Beyond the Loyalty Program

Today we’re talking about customer loyalty and customer loyalty as a commercial growth system. So not just loyalty programs, but more broadly how organizations should think about driving long-term customer value and growth through loyalty. to have this conversation. We’ve got David Parsons who is CEO at Ellipsis joining us. Ellipsis are the customer loyalty experts. They work with leading banks, insurers, retailers, travel companies and others to help them find, understand, measure, manage and grow their customer value. So David, to kick us off, easy question for you. When you talk about loyalty, what do you actually mean by that in a business context?

Wow. Well, hi Robin and thanks for having me here. You could have started with a simpler question, but I’ll take that one on. Look, loyalty is a fascinating word. It’s a human word like we see it and expect it in sort of human relationships, but, it’s really you know, it’s everywhere you look in business now. You know, brand brands want better loyalty outcomes with their customers. And what that means is that they have higher lifetime value. They’re worth more over time. And you know, a set of more valuable customers ultimately drives asset increase in asset value for a business. And that that means that brands with higher levels of loyalty outperform their competitors when it comes to acquiring them retaining them and maximizing the share of their spend. So, if you’re running a business and you say, “I want a great loyalty outcome.” That means much more valuable customers, I think that’s a good thing. And that’s why maybe we’re so busy helping lots of companies through their loyalty strategies.

Customer loyalty has always made complete business sense. It’s an obvious thing that you want to be aiming for as a successful business, but what’s changed recently or what’s changing?

Oh, look, I think a lot’s changed in loyalty. Loyalty it’s got a few different kind of incarnations. People think about it as a loyalty program or a loyalty business or a u you know a business strategy and it’s all three of those things and maybe they're connected together. If you’re you know if you’re velocity or and you’re the loyalty program for Virgin that’s an important part of the Virgin business strategy as well as you know how do you run a loyalty business that owns a loyalty program. So, you know, I think what we’ve seen that’s changed is, certainly in the consumer industries, businesses with lots of customers, there’s been this sort of realization that, customer, you know, ecosystem development and kind of building modern audiences happens best when you have, you know, some of the mechanics that loyalty gives you. So the ability to have different propositions and to manage consent and to have levers that you don’t get without some sort of proposition or program or membership. You’re relying less you know on price and the product and traditional forms of competing means that there’s been this almost wave of proliferation. So that’s been really interesting. But these waves don’t stop. So a lot a lot of what we’re seeing now is these sort of you know waves of innovation when it comes to banks and retailers and airlines, travel companies, insurance companies thinking about how do they modernize and you know win when it comes to putting together strategies that deliver those loyalty outcomes.

Many people equate loyalty to loyalty programs. That’s how we often think about it in big businesses. Why is that too narrow a way of thinking about it?

Well, you don’t always need a loyalty program to deliver good loyalty outcomes. When you when you think about a loyalty strategy, we need to think about, you know, what are the outcomes that we’re looking to achieve here? And if and often these loyalty strategies, in fact, pretty much always connected to some sort of customer strategy. And so, a business will be thinking about, you know, how do we how do we where do we play? How do we win? How do we compete when it comes to, you know, you know, acquisition and customer retention and overall sort of customer management? And look, some a lot of companies with really high levels of customer affinity and loyalty and preference don’t have loyalty programs because they’re winning on other dimensions. They’ve got a unique product. They’ve got a, you know, sustainable cost advantage. They’ve got some sort of other competitive advantage that means they compete at that level. But if you’re an insurance company, a superannuation company, a bank, an airline, a retailer, you know, many of these segments, you know, the consumer economy now is so competitive and it’s really hard to win when it comes to dimensions that we’ve maybe traditionally competed around. And that’s where things like membership and loyalty and other forms of value become ways that what we’re seeing these brands are now looking to build competitive advantage. So you don’t have you don’t have to and if and often some in some of our engagements there’s other there’s other strategies to build loyalty but what we’re seeing is you know we in competitive markets membership programs loyalty programs other sorts of published propositions are like they’re the new frontier when it comes to building competitive advantage.

Yeah. So there are different it’s not obviously a loyalty program. There are different ways to hit those loyalty business outcomes that you’d be that you’d be looking for.

Correct.

Just to spell that that point out, what are some of those commercial outcomes that you see successful clients driving, you know, driving through better loyalty from customers?

Yeah. Well, look, when we think about loyalty, it is a commercial pursuit. It there’s a marketing aspect to it and there’s a brand aspect to it. There’s the experience, you know, it’s actually quite complicated. And that’s where sometimes you need a bit of help to work throughit, but ultimately it’s about where’s the value in the customer base. Where are the value pools and then what is the most efficient way to extract customer acquisition, frequency, spend, retention, margin, lift out of your customer base. And so you know I think when brands do this well they have quite very commercial mindset that they execute against in terms of structuring their strategies and their programs against the priority customer segments and against the behaviour change that you know that deliver the commercial outcomes they're looking for.

Is there anything else you’d say about, you know, for those organizations who’ve really nailed this and are ahead of the pack in terms of, you know, how they how they approach loyalty and with the outcomes then that they're then getting what separates them from the rest?

You know, like the strategy and the, you know, that the plan is really important, but sooner or later, you know, strategy degenerates into work and so execution matters a lot. And this is a long-term play. So, you know, like look at look in banking at CBA and the other three banks. They’ve got a whole of bank recognition program that’s very innovative that’s called yellow. It is part of a series of things that CBA has done to go to a totally different valuation and a totally different kind of space in the market. We’ve gone from four banks to four big banks to one bigger bank and then the three others. And if you look at the strategies of the other three banks publicly, they’re saying that they are doing things to imitate or replicate what CBA’s done with things like Yellow. And so, you know, this is an example of a bank that was really clever in terms of how do you build recognition and reward propositions that give more reasons to choose and stay with CBA. But they also connect together the bank’s ecosystem, the business bank and commercial bank partners with the retail bank with the promise of being the most cost-efficient way to acquire new customers. If you’re a business bank, and then if you’re a consumer in that bank, you’re getting really good value. So, really clever. And, you know, is the loyalty program the reason that drove the, you know, $100 plus share price? Maybe not the whole reason, but certainly that’s a component part to a winning strategy in their space.

Yeah. And I guess it works because they’ve looked at it as an ecosystem.

Correct. And they have been very committed to the execution of the all the parts of that ecosystem working together.

Yeah.

And I think that’s what modern loyalty looks like. It’s about ecosystems. It’s about creating you know an ecosystem where you’re connecting all of the things that you know that matter when it comes to the customer relationship and you’re putting a moat around your customers and ensuring that whenever they is a category entry point or a need that you can meet that you’re driving preference. you’re driving making it easy for them and you’re delivering other forms of value. So, these modern ecosystems is where loyalty is going. And it just so happens that when you do it well, you get things like consent and you get, you know, better permissions to be able to manage and market to the customers. So, there’s a there’s a sort of compounding effect not just in, you know, you know, competing, but also driving sustainable asset in how you manage customers.

Yeah. Dave, I know, you know, from your work with clients. I know this is not exclusively the case that that often you’re working with businesses that are in relatively low engagement categories where maybe from a customer perspective there’s not a lot of differentiation from one brand or proposition to the next. What are you seeing in terms of some of the some of the current themes around how businesses in those sorts of categories are thinking about loyalty and how to do it differently?

Well, it’s fascinating actually because you we’re talking about utilities here. We’re talking about, you know, low frequency, low engagement, but long-term relationships. You have insurance companies, superannuation firms, a range of different insurance categories, financial services, and then even into some other forms of you know, retail potentially. But what we’re seeing in that space is probably most of the innovation actually. If you if you think about traditional loyalty, it was about perks and prizes was about like tangible rewards. What we’re seeing now is that there’s this real movement around kind of purpose and you know behavioural models around things like health. So in health insurance, there’s this wave of innovation happening around health and well-being programs. And when it comes to your health insurance, you might look at it once a year and then if the price goes up, you might look sideways. And it’s only when you get sick that you kind of need them traditionally. Now what we’re seeing is that these sort of propositions talk to the customer almost every or the member every day. It’s about rewarding you for steps. It’s about incentivizing you for better behaviours, sleeping better, eating better, exercising, you know, better mental health. And if you if you can capture the relationship at that dimension and you’re actually there to help the customer or the member be healthier or live better or live longer you know that it’s a tremendous effect on the quality of the relationship as opposed to waiting for somebody to need an ambulance.

Yeah. Good for the business also good for the actual outcomes that that customer cares about.

Totally. And the bonus is actually that they live they live a longer life and they’re healthier. And maybe we spend less money on claims and those sort of things. So, you know, we get the kind of direct loyalty uplift, but we also get other benefits. So, that’s health insurance, and we could talk about health insurance a lot, but then you’ve got like other forms of insurance.

You’ve got what about home and contents? What about the car? What about other, you know, other forms of insurance?

Well, it’s really interesting who’s playing in the whole, you know, we help your home be healthier. You know, you kind of think about that. And at the moment, it’s about policy variations. It’s about price. It’s about extra added value. But homeowners need, you know, to ensure that their homes are safe and that they’re looked after and the maintenance is taken care of. So you can kind of see, you know, where you can kind of apply that thinking to a whole range of different context. And so, you know, it’s really interesting in health at the moment. There’s a lot of focus there, but we’re seeing some really interesting experiments and innovations across some of those other sectors. And in the case of financial services, whether it’s superannuation, financial services, financial health really is like a fascinating area that we’re seeing a lot of focus on. If you’re a bank, if you’re again, if you’re a superannuation firm and you can demonstrate to the customer that they're actually, you know, that you’re actually helping them build a healthier financial life as opposed to just, you know, products that have low fees or, you know, other sort of features. Again, you think about how do you win there? And how do you sort of have a customer thanking you for helping them build their financial prosperity? Structured programs and propositions play quite nicely in that space. So, expect to see a lot more innovation there.

That’s a trend we should we should watch, I guess, particularly in the Australian market where there’s a lot of competition across, you know, some of those some of those categories, particularly things like superannuation where many different players and there’s a retention and engagement challenge for members. is visual. Yeah. Tell us a bit about how Ellipsis helps with those sorts of those sorts of opportunities and you know how do you work with clients to deliver on them?

Yeyah. Well, look, we got a brilliant team and like truly the a client list that we just adore. And they come to us because they need help navigating some of the complexity when it comes to this stuff. Often it’s about you know putting the strategy and the design and the game plan together. And that’s an involved process because it should be a one-way door. We don’t want to have to walk back through because things didn’t work out. And often it’s a kind of multi-year kind of investment. And we’re always getting our best customers in first. So, the consequences of getting it wrong are high. So we help with a lot of the strategy and consulting and planning work. And that that spans the proposition and the technology and the business casing and everything in between analytics and data. But our real pedigree and you know we are world leading in this in this area is this topic of loyalty attribution. And this is the really important topic of you know having confidence around the level of investment that you’re making and the incremental returns that you’re getting out of those investments. And just like in marketing, sometimes it’s really fuzzy when to work out like you know a marketing attribution model. How do you isolate all of the different channels investments that you’re making to be able to kind of have confidence around how do you optimize it? Loyalty is actually more complex than that. And so we’re building out you know really good IP and platform and product that helps anyone with a loyalty program truly understand how it’s performing and where the headroom is. And so we’re really excited about that. We think that there’s so many companies out there that are spending money and they’re not quite sure yeah if it’s working as intended. And so the question is do I spend less or maybe if I spend more I can actually drive even better performance. So having a good game plan’s right but really making sure that you’re optimizing and tracking and generating the returns is an area that we’re spending a lot of time at the moment.

Okay. Excellent. Fantastic. For the senior leaders who are listening to this, watching this who are thinking about loyalty and how to get those benefits, where would you where would you tell them to start and what should they be prioritizing? Where do these things start?

It’s a really interesting point. We’ve just done a big piece of work with the Flight Center Travel Group and they’ve just launched their program world 360 rewards. big innovative program and their CEO James Kavanaaugh JK who's a wonderful CEO and got an excellent team. He you know he saw the opportunity to really put a put a proposition and a strategy together that that allowed all of the different disperate parts of their business and brands and customers to sort of come together in a unified proposition. World 360 Rewards has multiple brands in it. And there’s lots of way different lots of really great value rewards on offer and better experiences and that program is only going to grow and grow. But for in their context, it was about an opportunity to take a business that had $28 billion of turnover over 30 brands and start to think about how do you kind of piece that together? What’s the connective tissue? So I think what you got to start with like your business, your challenge and that opportunity. And so loyalty will often come from we think that there’s a way to do something that leverages its assets and enhances the business’s you know how it would how it would compete and ultimately stimulate a good response from a customer or customers when it comes to you know programs that change behaviour.

Mhm.

So, it’s a kind of it’s probably not a helpful answer to a really simple question, but if you think about this commercially, then you’re on the right track. Loyalty needs to be more than a brand campaign, more than a marketing promotion. It really should be how you start to think about sort of audience and ecosystem development and start with absolute clarity on the commercial outcomes that you want to drive in your business.

I guess most definitely. It really is an economic sort of pursuit and a question around the identification of you know more revenue, more margin and then a you know a sort of a logical structured process to build out a game plan to you know to extract that.

Yeah. To put something in place that you gives you something extra to drive business growth.

It’s often easier inside big organizations to find new things to start than it is to have the discipline to stop things. What advice would you have for leaders in big organizations in terms of what they should stop doing when it comes to loyalty?

Look, I think one simple way to look at that is if you if you can’t articulate the value that it’s generating, if you can’t connect it back to, you know, a shift in behaviour or a revenue or margin outcome, then you really need to question, is that a good investment? You know, I think the other thing that’s really interesting is the regulators got loyalty and loyalty programs in their sites. they really want to make sure that these programs don’t tilt the competitive landscape unfairly and that customer consent and their data is not being unreasonably managed. So, you know, I think that what’s really important is that you have sustainable management of your loyalty strategy and your loyalty programs from an economic standpoint, which means you need to know how much it’s really costing and how much it’s really generating, but they also need to be managed sustainably when it comes to how you manage the customer. And I think Australia’s been pretty lucky. We’ve had a number of well publicized issues inside programs around devaluations and around you know issues with you know customer data leakage and those sort of things. But when it comes to you know managing consent and you know managing a sustainable audience we need to make sure that we’re operating within the regulatory guard rails as well.

In recent years, there’s been a lot of good discussion and research, you know, marketing science on what effectiveness in in from marketing investment looks like and really good solid theory on understanding how brands grow. How do your views and approaches on driving customer loyalty connect with those lines of thinking?

Yeah, again, have we have we got an hour? Let let’s do it. Let’s do the kind of the light version. But it’s that’s a fascinating topic because you have you have a whole I think a modernization of the way that marketers think about growing your brand and you know and the laws of marketing I think are being more and more accepted and there’s a there’s a challenge around that which is oh well loyalty programs go against some of those laws. And I think that’s actually not true. I think it’s a great way to build headlines and if you get loyalty wrong, you are you could be wasting money. But our view is that actually the laws of loyalty and the laws of, you know, loyalty science are actually very connected into what we’re seeing with what Erin Bass. Bass and others are saying when it comes to how do you grow your brand. We know that mental availability and physical availability are an important part of you know brand growth. We know that you can’t retain your way to growth. You need to always constantly be acquiring. When we think about how do you kind of build mental availability you know you know building those mental habits that sort of put you into the top of that repertoire of brands that the customer will consider when there’s a category entry point. Hey I need to go on a holiday or I’ve got a business trip or you know I feeling a bit like I need a wardrobe upgrade. You know we you know lo loyalty and loyalty programs can play a very important role in you know those mental structures that get built to establish the repertoire of brands and actually to drive preference. So without a program we’re relying on lots of investment in brand and experience and you know price value a whole range of factors. But if you have a really good program proposition, other forms of value, if you’re using the program to drive engagement with your brand, what we see quite clearly through the loyalty science, which connects back to the marketing science, is loyalty helps you win when it comes to preference when it comes to not only building the mental models, but winning in that repertoire of brands when the category entry point moment emerges. It’s fantastic that kind of loyalty science and marketing science are coming together. at the moment they’re still I think they’re seen as sort of like maybe two opposing forces but certainly what we’re seeing is that you can grow your brand by being a better marketer by building your brand more effectively and accelerating that through your loyalty strategy.

And so to the to the challengers who would take maybe an opposing view to you what would you say to those people who would say things like yeah there’s no such thing as customer loyalty?

I think I think that I think that they’re just wrong. I think that like you know, we all have reasons why we prefer brands and whether it’s price or whether it’s location or whether it’s some sort of other behavioural science factor loyalty in in consumer economies is a real thing. You know, I think that there are statements like, you know, it’s cheaper to retain a customer than acquire a new one. That’s maybe not true. Maybe we thought that used to be true. And certainly we agree that you need to constantly be acquiring lots of new light buyers into your business to be able to continue to grow. Loyalty programs used to be something that worked for retention, but now these modern propositions and programs work really well when it comes to new customer acquisitions and that’s where there is alignment with the how brands grow.

That’s right. Research. Yeah, absolutely. Yeah. What else does loyalty give you as a business?

Great question. So direct value is sell more to more customers more often at better margins. We all want to do that. What we’re seeing is things like retail media networks. Things like the creation of data assets that give you permission to do more personalization and relevant marketing as well as run your business better. network and store optimization and so forth are all you know byproducts if you like of running a loyalty business or a loyalty program. What we’re seeing though is actually a healthy loyalty business, an engaged audience with pretty high penetration and permission rates are actually the kind of like foundation. They’re like the infrastructure that drives a lot of new modern ways of marketing and managing customers. So you know Woolly’s has got half a billion dollars or more of income coming through its retail media network through cartology and there’s a range of other businesses that are moving into that you know retail media space which requires really good data and marketing capabilities. So what that what loyalty gives you is those capabilities, but what it requires then is that you run it sustainably because the quality of your data asset, the quality of your retail media asset is driven by the quality of the audience that you’re continually building. So, you know, there’s a kind of reinforcing kind of things all work together.

That’s right. The better the loyalty program performs, the more direct value you’re getting, the better data asset that you get that you can monetize in a range of different other ways. So there’s a kind of compounding effect there that that means that you know brands that do this really well accelerate they get an exponential lift in terms of business performance. So this discussion has been a very commercially grounded one which is absolutely what it should be in terms of you know what why you’d want customer loyalty in your in your business. But can loyalty initiatives also drive real positive outcomes for customers and communities and what does that look like?

Most definitely and they should. I mean we’ve had we’ve had a sort of fairly commercially sort of focused conversation here around the kind of loyalty economics and the case for loyalty as a you know economic driver but customers don’t care about that like they care about you know other things like the product and purpose and you know brand and all and you know and how the social license that their brands kind of have to operate. And so you know if you are a insurance company or a bank or a retailer or any brand and you’re thinking about how do you connect with the customer how do you be relevant to them? How do you actually build you know the brand with them? Community and you know and purpose are really important. So, you know, I think that’s where we’re seeing in the case of insurance. There’s a lot of community partnerships. In the case of some of the big health insurers, part of their health and wellbeing programs are you know rewards and incentives for community causes and raising money and converting your points to charity. So I think that there’s a lot of, programs out there that try to play in that space. You know, Grilled, whenever you buy a burger at Grilled, they give you a coin and you go over and you decide which community cause you want to you want that sort of portion of your spend to go to. So, they’re partnering with local organizations. But it’s really interesting now what we’re seeing and a bit of a radical cause. But I think it’s fascinating that the data that comes out of the Boots loyalty program in the UK is being used by researchers to be able to do things like you know find cure to cancer and health causes because what they what they can do is that they can connect the customer with a whole lot of you know lifestyle and other data points that give them a much more comprehensive data set to be able to conduct analysis to conduct research. So, yeah, how good’s that that we’re kind of delivering great business outcomes, but we’re also engaging with customers in things that are important to them, but also, you know, there’s a humanity aspect to this as well. It’s not just about driving, you know, driving market cap, you know, we need to think about sustainable businesses and sustainable communities and you know, that’s maybe that’s the next conversation where we can talk less about the numbers and more about purpose and some great initiatives out there that our clients and others are going after in this space.

David, this has been a really interesting, useful conversation in terms of unpacking how to think about loyalty inside big businesses. And I particularly appreciate the reframe around, you know, don’t take the narrow focus on loyalty programs, but think about how you engender loyalty more broadly through your business and that ecosystem thinking that you talked about. So really valuable conversation. Thank you so much for making time.