Is loyalty on the cusp of a major revolution?

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By: Wise Marketer Staff |

Posted on July 7, 2008

Is loyalty on the cusp of a major revolution?

Something radical is happening in the loyalty industry according to Oracle Corporation loyalty expert Natalie Kouzeleas, who warns that widespread internet adoption and the social networking phenomenon, coupled with the decline of television, means that loyalty programme owners and operators already need to re-evaluate their programmes to innovate at the same pace as consumers.

Just as when Curt Carlson created Gold Bond stamps in the 1930s, or when American Airlines created the first frequent flyer loyalty programme by compiling a database of 150,000 frequent flyers from Sabre in 1981, or when Tesco launched its Clubcard and showed that understanding customer data can bring significant value, today's trends are also creating ripple effects in the market that will shape the loyalty industry of tomorrow.

Competitive climate When you consider McKinsey's study in 2000 which noted that the loyalty market has already shown signs of fatigue from consumers over a period of several years, companies continue to need to find ways to remain attractive in a fiercely competitive climate. The problem is now so widespread, Kouzeleas warns, that many customers can no longer differentiate between the various loyalty cards in their wallet or purse.

Technology innovation and consumers' reliance on technology gives loyalty programme owners the opportunity to truly reach new levels of intimacy with their customers. But are they ready and - perhaps more importantly - are they able to do so? They are certainly trying, as evidenced by the current and ongoing surge in loyalty programme creation, including high levels of activity from relatively new sectors. For example, in the telecommunications market, more than 30 providers have launched or relaunched loyalty programmes globally over the past 18 months.

Technological challenges Marketers wanting to launch loyalty programmes in the early years had only a few choices when deciding how to use technology to enable their programmes. They could either invest in building their own IT solution, or outsource the programme to a specialist loyalty agency. As a result, agencies such as Carlson Marketing and ICLP grew out of the direct marketing industry to offer a clear niche and specific loyalty service and experience.

Such specialist agencies can help marketers through the conception of a loyalty programme, devising the strategy, segment analysis, programme set up, and of course running and developing the programme in conjunction with their clients. Naturally, these agencies have developed their own platforms and systems to help their clients dramatically increase customer loyalty.

However, the up-front investment needed has created a barrier to entry within the world of loyalty marketing agencies, often restricting other traditional direct marketing agencies from entering this relatively lucrative market. But this problem may be about to change.

New players In recent years, the market has also seen some logical extensions into loyalty solutions from some of the key industry specialists, including Amadeus and Sabre (in the airline industry) and Fujitsu (in retail). However, up until a few years ago, there was little available in the way of cross-industry, off-the-shelf, enterprise-level packaged software. At the time, Siebel Systems (now part of Oracle) announced a multi-industry loyalty platform, integrated with its CRM system, and Oracle saw an opportunity to offer marketers the creativity and insight they needed to make their loyalty programmes successful.

The implications of that change in the market were to be quite far-reaching. First, the entry of Oracle with an integrated loyalty solution helped to drive the emergence of system integrators, with Accenture being the first to make a significant investment with Oracle. Many others quickly followed suit to address the growing loyalty market, also based on the Oracle/Siebel system.

Growing market experience As a result, there are now many out-of- the-box packages available for companies that want to set up a loyalty programme, as well as a set of experienced implementers, allowing traditional direct marketers to also enter the field.

According to Kouzeleas, one of the key benefits for a traditional marketing agency entering the field of loyalty is that the average contract period for below-the-line accounts is annual, while loyalty programmes tend to have three year contracts. This in itself provides a good incentive for strong data-driven marketers to move their brands into the loyalty market.

Future opportunities And Oracle is certainly not alone in seeing the growing opportunity in providing enabling software for the loyalty industry. In fact, the company predicts that there will be some heavy-weight new entries in the very near future.

With consumers now having more choice than ever before, the bar is being raised for loyalty software - and that means the industry needs ever-faster programme innovation, technology that's more integrated with the whole enterprise, and programmes that are more strategic than ever, and all without high costs.

This all combines to suggest, at best, an uncertain future for traditional loyalty providers who simply can't compete with the R&D budgets of the software giants. Indeed, Kouzeleas believes that lean times are coming for providers that have not yet decided how they are going to position themselves. In the near term, then, the conclusion is simple: the success or failure of a loyalty programme is likely to depend mainly on the limitations of the marketer.

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