1. Designing a Programme (1/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (1/10)
Designing the programme
Rigorous costing
Setting-up a loyalty programme from scratch is fraught with difficulties and can become very expensive. Best practice companies start simple, develop the programme for core products and their most profitable customers and extend it then to other parts of the business.
The programme should be rigorously costed and compared against alternative uses of marketing funds (or even non-marketing funds). Costing should include both the visible costs associated with programme launch, database creation and maintenance, purchasing of customer information, communications with customers, and the value of rewards claimed, and invisible costs associated with negotiations with partners, partner points reconciliation and internal co-ordination costs.
The airline industry estimates that a typical FFP cost 3-6% of annual revenue, compared to typical advertising costs of 3%. These costs can significantly increase if new competitors enter the market with a comparable or superior loyalty programme.
In the Telco industry, the cost for a state of the art loyalty programme is between 5-10% of the total turnover.

2. Designing a Programme (2/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (2/10)
The design of a good loyalty programme must fit several requirements
The programs objective are important when designing a
new offering. Several requirements from different per-
spectives must be considered when designing the offering
(see below):
The programme offering must fit each requirement. Eg. the attractiveness for profitable customers can be rised by giving additional points from a specific turnover of the customer (eg. from 1‘000.- US $ turnover, the member gets additional 300 points.)
Requirements from a customer
point of view:
Benefits
Simplicity; Understandable
Transparency
others
Requirements from a market point of
view:
Focusing on large market fields
Considering the competitor intensive market fields
Focusing on future market fields
No legal conflicts
others
Requirements from a company‘s
perspective point of view:
Attracting a broad amount of customers
Pushing additional sales, profitability and loyalty
Pushing cross selling/ up selling
Rising the image of the company
others
Requirements to the Offering

3. Designing a Programme (3/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (3/10)
Questions to be answered when designing a new loyalty programme
Each programme has its structure based on the customer behaviour and objectives of it
Several questions are important and must be answered when
designing a new loyalty programme:
Which type of programme should be the basis?
Which products and services should be in the
programme?
How many partners should be involved?
The company must consider the different impact of the programme rewards when structuring the offering. As an example, an European service company structured the point collection of its loyalty programme as follows:
Each part of the pie has its separate objectives. E.g. with the (relatively high) entry offering, the company wants to attract 50% of its residential customer base.
Entry offering
Point collection with the customer turnover product 1
Point collection with the customer turnover product 2
Bundling and cross selling bonus
Point collection based on timely limited actions
Point collection based on additional turnover

4. Designing a Programme (4/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (4/10)
Loyalty programme design in Telcos
The following examples show the loyalty programme design in Telcos:
Company
Target Customers
Structure & Benefits
Partners
Redeeming Points
Market Comms
Comments
MCI
Bonus Program
Linked to MCI One and International Savings Plan savings plans
All customers using MCI long distance
No joining fee
USD1 = 5 miles
500 bonus enrolment miles with Northwest, Continental, Southwest and Midwest airlines
2,500 bonus miles upon enrolment with Delta and American
Cash back option instead of FFP miles
Collection
Airline partners
Miles redeemable with airline partners’ FFPs
Cash back available by telephone or by writing
Monthly account statements
Periodic promotions
Toll free number
Internet web site
American Airlines customers must enrol in MCI/ AAdvantage Calling Card
Other airline customers must enrol in residential long distance
AT&T
True Rewards
Linked to AT&T One Rate, One Rate International, One rate Plus, True Country Savings and True Reach Savings savings plans
All customers using AT&T long distance and spending more than USD50 per month
Over 14million members have joined to-date
1USD = 1pt
100 free points when booking holiday through AT&T
15% discount with partners (not airlines)
On the spot discounts at some national retailers with Benefit Card
Redemption
1-800 Flowers
Alamo car hire
Blockbuster
British Airways
Disney
Firestone tyres
Marriot hotels
United Airlines
US Air
Other partners
Customers must call, write or visit web site to redeem points
Quarterly statements contain redemption forms
Account information available on True Rewards web site
Quarterly statement
Adhoc statement stuffer with promotions or other mailings
Freephone number
Points expire after 2 years
Premium members earn double points
High spenders eligible for elite membership leves
Must be a member for one year before points can be collected
Sprint
Rewards
Linked to Sprint Sprint Sense California, Sprint Sense Dime Zone, Sprint Sense International and The Most II savings plans
Customers spending over USD 50 per month
USD1 = 5 bonus miles
1,000 bonus miles with first usage
Low international rates
Billing via credit card
Points can be traded for
Long distance discounts applied automatically to bill
Points redemption by telephone or letter
Redemption forms stuffed with points statements
Welcome pack
Points statement twice yearly
Special mailing three times per year
Freephone
Average of USD 50 must be maintained over whole year to be eligible
Customers who no longer qualify stop collecting points which expire after one year
Cannot be a member of Sprint Cash Back
Telecom New Zealand
Talking Points
All customers who spend more than NZD50 per month
Enrolled over 400,000 new members in the first year
1,000 talking points for completing long questionnaire
Fly Buys points
Through contact with telecom New Zealand or Fly Buys programme
Launched with mailing to top 350,000 customers
Quarterly statements
Programme guide
90% of high-spenders enrolled in programme
Plans to develop recognition rewards for top customers

5. Designing a Programme (5/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (5/10)
Influencing members with offers
Shell Smart - managing customers up the relationship staircase
The trend in retailing is away from mass marketing, towards customer specific marketing. This is considered by many to be but a stepping stone on the way towards the holy grail one-to-one marketing. As best practice companies develop sophisticated models of customer buying behaviour and are able to actively monitor customer decisions by using customer specific offers and promotions.
Shell Smart with its wide network of partners uses information about members’ buying behaviour with other partners to offer specific promotions. The promotions are designed to trigger members to spend more as they approach a threshold in their collection activity or in their membership lifecycle.
First USA, a credit card issuer has developed a menu of over 750 different offers carefully tailored to suit the tastes of its many different customer segments, all driven by market intelligent approach to using customer information.

6. Designing a Programme (6/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (6/10)
The destructive nature of promotions
MotherCareTM
Detailed information about customers allowed MotherCare
to tailor its programme to capture its target customers
- young mothers - during the first months weeks after birth
while they are feeling vulnerable. By carefully
segmenting customers by age of child and fashion, Mothercare was able to reward customers lightly for purchases that were just about assured, whilst building their loyalty to the company’s products. A series of promotions were offered to mothers in danger of switching to mainstream stores based upon changes in their buying behaviour and listening to customers comments whilst they were in the shop.
The hardest lesson to learn is not to oversell in the short-term by focusing on promotions. It is generally accepted that one-off promotions do not change long-term customer loyalty, although they can change behaviour while the offer lasts. The new customer wars between mobile telephone companies in the US has succeeded in sensitising the market to shopping around for the best deal and then switching provider when a better deal comes along. The battle for customers in New York has cost providers an estimated $500 million in promotional, win-back and administration costs with a net reduction in customer loyalty.

7. Designing a Programme (7/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (7/10)
A loyalty programme can be based on three different schemes
Each loyalty programme is designed differently but has one of three common schemes as its basics (see below). Normally, a combination of these schemes will come true when starting a programme. The different impact of each scheme is important to know when designing a programme.
Bonus point related programmes:
Description:
The club members collect points for certain behaviour. The collected points can be used for several products and services.
Advantages:
Flexibility; individualised offering is possible; can be linked with several products and services also from other companies.
Disadvantages:
Very complex and a lot of administration costs. Very often linked to long term benefits and therefore not tangible.
Good to use for:
Long term offers; high benefits; win back offers; Offers linked to a broad variety of products and services.
Example:
Membership Rewards Amexco
Rebate programme:
Description:
The club member gets a certain amount back.
Advantage:
Short term redemption possible; good planning; tangible and easy to use for customers.
Disadvantage:
Only cost related; undifferentiated; is promoting the waiting for special offers and conditions (price hoppers)
Good to use for:
Short term offers; Relaunches; entry offers; offers to acquire new customers; single product related offers.
Example:
10% offer for all company products at the point of sales, when joining the loyalty programme of an European telco.
Recognition Programme:
Description:
The club members gets some specific service conditions when joining the programme.
Advantages:
Pushes the exclusivity for the club members.
Disadvantages:
High administrative costs; undifferentiated offers.
Good to use for:
Customers with high profitability
Example:
Access for club launches in certain frequent flyer programmes for their most profitable customers.

8. Designing a Programme (8/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (8/10)
Several elements have to be considered when designing a new programme
The offering in a loyalty programme consists of
… an entry offering
… a point collection scheme and
… a point redemption scheme.
The point collection scheme must be as easy as possible. The point redemption scheme can be fairly comprehensive. The value for the redeemed point in the view of the customer is then higher.
The cooperation with other companies can be considered for the collection and the redemption of points. Also possible are timely restricted offers for collecting or redeeming points.
Collecting Scheme
Redemption Scheme
-Product
-Service ...
- Product
- Service ...
- Product
- Service ...
- Product
- Service ...
Target Groups
Company
Third Party
Company
Third Party
Customer:
“How many points do I get with my behaviour?”
Customer:
“Is the loyalty programme bringing me the value I expected?”
System for Collecting Points
System for Redeeming Points
US $
Points
Points
US $
Club Members
Entry
Buying Behaviour
US $
Collecting Points
Points
Redeeming Points
Value
Value of the Loyalty Programme
Customer:
“What do I get for my points?“”
Direct Advantages when joining the programme
Customer:
“What are my direct advantages when joining the programme?”
Loyalty Scheme
Company:
“Which behaviour do we want to influence when?”

9. Designing a Programme (9/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (9/10)
The importance of the right partners
Four different strategies when planning the involvement of third parties in a loyalty programme
The amount and structure of the partners is a critical question. If the company cannot offer an overwhelmingly attractive value proposition through its loyalty programme it must find partners who can.
The involvement of third parties can basically be done in four different ways. Each co-operation strategy is considered as the best in certain situations. Nevertheless, a combination of the different strategies over time is also possible.

10. Designing a Programme (10/10)
Customer Behaviour
Tar-
geting
Positioning
Programme
structure & offers
Cost and benefit structure
Communicating the
Loyalty programme
Loyalty programme objectives
Designing a Programme (10/10)
Chelmsford Star Co-operative
The trend towards multi-partnerships
Argos Premier points
Shell Smart
True smart card scheme - Chelmsford Star Co-operative gives customers at the beginning a card rather than points. All information is stored on cards and can be used to offer tailored promotions and discounts at POS, without massive back-office support.
The trend is towards multi-partnerships of ever increasing numbers of partners, each offering access to each other’s customer base and customer information. Used wisely, customer information offers the partners a better chance to leverage the next sale.
Two leading examples are Argos Business Solutions Premier Points (Argos, Mobil, Somerfield, Toby Hotels, Graham’s Builders Merchants, BP) and Shell Smart (Shell, Currys, Hilton Hotels, John Menzies, UCI Cinemas, Dixons, Commercial Union, Vision Express). In a new development, up to 48 points per week can be collected by visiting certain partner web sites and clicking on icons hidden in the site.