Loyalty programs can drive revenue and result in actionable insights.  Done properly, a loyalty program can foster customer retention, increase share of wallet, and drive incremental visits and purchases.  It can also provide valuable intelligence into customer behavior to help target promotions.

The currency of the loyalty program can vary.  Financial loyalty programs often offer preferred services based on tiers tied to the amount of your assets or investments with them.  Credit cards typically offer points based on purchases but the Discover Card gives cash back for example.  Shaw’s grocery stores and CVS drug stores offer discounted pricing on selected items, similar to coupons.  Airlines offer miles that can be redeemed for future airplane tickets.  Some retailers offer reward certificates after reaching a certain number of points.  For example, customers receive a $10 reward certificate at A.C. Moore after earning 200 points.

The goal of any loyalty program is to drive a specific behavior, typically purchasing goods and services or investing money.  Thus the program is structured to encourage incremental spend and increased share of wallet.  The program might award double points for purchases of $100 or more, causing you to splurge on your next purchase.  Alternatively, you might receive better service from a financial services firm if they hold all your assets because of the threshold amounts needed to attain various tiers.  Multi-tiered programs that airlines and financial services firms have accomplish this by providing additional benefits with each additional tier attained.

Loyalty programs must provide value to both the customer and the business.  Thus, the loyalty program must provide something to the customer that she believes is valuable but that is not too costly for the business to provide.  Not all customers will redeem their rewards and some rewards cost nothing so assessing the profitability of the program requires more than a back of the envelope calculation.  The trade-off must be considered carefully.  Make the reward too easy to attain and you may put at risk the profitability of the program.  If you make the reward too difficult to attain, customers may sign up initially and then drop out.   I have seen customers splurge to achieve the first reward certificate but they do not sustain that level of engagement afterward.  The program did not sufficiently incentivize certificate redeemers.

Lastly, you must also be careful that you have considered possible unintended consequences.  For example, it may be loyalty members are only buying discounted or low margin items in order to earn a reward certificate.  Once they receive their reward certificate, they may spend just enough money to redeem the certificate and no more.  Alternatively, cashiers might be scanning in their own loyalty cards or a dummy card when customers do not have a card or do not have their card with them.  Your loyalty program might be rewarding unprofitable customers or non-loyalty customers.

I was preparing for a meeting with a software company and found myself analyzing their industry using Porter’s five forces.  This is a framework for understanding the dynamics within an industry.  Also, the rigor of analyzing an industry makes you stop and first define the industry.  It sounds simple but can often be complex.  If there are multiple audiences or multiple products, you might want to do the analysis on each.  Next, it requires that you consider vendors, customers, and competitors.  In my first semester at business school, I must have done this exercise at least once a week. 

Years later I could not believe that I was still using this framework but I found it useful in preparing for my meetings.   One of the questions in the software business is who owns the customer?  If the software is sold via a value added reseller (VAR), then they may own the relationship.  Knowledge is power and the VARs may have all the power.  The VAR may know when the customer is likely to want an upgrade, add new seats or licenses, or purchase additional software for related business processes. 

If you are starting to work on a new industry or a new project, consider using the Porter five forces framework.  It can help you get to the heart of the strategic challenges within an industry.

I recently received a mailing from the deCordova Sculpture Park and Museum, formerly known as the DeCordova Museum and Sculpture Park. 

I was puzzled by the name change.  In this case, why would you essentially just reorder the words in the name?  Yes, the sculpture park is beautiful and unique in the metro Boston area.  It is well worth a visit I might add.  However, the museum is excellent as well.  There was a fascinating exhibition called Drawn to Detail which I saw last fall. 

Perhaps, the ICA in Boston is cornering the contemporary art museum “market”, with the recent Shephard Fairey show and before that an Anish Kapoor exhibition.   It also has received a lot of attention for its new building and new location on the waterfront in Boston.  The deCordova’s name change might be a bid to distinguish itself from the ICA.  If that is the case, I am not convinced that re-branding is the answer.  But if you are going to re-brand, at least be consistent. 

The website uses the new name at the top on the right…

The top of the deCordova home page

 and then uses the old name under the History and Mission title.

Bottom of deCordova home page

I was recently in Austin to give a presentation and I joked with the client that what would really make me happy would be if they used my results.  Routinely I find myself fighting against the option to do nothing.  Even during final presentations, when the work is done and paid for, I find an unwillingness to change the status quo.  Rather than battle the silos, the culture, or the project approval process to put in place recommended strategies and tactics, it is easier to put the final report on a shelf and call it a day. 

On new business pitches, I worry more about inertia more than I do the competition.  Has the client or prospect really committed to making changes to their business?  If so, we can have a discussion about the many ways to solve the business problem at hand.  If not, there is little I can do if someone is unwilling to commit time or resources.

The print edition of the Wall Street Journal has introduced a daily sports page and when I say sports page, I mean it is just a page.  It seems like an odd choice, introducing more sports coverage to a business oriented newspaper.  However, it may be an attempt to increase advertising revenue and grow the subscriber base, similar to the earlier introduction of the Weekend Journal.  

The sports coverage is supposed to be analytical, high-level and statistical.  That does not mean it is dry.  I laughed out loud when I read this excerpt from yesterdays’ journal, written by Bernie Lincicome.

“The visual highlight of the week was Henrik Stenson, a particularly tidy sort who avoided splashing mud on himself by taking off nearly all of his clothes.  It takes a lot to upstage Tiger Woods, but a Swede golfing in his skivvies in a water hazard will do it every time.”

As more entertainment and news have moved online, it seems like more and more things can be had for free.  I can watch a clip from a cable television show on Hulu even though I don’t subscribe to cable.  I can read a New York Times article even though I dropped my print subscription.  As Tangyslice write in a post last month, there are lots of things you can get for free — software and international phone calls included.

So you can imagine my surprise when I read that Disney is starting a web portal that will require a $75 annual fee.  Subscribers will get access to Disney news, entertainment and merchandise.  In addition, they will receive a quarterly magazine.  While I understand that Disney wants to generate revenue, I wonder if consumers are willing to pay for the features offered.  The online Wall Street Journal has been effective at generating revenue with a subscription model but they offer financial reporting and insight.  Is Disney news and entertainment as desirable?  In addition, will consumers be able to find most of the information provided other places (e.g., youtube, other fan sites, etc)?  If so, the value of the portal will be diminished.

In this tough economy, what can a CEO do?  The more I think about it, the more I am convinced that a CEO’s options are limited.  The CEO can try to increase revenue through participating in and supporting sales efforts; however, he cannot be everywhere and he does not control customer spending.  In addition, there is the problem of information asymmetry.  He must rely on sales and operations to provide feedback on revenue generation.  The CEO has more control over costs and companies large and small have announced layoffs, wage freezes and reduced benefits.

However, the CEO also has the power to bring the company together to survive and possibly achieve competitive advantages in this tough environment.  I have been thinking about an HBR article I read in my business school strategy class, “Leading Change: Why Transformation Efforts Fail” by John P. Kotter.  It describes eight steps for transforming an organization and it is extremely relevant in today’s turbulent environment.  It all starts with the CEO.  She can form a guiding coalition that assesses the company’s problems and opportunities.  In addition, her vision for how the organization can effectively react to the challenging economy will ground all of the company’s efforts.  The guiding coalition may develop a list of plans, projects and initiatives but the CEO’s vision will determine the priority of the projects and keep everyone on the same track.  Further, her vision will reassure employees as they will know where the company is heading.  The CEO will need to reiterate her vision across multiple channels in order to empower others to act upon it.  Change is hard and will almost certainly involve sacrifices.  However, employees will pull together to help the company survive if they understand the CEO’s vision and are inspired by it. 

This is a crisis too good to waste.  CEOs can do more than just survive until the economy recovers by using this opportunity to transform their organizations.

“I think that playing the same music over and over again is irresponsible, uninteresting, and somewhat immoral.”  This morning I caught an interview with Gil Rose, the Artistic Director of BMOP, on WGBH.  I could not resist quoting him.  The interview mentioned that BMOP has started an independent record label, BMOP Sound, for their recordings.  It seems slightly quaint to be starting a record label when consumers are buying downloads rather than compact discs.   However, vertical integration, in this case expanding into the business of recording and distributing music, makes sense.  They want to create awareness both of the music they champion and their brand.  Most record labels are unlikely to be interested in their music or be willing to invest in it or them.  In addition, vertical integration enables them to reap more of the benefits from each compact disc.  They can also leverage their concerts and subscriber base to promote or sell compact discs.  It is yet another innovative way that BMOP is addressing the challenges of the music industry.  An earlier post dealt with an inventive approach BMOP has adopted to market itself.

I have been thinking about a conversation I had recently.  I was talking to someone from a prestigious Boston cultural organization about her subscriber base and the catch 22 they are facing.  The subscriber base is aging so the organization needs to bring in new, younger subscribers.  However, younger subscribers do not like the repertoire favored by the existing subscriber base.  She described a challenge that companies face all the time.  How do you acquire new customers while retaining loyal customers?

In this difficult economic environment, it is hard not to focus on protecting and defending your most loyal customers. They represent the life blood of your company. However, they will not be there forever. You need to balance acquisition and retention efforts.

In the case of the cultural organization, I think she has at least three options:

1. Focus on the loyal customers for now. Once the economic climate improves and budgets ease, begin courting high potential prospects. For example, a local opera company performed Carmen on the Boston Common and used the opportunity to collect lead information from attendees. In this case, they collected information on cards distributed before the performance and then sent a targeted follow up mailing about their upcoming season. 
2. Create a new sub-brand. The organization could develop a sub-brand that would leverage their considerable name recognition and reputation. For example, Boston Modern Orchestra Project (BMOP) has concerts at the Jordan Hall in Boston as well as concerts some Tuesday nights at Club Café. They may play Elliot Carter at both types of venue but the club concerts are in a more intimate and less intimidating space. I imagine that they attract a different crowd as a result - probably younger and less well-versed in classical music. I haven’t yet made it to a club concert but the next one is February 3! By providing an alternate venue and experience, BMOP caters to their current subscribers and reaches out to new customers who will become future subscribers.
3. Try to please to both segments. It can be hard to meet the needs of both new and loyal customers. James Levine caused a stir in Boston by including new and contemporary compositions with traditional stalwarts of the repertoire at the Boston Symphony Orchestra (BSO). However, the BSO did not give up. A new program provides $20 tickets for those under 40; it is another innovative way to bring a younger demographic to the symphony.

These are my thoughts. Is there anything you would suggest?