of breakage.
Q. How have changes in consumer behavior impacted the loyalty industry?
Hofer: Changes in consumer behavior impact the loyalty industry the same as any other industry. More interesting to me are two areas where consumer behavior should be having a more profound impact on the loyalty industry, but isn't yet.
First, loyalty marketing has the potential to massively speed the adoption of mobile payments. Consumers are ready to pay with points via their mobile device – more than they're ready to use the phone as their credit card. Second, every year consumers spend more money online, but their online program earning power hardly grows. New models are required to harness the power of online commerce.
Q. Do you foresee any disruptive technologies that could dramatically impact the traditional currency-based program models?
Hofer: Everyone is talking about blockchain, so let’s consider the impact. Blockchain may help provide more secure transactions or different interactions at the POS, but I'm not personally convinced about its superiority in enabling loyalty programs, nor do I necessarily see it adding value to existing programs in the short or even long-term. While the evangelists think otherwise, it is difficult to imagine that Blockchain will surpass other previously-predicted influential trends such as gamification or big data. For Blockchain to leave a lasting impression, most of the leading loyalty program brands would need to collaborate to enable the system. That said, if the technology creates value, then the big brands will support it.
Q. How do you see the online earning arena evolving?
Hofer: As I mentioned, the ability for members to earn rewards through online retail nowhere compares to the amount they spend online. Because the setup and operating costs are low, there’s a huge opportunity for loyalty marketers to balance this equation. The challenges for online points earning today include cumbersome web experiences, the variety of earn options, delayed points accrual, and poor communication. Fortunately, new, affordable technology solutions are building the future model of online earning.
Q. What is the key driver today that builds long-term relationships with best customers?
Hofer: Nothing drives longer, more profitable customer relationships than a powerful brand and a fantastic customer experience – nothing. The loyalty model, however, is a very strong one, and probably the strongest marketing model available to the 98 percent of companies out there that struggle to differentiate from the competition on brand or experience.
To succeed, however, loyalty programs need to deliver on their promise. The promise is never about the points you earn in the program; the promise is rather about the rewards you earn. If the rewards are unattractive or unattainable to members, then every program will become irrelevant over time.
Q. The theme of this year's Loyalty Academy Conference is "frictionless loyalty." Do you see loyalty programs moving toward that frictionless future? If so, how do you see the earn-and-burn process evolving in that direction?
Hofer: The earn and burn process of loyalty programs is at the forefront of the frictionless future. On the earn side, companies and technologies now exist that allow you to earn passively at the point of sale. But you can't be too frictionless – the customer needs to be aware of the program. Right now, however, most earning processes can be too cumbersome. New technologies can take away a lot of that pain and increase program profitability through increased transactions.
On the burn side, new reward solutions, along with new models with fungible currencies that allow you to pay with points at the POS and online, will remove friction and create a more seamless experience. This model still requires the consumer to make an active choice to pay with points, so the engagement is still there.
Other industries besides travel and payments will also drive the frictionless future. CPG is developing into an interesting space, as are telco, health and insurance. These industries are building digital and mobile solutions that will help the broader loyalty industry evolve into the frictionless future.
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