Sponsor spotlight: Phil Rubin, rDialogue The Wise Marketer’s timely, unbiased, and global coverage of the loyalty marketing industry is brought to you free of charge thanks to the kind support of our Founding Sponsors. Because we a) love our sponsors unconditionally, and b) believe they have much to contribute to the conversation around customer loyalty, we wanted to take some time to introduce you to them. Next up: Phil Rubin, CEO and founder of rDialogue. In this Q&A, Phil discusses the evolution of loyalty programs, the “Amazonification” of customer loyalty, and the future of Loyalty 3.0.
Q. Tell us a little bit about your background and how you came to found rDialogue.
Rubin: I’ve always understood that it’s not always great to be a customer. That awareness led me into marketing, which led me to a flight to Chicago on Midway Airlines to meet with Leo Burnett – and I fell in love with Midway. So I called the gentleman who would become my boss at Midway every day during my last semester of graduate school, and finally got hired as head of Midway’s frequent-flyer marketing.
During my time at Midway, we took the business from 400+ million to nearly 700 million dollars in 18 months, in part due to our efforts with the frequent-flyer program. That effort started my career in loyalty marketing, which led me to work with a variety of businesses and agencies including The Lacek Group (TLG), where we helped Delta Air Lines replace “Frequent Flyer” with the Skymiles program. We ultimately helped evolve the Skymiles program from a mileage-based to a yield-based earning and elite qualification model with the Medallion Qualification Miles concept. After Lacek went through a series of acquisitions, I left and ultimately joined Loyaltyworks and made a deal to spin off the loyalty practice and found rDialogue – short for “relevant dialogue,” which I had long considered a key missing ingredient in marketing.
Q. In your recent white paper, “Loyalty 3.0: The Future is Now” you talk about the evolution from Loyalty 1.0 to 2.0, and the need for marketers to lead loyalty marketing into the future of Loyalty 3.0. Can you talk about that evolution, and why it’s so important for loyalty to evolve again?
Rubin: When I joined Midway Airlines, the first thing I did was redesign the frequent-flyer program. At the time, we designed it to be state of the art: we added elite tiers, soft benefits, upgrades, partners, etc. You might think of that stage of loyalty evolution as Loyalty 2.0 given the addition of partners. Once we did that, the big levers we had to drive business came down to customer data – how do we use it to do smart relationship marketing? That recognition that customer data lies at the center of marketing success was the key for us to support Midway’s expansion. At TLG, we did the same things for Delta.
Loyalty 3.0 is a continuation of what we’ve been doing since the start. But it recognizes that we must evolve what we’re doing – or we’ll end up doing the same things but expecting different outcomes. The Loyalty 3.0 model continues to recognize that every company and brand has unique business capabilities, constraints, and opportunities that should be reflected in their loyalty strategy. Yet it goes further, expanding loyalty from the customer to the brand and similarly, extending well beyond the transactional value propositions that are so prevalent today.
Your loyalty strategy must sync with your business and be reflective of your brand. If your strategy aligns your organization and your brand with customer expectations, then you’re free to do things that you are uniquely able to do better than your competitors. Loyalty 3.0 recognizes that loyalty is not a program, and that loyalty programs and loyalty marketing are not synonymous. At its core, it’s a recognition that brands must demonstrate loyalty to their customers by delivering a superior and more relevant customer experience.
Q. You stress that the key to Loyalty 3.0 is reversing the loyalty equation – moving away from programs that make customers prove their loyalty to programs in which brands demonstrate their loyalty to customers. We couldn’t agree more – can you talk a little about that reversal, and how marketers must approach loyalty differently?
Rubin: Loyalty marketing is built on the premise that all customers are not equal – and not every customer matters. If you look at how most marketing dollars are spent today, those dollars have moved to digital, but the bulk of them are still spent reinforcing or repositioning the brand. If your loyalty strategy doesn’t reflect your brand, your organization, and your business model, then it’s a critical point of failure. That’s because Loyalty 3.0 also recognizes that the hard-dollar component of loyalty is just one facet of loyalty marketing – and perhaps the least important facet to best customers who appreciate the value you deliver and are less price sensitive.
Loyalty 3.0, rather, is a paradigm-breaking mode of moving beyond the narrow value proposition of spend-and-get and using data to delivering hyper-relevance to those best customers. As I said, it’s a recognition that loyalty is not about a program. In a very real sense, customer experience is becoming the new loyalty.
Q. You define loyalty marketing in its simplest terms: “Paying attention, and acting accordingly.” Can you break down that definition and explain what it means to marketers in practical terms?
Rubin: What really drives loyalty is not just saying customers are important, but demonstrating it. When they work effectively, brand relationships display elements of personal relationships – those feelings of mutual recognition that lead to loyalty between two parties. Conversely, when you meet someone for the 15th time and they don’t remember you, then that’s not a meaningful relationship – it may even be antagonistic. Gartner uses the phrase “customer amnesia” to describe that problem of companies not remembering you, which happens way too often, even if you’re a longtime loyal customer. It makes you feel like the business doesn’t care about you.
That’s why we encourage our clients to practice loyalty marketing the same way we govern our relationships with people. As a customer, I want you to remember things about me. I want you to talk about new things, and not just repeat the same things over and over. That’s why we say that loyalty marketing is about paying attention to customers and acting accordingly.
Q. You’ve said that it’s possible that new forms of data collection might render traditional loyalty programs obsolete. Can you elaborate on that notion? Do you think that the proprietary “branded” loyalty program might become a think of the past?
Rubin: Traditional loyalty programs provide a way for customers to identify themselves and engage with you. You can then leverage the resulting data from the program to make your marketing more relevant and drive mutually beneficial relationships. With the advent of new payment technology, digital interactions through web and mobile, and with biometrics, we have new ways beyond loyalty programs for a company to identify customers and track their behavior. Provided that the customer opts in and grants permission for you to collect and act upon their data, then the outcome is the same. The difference is that your loyalty efforts can be more embedded in the customer experience and organic to the customer relationship. As a returning customer, my expectation is the same: that you treat me like you know me.
As for the traditional branded loyalty program, it’s not going away because brands will continue to need that explicit differentiator for customers – the loyalty program signifies an elevated experience and a higher level of commitment. The question becomes whether points are required or not. A lot of what we try to do for our clients is not just look for new things to do, but to better merchandise what they’re already doing. It’s that little something extra that generates mutual lock-in and trust. To paraphrase Spinal Tap, how do you make the brand “one louder?” Think about Nike+, which isn’t a points program, but which is nonetheless a great romantic gesture, if you will, by Nike to its athlete customers. It’s a simple concept, and it’s a great example of what brands need to do to build loyalty today.
Q. You’ve also referred to Loyalty 3.0 as the “Amazonification” of loyalty. Can you expand on that concept, and how marketers can begin to put the lessons from Amazon’s success into practice?
Rubin: In our minds, no business more exemplifies Loyalty 3.0 than Amazon. Amazon makes it super easy to buy things. They keep innovating with new features like Alexa, and Amazon Prime provides both a continually improving layer of benefits for members as well as a significant revenue stream for Amazon. Not everybody needs a fee-based loyalty program like Prime, of course, but there is much to be learned from their strategy of hyper relevance and making it super easy to buy, as well as creating an opportunity cost – at times in the form of risk – of shopping elsewhere. For us, one key lesson to learn from Amazon is to recognize that executive leadership must drive the prioritization of customer strategy.
If customer marketing strategy isn’t a Top Three priority in your business plan, then that’s a big failure indicator. Another lesson is the importance of collecting and using data not just for marketing purposes, but also for innovation – you’re a lot more innovative when you think about your customers rather than thinking about your competition – to paraphrase one of our favorite Jeff Bezos quotes. How do we make it easy and risk-free for someone to do business with us? One example is to recognize that time – giving customers more of it – is one of the most valuable loyalty currencies there is. Demonstrate trust, and be extremely judicial in what you ask customers to do. Amazon models this behavior extremely well, which makes them relevant to what everyone is trying to do today.
Q. At our recent Loyalty Academy Conference, we asked you to participate in a debate about the future of points-based loyalty programs – in fact, we asked you to take the “Con” position and argue that points-based programs are effectively obsolete. You made a convincing argument – can you now tell us your true feelings about the state of points-based programs? Will they continue to play a role in building customer loyalty, or will the Loyalty 3.0 best practices you espouse supplant them?
Rubin: Customers belong to a multitude of programs in the U.S, so they won’t go away soon. There is a role for points program to play – the reason to use points instead of dollars is that points are fungible, giving you the ability to leverage the spread, and they are ultimately a score-keeping mechanism. That said, points programs come with their own layer of friction. Points never increase in value; they will always become devalued over time. By themselves, points don’t create sustainable lift. They also add a layer of cost from liability, training, fraud, and infrastructure requirements, which can make it harder to invest in other things. The act of accumulating and redeeming points also creates a lag in customers’ minds between their behavior and when they get rewarded. Today, it’s more important than ever to reward customers in the moment. Whether or not you choose a points-based loyalty model has a lot to do with whether you’re saddled with a legacy program, or have the opportunity to start with a blank slate. If you don’t have a stake in the ground with points, then you can think about a lot of different approaches that allow you to hit on more loyalty drivers than just hard-dollar rewards.
Q. What’s the single most important step marketers can take toward demonstrating loyalty to their customers and building a strategy around Loyalty 3.0
Rubin: It’s one step in two parts. First, figure out how to recognize customers and demonstrate your appreciation of them. It’s such a fundamental and simple step to take, and it doesn’t necessarily require crazy computing power. It’s an organizational mind shift that starts at the top. Second, If you can’t do anything else, figure out how to thank a customer. That gesture alone, if in the moment, will go a lot further than any kind of points accrual. It’s an immediate demonstration that you care enough to pay attention and to say thank you.
This content is sponsored by rDialogue. Download rDialogue’s “Loyalty 3.0” white paper here.