The Psychology Behind Customer Loyalty | David Parsons

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How do you define customer loyalty? Loyalty can help you acquire a new customer, get a customer to spend more, get the customer to stay longer. Loyalty does work and it can work if you get it right. And if you get it wrong, if you apply it in the wrong way, then David Parsons is an award-winning expert in customer loyalty and the CEO and co-founder of Ellipsus, a consultancy helping global brands optimize engagement through customer science. He's worked with names like Audi, Shell, eBay, Visa, and Australia's major banks.

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If you only did loyalty really well, you still would not be able to grow your brand. Loyalty plays an important role, but it's not everything. How have these brands outplayed each other when it comes to customer loyalty? In the case of Virgin, they're not as big as Quantis. They haven't been in the market as long. The way we think about is like if you're going to play Brazil in something, don't choose football. There's this concept called goal gradient theory. You know, the closer

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you are to receiving something, the harder you work. If you're almost at your like flight redemption or you're almost at gold status, you're like, "Ah, what do I need to do to get there?" You've got an intangible virtual currency that is worth more in the customer's mind than their own hard-earned dollars. Are loyalty programs strategically mapped to try to drive people through a structure? Definitely. We just can't tell any of the customers that, okay, they won't

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like it. This episode is brought to you by Wix Studio. So, to kick things off here for businesses stuck thinking that loyalty programs are just points and prizes, how do you define customer loyalty? Yeah, loy loyalty is a human thing. You know, we're loyal to our partners and our family and we look for loyalty in in others. It's it's it's an emotion and a behavior. It it it's an outcome often, you know, it's something that we look for that like, you know, is is a trait that that that is observed. But it's

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made its way into business and into commerce and into, you know, the um from the human behavior, I guess, between humans into what the way in which humans interact with brands. And so, um, you know, loyalty marketing is it's a relatively new phenomenon in the broader kind of consumer economy. And we're we have a great time working it all out, you know, like it's it's you're putting you're putting um uh consumer psychology and behavioral economics and uh a whole lot of other

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stuff in into um the way in which business businesses think about their commercial performance of their business. So with all that said, in the context of you know um you know a a relationship between a brand and a customer, loyalty is ultimately um customers you know spend more, they stay for longer. They um you know they they talk positively about the brand um and and they do in a very simple sense. they they they they have some sort of preference for um shopping with or using or buying that brand's products and

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services when they're in the category. So, it's a great it's a great topic. You know, who doesn't want loyal customers? How would you how would you rate or measure what is or constitutes a loyal customer? Well, that's you know that in and of itself is a sometimes major projects that we do. It's like uh what um you know what makes a customer loyal? Uh there if if you if you look at it very simply, there's kind of two types of loyalty people sort of like to think about. There's um you know emotional

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loyalty, you know, there's um how customers feel about a brand. Um how they might answer a survey or who are you most loyal to. Um it it it it turns up um you know and you're getting a bit bit deeper here. It turns up in in the way in which uh you know humans and customers uh create uh the mental mo models that that that they link to the categories that they um shop in. Um and and brand building is really important to be able to build that emotional loyalty. So, you know, we we want customers to have a strong

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emotional connection to our brands. I when I go overseas, I I always fly Quantis. Um I would never leave CBA. They're my favorite bank. You know, they help me buy my first house. There's a there's a whole lot of emotional connections that that lead to um you know, a form of loyalty. But we can't just rely on that. We um businesses are also looking for the second type of loyalty, which is behavioral loyalty. How do customers behave when it comes to spending their money? And so we're

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looking for both really. We want all of the customers wallet. We want all of the behavioral loyalty. They only ever shop with Woolworths or, you know, I I only buy my jackets from MJ Bale. Um but we also want emotional loyalty, which is um we've built those mental models and that brand preference. So, you know, um you know, I think the behavioral loyalty turns up in the in the P&L and um emotional loyalty is much more forward-looking. It's much more predictive. Next time this customer is

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in the category and you know, we've built those helped them build those mental models that build mental availability and brand preference. We know that next time they're in our category, as long as we're there for them, make it easy, then we'll get both. How do you define the difference between behavioral and emotional? Because I guess they could interlink a little bit, but how do you really divide the two? Uh, look, I think u behavioral loyalty is much more uh transactional. Okay.

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Yeah. Like you said in the P&L, it it it it's buy something, book something, spend something, there's an action, you know. Yeah, that's right. Yeah. Emotional loyalty is much more about how the it's about attitude and intent and and it's about um you know it's about um h how the the the mental models that customers build um that connect to the category that you operate within. Um so it's a bit more complex. This this is where we need to uh ultimately we spend marketing dollars

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to build mental availability which is you know connected to emotional loyalty. It's it's a lot harder to win when it comes to emotional loyalty because um you know um marketing budgets are finite. Um you know consumer um consumers are are are complex. You know they they they're exposed to lots of lots of different stimulus. So um you know I think that you need you need you need to have both. I think we we we really ascribe to some of the stuff that's come out of Erinburgg Bass, which

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is um brand brands grow because you build mental availability through um through branding and through finding lots of category entry points. So when you say mental availability, what do you mean? Yeah. So mental availability really is um you know there's a whole lot of debate and a lot of academia and a lot of uh uh focus in the marketing industry right now around you how do you think about marketing? How do you think about growing your brand? Um you know there's there's always been a lot of

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points of view out there around how do you most wisely spend your marketing dollars. um you know um there there's a concept of you know long and short brand building over the long term versus short shorter term activations. Um uh Byron Sharp would say that we need to build mental availability which is building the mental models and the mental structures that associate the brand that we have to the buying need when that arises in the customer's life. That's mental availability. So, for example, if

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I'm in a retail outlet and I was explaining this to someone recently, I was looking for a new TV just because I wanted to watch F1. So, I was looking at the TV section and I'm like, you have these options, these options, these options. You got, you know, Sony, you've got Panasonic, you've got all these other brands. And I remember just looking at all the stats and the data and just getting overwhelmed like, man, which TV do I get? Because if I'm going to buy a big one, it's got to be a good

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one. uh and I want to make sure I get the best possible, you know, FPS and all the rest of it. And I just remember going through my mind, the first thing was like I experienced overwhelm. Then the second thing is I went back to familiarity. I was like, okay, I know Sony, I know Panasonic. Uh the third step I went through cognitively was like, okay, cool. Like I'm going to go back to size, which is I want a big one. Uh and then I looked at price, but I imagine not everyone had the same sequence. So when you're looking at the

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behavioral models of the the I guess the steps someone has to go through to make a purchase, how do you guys analyze that for for a big company? There's a lot to unpack there, right? Let's go down the rabbit hole. There's path to purchase, right? There's brand consider there's considerations and the category all like categories there's variations by category. When it comes to TV, I think it's quite like price drives some of that decision quite a lot. the technical specifications.

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I mean, people have worked out with TVs, they all come out of similar factories, right? So, there is a brand element to it. Um, you know, and and in in in our world, there's there's lots of ways to think about customer behavior. We we we have uh our philosophy, which we call customer science, and we're very data driven. um we we actually pay more attention to behavioral outcomes and behavioral loyalty, what our customers do as opposed to what they say. Um and so we start with we start

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with behavioral data. We we we collect as much information as we can about the the customer and the business and the relationship and we have a whole lot of statistical techniques and IP that we apply to that to be able to unpack what creates the behavior that we're observing. We we then we would then apply uh other forms of customer insights, research and focus groups and other other studies that are more qualitative to that. Uh and that gives you the the full picture. It allows you to unpack um you

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know what what customers say around what drives their preference, but then it allows you to look at what actually happened in in reality. Do you find that there's a disparagement between what customers say and what they do? Massively. Hugely. Um there's there's a thing called the say do gap. Really? Yeah. I say this and I do that and they're different. That's the say do gap. Uh and it turns up all the time. Uh and loyalty is really really interesting. So when when you when you

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do a a survey about loyalty, it it is actually probably the sad do gap is is at its most pronounced because we all we would all answer surveys like we are rational beings like we are very smart and we don't do anything irrational. Um you know we would always you know we manage our money well we don't accumulate debt on our credit cards. be always by the, you know, the smartest choice when it comes to certain things. But then you look at the behavior and it's very different and you say, well,

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what what's driving this? Um, it's the emotion. It's emotional loyalty. Actually, we're not rational. We answer surveys rationally, but we act sometimes irrationally. And it turns up in loyalty the best, right? You could get a cheaper flight with Jet Star or you could pay a lot more just to collect your Quantis points. And people say, "Oh, you know, I'm going with Quantis because, you know, I didn't really like that flight time." And there was all these excuses,

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but it's really like, "No, no, I you know, I I would say that I'm always smart with my money, but at the end of the day, we can get um uh customers to behave in in irrational ways, and that's what we're looking for. Otherwise, all brands would be the same. Pricing would have to be the cheapest. You know, there's got to be um intangible factors that come into these relationships. So when it comes to loyalty research, if you asked people or your customers what sort of loyalty program they wanted

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through research, they would tell you the cheapest price, best specifications, um you know they they you know the best deal all you know quite um uh rational answers. But when it comes then to uh how consumers respond to programs and propositions and and more broadly how they act in general, what we find is that they don't act that way. Right? Okay. And this is this is a bit of a Steve Jobs phenomenon, right? You know, if if if he he didn't ask people if they wanted an iPhone, right? He told he

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built it and he said, "Hey, what do you think?" So, um that's that's in our business. We're we're we're spending a lot of time helping banks and retailers and airlines and and insurance companies and entertainment businesses and they're looking for advice in terms of how do we engage customers? How do we build those mental models that we're looking for? How do we differentiate ourselves? And so um we got to be a bit careful how we go about that because if we just ask

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customers um we'd be answer we'd be answering to their rational views of the world. And the trick here is to be able to balance um rational thinking with irrational thinking. in terms of coming up with programs that inspire behavior change. Business owners, if you're stuck using one platform for every project, you're probably stuck in a growth bottleneck. More clients means more hires, which just adds noise and cuts into profits. To break the loop, you need flexible tools that don't stretch your resources.

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is a lowmaintenance platform, meaning you can redirect the client budget towards real growth initiatives. Think more value for clients, steady income streams, and stronger relationships. To get started, simply go to wix.com/studio. What's one of the weirdest things you've found with irrational buying behavior? With with rational, rational or irrational or maybe a disar. There's classic stories out there and I've done it. Uh, I I went on a I went I I booked an expensive flight that I didn't need

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because I was one short of getting a status upgrade into platinum. I can't remember what the price was. Maybe it was 500 bucks. I I mean, I could have bought lounge access for the year for the same amount. Like that's and that's the main thing that you're getting, right? You're getting But you wanted that you wanted the the I wanted the status, man. You know what I I was like, it was important to me to kind of and so people do this like they they they they they take flights that ar are not

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necessary or they'll buy really expensive airfares just to kind of get that next next level of earning or accumulation or or status. Um that's totally irrational. No one no one would say that in a survey that they would sort of waste their time and money to sort of get an intangible sort of recognition uplift. I can imagine someone like submitting like I did this because I just wanted the dopamine hit. Yeah, that's right. That's right. And we look we we see it all the time. And I

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think that brand brands um if you look at those high margin brands or sorry brands with really good margins um in the in the beauty space in the cosmetic space in the fashion and the apparel space their cost of sale their cost of doing business terms of the manufacturing the product. It's all very similar to much sort of lower cost lower margin operators. And what they what they're really good at is they they put a lot of they build a lot of value into the intangibility of things like brand

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and and reputation and quality and those sort of things. So um you know they do it really well. They they they want customers to feel like it's worth paying extra for something because of that intangibility as opposed to say a rational a rational sort of answer. I had seen this statistic around Luxodica which makes most of the glasses in the world. I think like 76% of the glasses frames in the world are made in this one factory. Yet the disparagement between, you know, the cheap glasses and

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the expensive ones are massive. Obviously, they probably use different acrylics and materials and things of that nature, but it's the same factory and a different brand. So when you talk about this gap, if if we're operating in a market where everyone's kind of spending the same money on a beauty product, but one brand's making 10x what the rest of the brands are making, how do they start to actually cultivate a loyal fan base? Like what are some of the key fundamental things that a brand

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should be considering when they're doing that? It's really interesting. I think it it it depends on the category as well. Like I think part of it is you know um uh you know in sort of more utilitarian categories like you know insurance and and grocery and and uh uh some some other retail categories. It the the the the factors are things like you know price and location and service and their hygiene factors. Um what do you mean by hygiene? Uh look there, you know, all all all retailers um and this is a bit different

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for other types of um you know manufacturers, but retailers generally worked out and and the kind of the rules of thumb for retailing is the top four or five factors when it comes to purchasing decisions are things like um you know location. Are your stores in the right location or is are you easy to shop online? Price always matters a lot. Service is important. range and then things like, you know, loyalty benefits come in, you know, is a good loyalty program and what benefits do I get and um, you know, um, you put those things

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together and then you look at them and they rank sometimes differently depending upon like right now in Australia and most markets cost of living means everyone's really looking for value. So, value is like number one across the board in in in a lot of sectors. You know, that's what's driving people's decision. I'm happy to move away from a brand I've always shopped with because I get a better deal over here. Okay. But in other times, it's different. Right. So, you have to be

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aware of the climate or the weather of the market. Y and that can fluctuate how people behave. That's right. But outside of those outside of those types of industries, I think it's a it's a fascinating um challenge which is how how do luxury brands and how do other brands uh bu build that um you know that uh differentiation? How do they build premium pre premiumness in the in the offer? How do they build uh distinctiveness? Um you know I think I think the one of the things that matters a lot and

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there's a lot of debate here around like is it what's more important being different or being distinctive, right? And and you know I certainly believe in the distinctiveness better. It should you shouldn't be different for the sake of being different. You know I think that you can be sort of similar but distinctive as opposed to um you know h having to be different for different sake. But I I what I see is um brands that do this well, they they they tap into and stay um connected to culture.

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They actually like those brands that you sort of I think referenced around their premium and high margin. Um they're they're cool brands and that's a really like intangible thing. How do you how do you build um uh you know how do you connect into culture? How do you build something that's that's that's cool? You can differentiate it through the product like Apple's Apple, you know, and Tesla for a while there. And there's a bunch of other brands that are cool products,

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but they're really cool brands. And that's where it comes down to marketing, right? And so traditional marketing was all about like, you know, building brand and building, you know, um, uh, differentiation and and and, um, standing for something with with customers. Lo loyalty fits into that. If you if you look at um uh how brands are using loyalty now, they're actually pulling it forward into into their uh brand CVP. What do you mean by that? Well, if you think about the relationship that you have with an

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airline, for example, you don't think about the plane, you think about the frequent fly benefits. Yes. Like that's the platform that for the relationship that we have, you know, with some of these brands. Um and and this is I think where it's really interesting in loyalty how um you know it always sat sort of a bit separate from the brand or a bit behind say the the brand but increasingly what we're seeing in a lot of our clients industries loyalty and membership and subscription type propositions are

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becoming almost like the front door. They're becoming like the at the front of the relationship that a brand will have with its consumers. So over time you feel like it's moved from the back to the front. Definitely. Yeah. And do you have an example of this or or a reference? Uh yeah, I think like if you look at say take take Commonwalth Bank uh crazy valuation. No one can explain you know why their valuation is so different to every other bank. Um but they've done a really good job of

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creating these sort of like customer flywheels. They're connecting their their their consumer uh retail bank customers to their business and corporate bank customers through loyalty and reward mechanisms. They've got credit card programs and they've got other cashback programs. They've got a unified recognition program called Yellow. And so they're actually like you go to the website now and and they're actually, you know, um one of the hero benefits of being a CBA customer is you get all these benefits

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because you're in this kind of recognition program. Um, and the pitch is really interesting to the customer. It's like you get better deal, you get better value, you get better service, you get better everything because you give you you give us more of your business and we'll recognize you better. But the pro but the proposition to their to their business bank and their commercial bank and their enterprise customers is, hey, we've got a big audience here and if you bank with us,

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we'll help you sell more to our big base of retail customers. So they got this really nice flywheel connecting the retail bank customers to the commercial and business bank customers and it just creates this massive kind of like uh sort of uh flywheel of value. Now when you were talking before about you know people's um irrational brain and their kind of rational brain where they're kind of at odds with each other and there's a bit of a gap between what they say and what they do. How can someone

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start to identify what the irrational part of their market might be? Yeah, really interesting. I think the uh you know I think I think this is where customer centric ways of uh you know like the the philosophy of how how do we how do we um how do we think about product and services development? Uh traditionally everything's been more productled. build great products and then go find people to sell them to. And uh you know it was it was like my business partner Tim Tyler who's a a real legend of the

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CRM loyalty and customer centric customer experience industry. He he worked with Don Peppers and Martha Rogers for a while and they they kind of invented like this concept of you know onetoone marketing where you start with the customer and then you work back from there and you say well what needs what needs I've got a C I've worked I've worked hard to to to to acquire a customer. what other needs can I be meeting? And so, you know, when we think about then like how do we connect um you

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know, the the rational and irrational sort of parts of our brains, how how do we, you know, um build those mental models that drive brand preference? I think we need to start with the customer and work our way back in into the business and and that's where things like um you know, value proposition canvases are quite interesting if you're familiar with those. No, please do. Uh so we use these in our um strategy development as one of the kind of many tools that we use. Value proposition canvases are quite interesting. Um you

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know you got to start by identifying uh different customer segments and that that in in and of itself is not always easy to do. How do we how do we sort of think about the types of customers that we have and group them? And we do a lot of sort of um data science on that clustering sty style analysis to be able to kind of determine you know from and we what's really important is customer value. So you know who who what are the what are the segments or clusters of of of of you know what what are the um

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segments or clusters of customers look like ranked from most valuable all the way down. And then you start to say okay well how do we sort of define those but um the step one is to identify your customer segment and then your customer segments then what we want to do is we want to look at um you know what what are the jobs that they're looking to get done what are the pain points in that in that experience and what are the gain creators that we could bring into that. And so there's a fair bit of work that

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goes into mapping that and identifying it. And the other side of the canvas is the business canvas from the customer side. And the customer the business side would be looking at what products and services do we have or what products or services might we develop to meet those jobs to be done. And then how do you how do you how do you create experiences or solutions to the pains and the gains and it's a it's it's a it's a it's a nice little model. It forms part of a broader um kind of strategy canvas that we often

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use. But it it helps you take a customer centric view toward product and services development and experience design. So if we take an industry like I guess airlines and you have a look at something like Virgin compared to something like Quantis, they both arguably have the same hardware, the same technology, the same staff expertise, the same terminal, the same airport, the same qualifications for the pilot, the same kind of food that rolls out when you're in a space where your competitors are arguably doing the same

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thing. So like if you're a law firm or you're a financial broker or you're a real estate or what have you and you're across the board that you really don't have a lot of room for differentiation, how have these brands outplayed each other when it comes to strategy around customer loyalty? Well, I think I think loyalty then becomes a really interesting new set of levers to bring in to help brands uh where there is that commoditization and undifferiation in that duopoly context. If you think

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about Woolwards and Coohl's, if you think about, you know, Quantis and Virgin, they they don't really like the other player to have to be good at something that they're not good at, you know, there tends to be a lot of um table stakes that needs to be matched, you know, and so we see a lot of I wouldn't say it's imitation, but you see a lot of um moves by each player to ensure that they're not worse off on something that customers care about, which is why if somebody one of them

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joins launches a loyalty program, so does so does the guy and that's been pretty good for us because now everyone's got loyalty programs everywhere. The problem is half of them don't know most of them don't know if they're working properly. Um and uh you know it's it it you can't just leave these things static. They've got to improve and and and so there's a lot of focus on how do you make them better. Um but I think this is where it comes down to where where where do you want to play

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and where can you win? In the case of Virgin, they're smaller than Quantis and we we're good mates with these guys. Um they're they're not as big as Quantis. They haven't been in the market as long. They haven't spent as much money um you know building the brand and and uh you know building great government relations and doing all this. They've got Corner's got a massive head start. Their frequent fly program is one of the most profitable globally. So when Virgin

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comes along and says well we want to be able to compete in the market. we've worked out where we where we want to uh where we want to play. The loyalty program is quite important in that, but they they can't out Quantis Quantis when it comes to their program. They'll always be, you know, if they try to do the same thing that Quantis is doing, that Quantis will always say, "Yeah, but we're a bit bigger. Yeah, we're a bit better. We're a bit, you know what I mean?" So, you can't compete in the same

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in the same um on the same dimensions. And I think that there's the way we think about is like if you're going to play Brazil in something like don't choose football, right? Pick another sport where you can win. And that's where I think Virgin and and some of these other brands that are in that environment that you talk about, they do a really good job of of of of of meeting the table stakes that customers care about. If they need points, they're good points. You can redeem them for great

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rewards and you might have status benefits because that's important. But what you're trying to find areas that um that a bigger competitor can't match you at that customers will care about that make you distinctive that give you some competitive advantage. Uh and it's an easy thing to say. It's hard to do. Um, but sometimes you've got a tyranny of scale. Like if you've got really rich reward seats on offer um and and you force Quantis to match you on that, it cost them a lot more money just because

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of their scale. So this this is the nuance when it comes to loyalty strategy and proposition development that um that I guess it's why we exist because that's a big part of what we do is we help help big businesses work through the complexity when it comes to how do we build something that works commercially but it's also tied back to our brand differentiated from competitors but still something that clients want. Um you put all that together it's gets really fascinating. I think it's I think

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it's incredibly interesting how you know a company that might have less resources than another can kind of outwit or outsmart or out maneuver not directly but indirectly through other means. When you look at other brands like like if we look at Woolworths versus Kohl's and do you see any disparagement there or is it the same kind of thing because they're a duopoly they're just trying to match each each other's table stakes? Uh yeah look that's another highly competitive sector isn't it? Um, I think it's I

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don't think it's true anymore. Uh, but you know what what what was said was that nine out of 10 customers or households cross shop between those two brands. I do. Yeah. Yeah. So, you're not you're not trying to win the customer. If you if you're if you're an energy company, so your AGL every once a year you get a shot at the customer, right? cuz there's like the the price of energy goes up or the renewal comes through or there's some moment where the customer is like ah I probably should shop this

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around. So that's your moment. So that that that that the creating category entry points when the customer might think of alternatives to AL if they're an AL customer is very different to if you're competing because you're making daily decisions versus car insurance is annual uh electricity is annual. The frequency matters a lot. Yeah, the style of the relationship matters a lot. So, you know, in um in a grocery context, um you're fighting for every trip. In fuel, you're fighting for every trip because

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when you get to like 3/4 of the way empty, you're like, I better get some petrol at some point. Oh, oh, well, there's one there. I will just go now. That's one that's one type of behavior, isn't it? The other one is, oh, no, no, I get my quantis points at BP, so I'm going to wait until I find a BP. Um, so that that's a good investment from BP. Even though it might be a bit expensive, they always know that the customer will wait to find one of their stores before they fill up. Um, so in in

00:31:36 - 00:32:29

in a in a grocery context, as you as you mentioned, I think where loyalty comes in is that you you tap into some of the consumer psych consumer and loyalty psychology. Uh, things like um loss aversion matters a lot. So if you're going to miss out on something because you change behavior, you you ch you you behave in a particular way. um you know the closer you are towards a reward there's this concept called goal gradient theory which is you know the closer you are to receiving something

00:32:02 - 00:32:58

the harder you work you notice that like if you're almost at your like flight redemption or you're almost at gold status you were like ah what do I need to do to to to get there and if you've just redeemed and you got no points or you've just been upgraded into a tier and you got a year then you go I can take it easy now I don't really have to do anything I can just worry about that later so yeah this All of the con the the consumer psychology and behavioral economic factors come into this as well.

00:32:30 - 00:33:32

Are loyalty programs strategically mapped to kind of have these junctions or these checkpoints to try to drive people through a structure? Definitely. Yeah. And how do you think of that? Like so if we just can't tell any of the customers that, okay, they won't like it. metaphorically speaking, if you were to create one, um, how does that work? Because I understand like, for example, I've already put my credit card in. What's another 15 bucks? But then that turns a $200 purchase into a $700

00:33:02 - 00:34:06

purchase just because you've incentivized those little nudges along the way, isn't it? Nudge them along the way. So, like, how do how do these big brands leverage that kind of behavior? They learn a lot. They'd learned a lot from people like casinos and uh you know those those that like ser seriously the these are all um uh deliberate tactics to get the customer to pay attention for longer and to upsell them and to maximize share a wallet. And um you know when you when you get the designs right and you get

00:33:33 - 00:34:47

the mechanics right the these sorts of uh uh treatments and offers and incentives they have a massive impact on changing customer behavior. So in that example, if that's true, your ATV went from 200 to 700 because of, you know, these extra nudges. And if you do that, if you do that in a in a smart way, your margin increases significantly as well. Um, you could offer for for an extra, you know, for for that next purchase, you could offer a really rich discount. Um, or you could offer other benefits,

00:34:09 - 00:35:09

right, that loyalty type mechanics. um uh offer you beyond just price. And so when you get this stuff right, you're tapping into, you know, um relatively predictable consumer psychology that results in much better commercial outcomes in terms of, you know, spend stimulation at better margins. It's just, you know, gets in, you're getting into complexity here because you've got digital experience design, you've got product strategy, you've got marketing and promotional levers all working in

00:34:40 - 00:35:29

concert. Not all customers are the same. So you you got to be able to personalize and you got to be able to work out what's going to work for your types of customers that you have. There's also brand implications here because some brands will never discount. So how do we kind of do things that don't look like a discount? And so it's it's actually I think I think that I think a lot of the the loyalty and reward mechanics that come out of traditional loyalty constructs, earning points and redeeming

00:35:04 - 00:35:56

them are now turning up in the experience that you're describing. It's not a loyalty program per se. But you're you're connecting incentives to uh behaviors that um to drive the commercial outcomes you're looking for. That's what we're looking for in loyalty ultimately. Yes, we want brand affinity. Yes, we want emotional connection. Yes, we want advocacy. Yes, we want those mental structures and mental availability developed. But ultimately, as I said before, you do that well, it's

00:35:31 - 00:36:30

sell more to more customers more often for longer at better margins. And hey, who doesn't want that? Who doesn't want that? That's right. Yo, my name is Dane Walker and I am disgustingly obsessed with branding. I had to figure out a way to do branding every single day. So, I branded myself. Then I started my agency, Rival. And hired a team of branding mavericks hellbent on creating brands so good that they'll make your competition their pants. So here's the thing. You want your brand to go viral and Rival makes

00:36:10 - 00:37:07

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00:36:39 - 00:37:42

I'm thinking back to my mother when I would grow up. She would clip coupons out of the mail. So did my grandmother. um you know these points, these perks, these programs, are they enough anymore or are brands needing to branch out and get more creative in order to get the the benefits? I our view observe what's going on in the market. I think I think modern forms of um loyalty and incentive and sort of uh variations to those sort of promotional programs have proliferated because they work when you get it right.

00:37:13 - 00:38:15

Um yes we have to have good products. Yes we have to price them well. Yes we have good experience. Um we have to build good brands so that we're we're um you know we can be distinctive and we can stand for something and we can attract premium. Um but but ultimately you know over over the last I would say probably 30 40 years we've trained customers like customers are we we we humans we we adapt don't we? we learn. Um we've worked out actually, you know, um there's a game to be played here. And

00:37:44 - 00:38:50

so if I play the game, you know, there's the business, the brand gets something out of for me. I spend more, I buy more often from them, and I expect something back. So if you look if you look at um you know uh airlines, big grocery retailers, lots of apparel brands, uh in in fact most most kind of industry sectors, they're all experimenting with these sort of new types of propositions. Uh with AGL Energy, an Australian energy company, you get Netflix with the Netflix plan. And why do they do that?

00:38:17 - 00:39:13

Well, they they they buy Netflix wholesale rates. They offer it to customers. And those customers, they stay for a lot longer because if they switch off the energy, then they have to go and go through the hassle of you know, doing the Netflix on its own. Um, if you if you look at uh, you know, Walmart and and uh, a lot of the big UK UK grocery retailers and a lot of the Aussie grocery retailers, they've built they've built paid subscription programs and member pricing and, you know, a whole lot of a whole lot of uh, uh,

00:38:45 - 00:39:36

those sort of propositions into traditional grocery. And so, uh, it's interesting and I think what's happening is it's proliferating into the mid-market. The these big guys have the resources and the capabilities to be and and they're experimenting with this stuff. A lot of our, you know, uh, retail clients and a lot of other clients, they're saying, "Hey, you know, how do we take those learnings and bring it into our business?" How can someone who's I guess early in business or you

00:39:11 - 00:40:19

know established their first one or two million and maybe they're an e-commerce or maybe they're a service-based provider. How can they start implementing this stuff into their businesses and into their services? Well, I think at the extreme some of these businesses that start they they actually create a business because of some of these models. So, if you think about um uh uh let me think of a good example here. Um you know, there's a there's a there's a there's a quirky little company that

00:39:44 - 00:40:40

that that's that's disrupted the whole sock industry. Okay, let's pick a real let's go quirky one, right? And their whole business, right, is called the sock scription. Okay. Okay. And so if you think about like paid loyalty programs, uh what they've said is well rather than being a paid loyalty program, we're going to be a subscription style retailer of socks. And what they're doing is they're targeting, you know, bloss. We hate going sock shopping, don't we? I

00:40:13 - 00:41:09

hate sock shopping. No, man. Like we just do we do it in one big go and then they only buy 40 pairs and then they all go ratty at the same time. And the key is to buy the same ones. So you don't ever have to match pairs. They all just match. Right. So, the sock the sock subscription is you sign up, you know, and and uh you pick the pick the frequency and you always just get, you know, like a a regular refresh of socks. I'm sold and it's always on, right? And you're not really worrying about price and it's

00:40:40 - 00:41:40

just it's just um linked to your card. Um and if you think about the lifetime value that they can and the recurring revenue that they get out of that um it's huge. So that that's a startup that sort of has sort of built a business model around subscriptionbased uh businesses and and uh and and how they turn up in loyalty. So So it's interesting. I think it allows us to rethink uh the type of business model that we can bring to market. The the other thing that's um really interesting, we we run a business called

00:41:11 - 00:42:22

Loyalty Central. It's the think about it as the Google homepage for loyalty solutions. In Australia, there's about 190 platforms selling into loyalty managers. The the Australian loyalty industry is about 8 billion. Uh you know, maybe um maybe 80 to 85% of it makes its way into the hands of customers through rewards and gift cards and discounts and promotions. But there's a there's a billion and a half to2 billion dollars at play in infrastructure. And this is what's really interesting.

00:41:46 - 00:42:45

Like my business, we we kind of invented the loyalty consulting category when we started 11 years ago. Um and and over that last say 11 years or so there's been this proliferation of capabilities that have been built out as the as the kind of like uh you know the loyalty management ecosystem was like pulled apart and and uh you know specialist players entered and innovated. And what that means is if you're a even if you're a relatively small business, you you can actually get worldclass uh really

00:42:16 - 00:43:12

innovative capabilities today because of the it's never been a better better time to buy the sort of capabilities you need to run these sort of things. So if someone's let's say you know an established business, let's just pick ecom as a category. You've got a great example now with sock subscription which um I'm going to sign up for. um what are some of the fundamental like pillars that people should look at like what are the the different ways by which someone can inject loyalty?

00:42:45 - 00:43:45

That's a really good question. I think you know a lot of our briefs are um we've got a loyalty problem. So loyalty problem is uh we we think our customers are churning too much. Uh so they'll buy once but they won't come back. Yeah. we're not they're coming in once and like lots of categories have high onetime rates. Um but the way in which loyalty problems turn up is there's there's there's headroom in the customer base that we're missing out on because the customer is buying from our

00:43:14 - 00:44:11

competition. They're not coming back. Um we've got diminishing metrics around customer value. And so they say, "Hey, we've got a loyalty problem. We need a loyalty solution." And so the the the the danger is to just assume that a loyalty program is the answer to that. It's it's it it often might not be uh there could be pro product price service there could be a whole range of other issues that are causing this loyalty problem. So we do a lot of diagnosis to ensure that the customer really

00:43:43 - 00:44:47

understands what's driving the problem and then fix that. Right? And if a loyalty strategy or a loyalty solution or program is is the best answer to that problem, then we we we we then would help help a client develop an appropriate plan for them. And and the simple steps are if you if you take that customercentric philosophy that I mentioned before, start with the customer, work out the behaviors that you're looking to incentivize or or change. Um then you got to work out what sort of incentives are available or

00:44:15 - 00:45:12

appropriate to be able to inspire that behavior change. Then you got to work out well uh what sort of value pools is on the table when it comes to that behavior change. If x amount of customers did one more basket churned less whatever that metric look like what's that worth? What sort of incentive and infrastructure do I need to run it? Does that business case make sense? Um and then how do I implement that? So there's a bit few steps that you need to go through, but what's true about loyalty is best customers will

00:44:43 - 00:45:31

always play. And so you have to get it right because if you don't and then you have to change it or you have to pull it away, you're pissing off your best customers first. And so that that's where our sort of expertise comes in. We're a bit of a sort of a pinch hitter specialist when it comes to working through the diagnosis and the strategy development, but we're also a big insurance policy to make sure that you don't do the worst thing, which is you're trying to fix one problem and you

00:45:07 - 00:45:56

create another one. So, if you have a let's say you pick a a makeup brand, I don't know who who you've worked with, but let's pick someone at the high end and someone at the low end. Yeah. You're saying that it could be just a foundation, but one client will spend X, the other client will spend Y, and they're moving the same volume, but one's making way more money because they've established some kind of loyalty program. And there's probably spending a lot more on marketing. But we we've we

00:45:32 - 00:46:46

work with Estee Lauder globally extensively and across across all of their brands. And even within that portfolio of brands, you've got big differences in terms of price and margin, etc. Um so uh you know th those sort of the programs in in that in those industries and and many others actually work best and the focus is always on uh heavier heavier buyers um higher value buyers first and then we work our way down the down the the the value tiers um to spread more of our loyalty investment once we feel confident that we've locked

00:46:08 - 00:47:19

in our So getting specific making sure we at least win that cohort. Yeah. And focus on the next. And it this comes down to uh you know the whole paro principle in in business and in retail. What what's that? Sorry. So you know about the paro principle. Okay. So the so a paro curve um it it it looks at the ratio between um you know um the in the in the case of loyalty and customer marketing um it's the ratio of of customers to the proportion of customers to the proportion of revenue and and and

00:46:43 - 00:47:53

the a rule of thumb in some industries is that uh 80% of our revenue comes from 20% of customers. So in a really simple sense, I could just focus on those 20% of customers and I will protect 80% of my revenue. U and that's where loyalty kind of started out. What do we need to do to um you know pro protect and preserve our our more valuable and high high value customers and if we do that well we'll always make sure that we've got a large proportion of our revenue protected. Uh the challenge is is that the paro curves

00:47:18 - 00:48:24

aren't always the same. In in some industries um you might have 90% of your revenue coming from 10% of customers like in wagering and even in credit cards and those sorts of things. So it's a bit easier because you actually you you only really need to worry about a smaller percentage of customers to preserve all that revenue. Um but there's a lot of myths around you know the application of paro curves and is it really 8020. Uh what what we see more routinely in retail is that about um you know 60% of your revenue comes

00:47:51 - 00:48:48

through around 40% of customers. So you need you need to be able to work harder at at at a broader cross-section of the of the of the customer base. But the it's it's a really I'd encourage anyone who's thinking about their business and like customer loyalty and um differences in customer value to start to think about what does their parto curve look like? Like how concentrated is value in the customer? If you're Netflix or a Netflix style company, everyone's kind of similar in terms of value. Loyalty is

00:48:20 - 00:49:09

hard because to make it work, you've got to you got to give a smaller amount of investment back to a lot more customers. Whereas if you've got concentration of value and you've got like a smaller number of customers delivering a lot more of your revenue, well, you've got a bit more leverage and latitude to be able to do something a bit more unique because you know those heavy buyers, those more higher value customers are the ones that we need to preserve to be able to, you know, put a put a bit of a

00:48:45 - 00:49:34

mode around the core part of our business. Well said. I I think it makes sense to me because oftentimes business owners aren't really aware of this stuff. In my case, when I meet people sub a million, they're like, you know, when I ask them, who's your target customer? They're like, everyone. Then you look under the hood and you start to realize that, okay, majority of your revenue actually comes from over here. And it's like a shock for people to go, wow, I never thought of it this way. Um,

00:49:09 - 00:50:14

but I can imagine at the top of town, this is this is common knowledge. And I think for those that are starting a business, they can they can think of it that way. Coming back to how you were talking about customer loyalty, what are the fundamental steps because you you have a bit of a process or a framework around which customer, which behaviors, desiraability, viability, feasibility, you have the DVF analysis, return on loyalty and so forth. If you don't mind unpacking that just to take me through like kind of the process or

00:49:41 - 00:50:43

the framework or the conveyor belt you would take someone through. Yeah. So, there's a lot of acronyms in there. Take me in, man. Let's go. Yeah. So, you want to go We'll go into some of this. Um the steps that we would recommend clients go through when it comes to um building out a loyalty strategy ultimately is um you got to be really clear on the the why. What are the objectives? What's the ambition look like? So a real sort of clear sense of purpose around you know what what are

00:50:12 - 00:51:02

the what's the opportunity or the problem or the the sort of um you know the the output that you're looking for. So you know we we spend a lot of time helping our clients be really clear on the problems that we're we really want to solve and the priority for those because otherwise we're trying to do everything and you know there's there might be better things that could answer other challenges or opportunities when it comes to the process of actually putting a strategy together. um the that

00:50:37 - 00:51:55

the that that desiraability, viability and feasibility um sort of an uh uh acronym DVF has sort of proliferated now in into business and most pe a lot of corporates would understand what this is. Um to to simplify it, the the desiraability lens is that CVP customer proposition assessment. It it it's it's answering the question that is this desirable is this thing desirable for our target customers. And so a lot of work goes into developing propositions and campaigns and offers to be able to come

00:51:17 - 00:52:24

up with something that customers are going to respond to and say, "Yeah, I I like that." And so even just even inside that whole desiraability kind of work stream, there's a lot of kind of heavy lifting that goes into the creative and and uh sort of innovative the the innovation and creativity to come up with those sort of scenarios and options. Um the challenge of course is that the most desirable propositions will probably cost you the most. Make the product free. That's extreme, right? That is the most

00:51:50 - 00:52:38

desirable thing you can do. but you go broke, right? You're never going to do it. So that's why we need other kind of guardrails and other perspectives to balance. So before before we move on, like when you say desiraability, um is that like through price like you said or is that also products? Like what exactly could that be? Well, this is how you set it up. This is defining the guard rails for how we think a customer might perceive the desiraability of the proposition or the from their

00:52:14 - 00:52:58

perspective. Yeah, that's right. And that's where we've got to get into data analysis and data science. We've got to get into a bit of qualitative surveys and focus groups. Like it's really important that we understand that customercentric view of what is it that's important to them to be able to um stimulate the behavior change that we're looking for. And if you get that wrong, if you get that wrong, you end up with propositions that customers don't care about. So even just getting that

00:52:36 - 00:53:33

piece right is critical. Yeah. Otherwise, you end up investing money into a program that doesn't work. Yep. Doesn't get adopted. So the next thing you said viability. Yeah. So the viability is is an economic perspective. So is is running and and and operating and and uh sort of offering this to customers economically viable? And so this is where we look at you know and we we use um you know we've got a whole lot of uh really good IP and uh you know finance commercial modeling. We've got a

00:53:04 - 00:54:09

whole lot of uh platform capability and return on loyalty as a as a distinctive kind of uh you know sort of uh almost patented capability that really helps us give our clients confidence around how much this is going to cost and where the incremental value pools are in terms of um the returns. So this the second perspective is we've got a set of we've got a set of propositions or loyalty strategies that we think sort of meet that desiraability context. Let's have a look at the economic lens. How much are

00:53:37 - 00:54:35

these things going to cost and what sort of returns are we going to get? And that that helps us say well you know um you know we ultimately we want to have the most desirable style propositions that work the best for us economically. So that's why we need that's that's that's two of the three lenses. And the third one you said which was feasibility. Yeah. So feasibility really is how do you actually run and operate this thing. So if we take a hypothetical example we could have like a wonderful uh loyalty

00:54:05 - 00:55:07

proposition and construct that looks fantastic when it comes to the economics really cheap to offer great returns but it might mean there's a three-year investment in new capability and platforms and integrations and systems and we can't wait that long. So whilst it looks great at the desiraability and the viability level, it doesn't pass the feasibility test. And so feasibility is all about like efficient operation of the, you know, of the of the program and of the loyalty strategy. So it gets

00:54:37 - 00:55:28

really interesting then because it's like where do you start? You know, you got to kind of look at all three in concert. You got to kind we always work with our clients and we say the job here isn't to just you know create a three to five year um tech transformation just because you want to be able to do enhancements to your loyalty constructs. Sometimes those things are needed but we always start by saying what are you good at and what capabilities do you have today? Sort of start there. Um you know

00:55:02 - 00:55:50

it's it's also really important that you look at the viability context early. Costbenefit analysis and value pool modeling. you say what is is is is there sufficient money for out there for us to go after and what do we think that might cost and is even that palatable have that conversation early and that that's where I think these things working in concert they give you I wouldn't say it's like a balance it's it's not a balanced scorecard but it is more of a balanced scorecard in terms of those

00:55:26 - 00:56:30

three perspectives that you got to get right now when you're taking the DVF analysis what kind of data points are you really looking at on the desiraability front it's it's a bit more qualitative but it turns up more quantitative when you're doing customer testing and research. Uh our philosophy is that you you need to you need to um um have good customer inputs and insights at the commencement of these things. Are customers happy? What do they care about? Uh what are the category nuances that matter? There's a

00:55:58 - 00:56:50

whole lot of like inputs into how we might think about um an assessment of desiraability as one of the one of the sort of lenses. Um, but we don't ask customers what sort of loyalty programs they want early on. We we there's two sort of almost two steps to that customer testing. There's kind of customer inputs and and and insights that guide the proposition development and then there's customer testing of those propositions to be able to refine and optimize. So that that there's

00:56:24 - 00:57:18

there's more and there's a whole really important layer of behavioral data science there that that brings that behavioral analytics in to complement the qualitative. That's how we avoid the say do gap. Okay. Yeah. So you got to put those three things together. That's in desiraability. So then do you have an example of like you actually applying the DVF in in a particular case? Uh yeah. Well, we use it quite routinely and it it doesn't always turn up exactly like that. I mean

00:56:51 - 00:57:56

I I think like a a proposition economic and operating perspective is is inherent in all of our work, but um you know we we've um we've done quite a bit of work in the health insurance space. some some years ago, we we designed a um you know, help help uh Medybank bring their proposition to market and it's it's a great program. It it's it's distinctive. It's built on some best practices that have come out of um really successful propositions like um like uh you vitality out of South Africa but but

00:57:24 - 00:58:18

health insurance tough thin margins you know um lots of regulation and all all health insurance face into this which is uh how do you kind of create value in that relationship? How do you build something that's different from the traditional health insurance model which is we're here for you when you get sick or something bad happens but do it in such a way that like there's meaning meaningful value on the table for the for the customer. So you know that programs like live better work really

00:57:51 - 00:58:45

well because they're partly funded by the by the core brand and they've got lots of partners in there. Um and so it's a really desirable proposition. It gives Medybank a lot of distinctiveness when it comes to helping you live better as opposed to helping you get better when you get sick. Um, but they've been running it now for many years. So clearly the economics works. And so this is a good example where there's a whole lot of modeling and data science and actuarial kind of work that

00:58:18 - 00:59:22

goes into the assessment of the affordability of something whilst ensuring that it's something that customers would care about because there's enough money on the table. And another thing you talk about here is uh return on loyalty. So RO. So you have DVF which we've just unpacked and RO which is more about the framework or practical way a business can empower confidence in a customer or something of that nature which you've described but how would you explain that? Well this this is our core business. So we we've

00:58:49 - 01:00:00

spent you know uh 11 plus years as Ellipsus and then like 20 plus years as the principles in the business really helping our clients get confidence around investments in customers and are they working and if you think about loyalty in this context of a small part of the broader marketing ecosystem there's a really big ongoing challenge out there which is am I getting the best returns from my marketing spend And who's got the answer to that with the highest degree of confidence? Not many not many brands out there. I think

00:59:25 - 01:00:48

that there's there's a there's a lot of work that goes into marketing mix modeling that goes into sort of marketing attribution work. Uh there's there's a lot of uh uh misleading and um uh sort of unbiased uh insights that are often generated. Um we we we are we are working extremely hard to be the really the um worldleading uh kind of providers of insights when it comes to true program performance and we've got all these amazing team and lots of industry expertise great IP uh loyalty finance

01:00:06 - 01:01:11

and and data science and uh you know sort of bringing a whole lot of really quite contemporary views out the academic world into this capability. And the reason it's important is as follows. They say that half of your marketing dollars are wasted, but but brands just don't know which half, so they just keep spending. Well, our view is is that um there's actually a lot of loyalty programs that lose money. They just don't know. And this is this is really fascinating. Um, how do you how do you decide

01:00:38 - 01:01:38

what role the loyalty program had in that next transaction versus all of the other things that you're doing? If you if you broke a company apart by silo, you've got the brand team that does brand marketing, you've got like social, you've got product development, you've got sort of partnerships, you got the loyalty team, you got, you know, um, you've got the retail team. Like you you put it all together then everyone's saying I I did that right? Yeah. The sales team is like I did that. Marketing

01:01:09 - 01:01:55

are like we did it. But you're the CFO or the C you're sitting there going well we're spending all this money across here. What sort of cannibalization's going on? And actually if we put together all of the revenue and customer value creation across all of those different sort of parts of the ecosystem, my business should be 10 times bigger, right? Because everyone's bringing that new customer and everyone's responsible for that basket. all these different teams are writing

01:01:32 - 01:02:30

these grandiose reports about look how great we've done and it's actually they're all cannibalizing each other's results well I I think if you add it all together it doesn't work it doesn't compute and this is the problem in loyalty right and we see this all the time you've got big brands that will say to their investors here's our loyalty program update the membership's growing um engagements engagement and activity rates are growing all the loyalty metrics. Green,

01:02:01 - 01:03:04

green, green, green, green. And even better, this is the one we love. Our members are a lot more valuable than our non-members. So, we've got a great loyalty asset here. Oh, and by the way, here's our financial results. And sales are down, profits down, but don't Yeah, but but that's disconnected from this great loyalty story. And we look at that and we go, if that loyalty program was really working so well, wouldn't you have better business results? So, what's going on here? Is is it is it

01:02:32 - 01:03:28

that the metrics are off, or is there something more nuance going on? And it could be either, by the way. Um, lo loyalty isn't the only thing that if you only did loyalty really well, you still would not be able to grow your brand. There is a lot of other things that you've got to be able to do well to to to grow your brand. Loyalty plays an important role, but it's not everything. So, it's it's it's normal in some ways that you might have really positive metrics in the loyalty program and you

01:03:01 - 01:03:56

might have businesses that are struggling a bit because they're struggling to acquire and loyalty is not the best place to acquire customers even though you can. So, when you look at that, you say, "Okay, well, I can see how that might make sense." But then if you actually have a look at all of the loyalty measurement and loyalty reporting, what we see is uh it's it's very hard to do proper attribution of the role that the loyalty program played in generating incremental value versus

01:03:28 - 01:04:30

those other uh all those other things that brands are doing. And so that's where return on loyalty comes in. It's this it's this it's the attribution solution to give program operators the clearer sense of the true ROI on their loyalty program. So if we if we take a business let's say let's take a fashion brand an ecom store and let's say a customer has come in once you've spent $40,000 $50,000 $60,000 a month to attain new business then your objective is how do I keep the good ones I've

01:03:59 - 01:04:52

collected. So you're spending a certain portion of your budget to get the awareness that you even exist in the first place. They interact with your brand. They make a purchase. Loyalty is more about how do we get them to come back a second, a third, a fourth, a fifth time. Another famous example of this might be like Ferrari. You can't just go buy a new one. Mhm. You have to go buy a secondhand one, which means that the secondhand ones retain their value. They have this really interesting

01:04:26 - 01:05:18

Are you talking from firsthand experience here? I wish I wish, by the way. I heard that, but I've heard about this and I don't I don't personally have one, but if you think about it from an ecom perspective, okay, we're spending all this money to get the client, but we might not be keeping them happy. And do you see that a lot of brands are failing in this way? They're sleeping on their loyalty programs. Uh yeah, I do. I think there's a huge amount. We we put most of our dollars

01:04:51 - 01:05:55

into acquisition. Uh is that a problem for a business? Nope. as long as long as long as long as it's manageable, as long as your cost of acquisition is manageable and it's But what are the potential risks of just putting all your eggs in that one basket? Uh well, the the risk is that you spend a lot of money to get the customer in the front door and then you you miss an opportunity to get them to to stay to stay spend more and stay longer with you. And and that's where loyalty and membership and subscriptionbased

01:05:24 - 01:06:22

propositions work quite well. like they they they you put the customer into your into your ecosystem, into your flywheel. You give them reasons to subscribe and tell you who they are and you give them better deals and offers and you can personalize the experience and all those things add up to a higher likelihood that the customer will stay and they will spend more. So that that's why these types of things were invented in the first place because uh you know uh airlines and banks and now retails and

01:05:53 - 01:06:45

every other sector have worked out actually hey we've done all the heavy lifting to get the customer in in the first place why don't we what what what how how might these sort of constructs help us keep them for longer but you can't just rely on the customers that you have to grow some of them you know there's there's there's there's a there's always churn in a customer base so we need to constantly replenish our customer base with new customers coming in who often start low value. You know,

01:06:19 - 01:07:10

we don't the first time we see the customer, they don't often become a high value customer. Over time, you you grow the value of the customer relationship. So, we got to get the balance right between spending money to get new customers to come in, which is really important, but also ensuring that we're looking after the customers we have. And as a CMO, as a anyone that's looking after leadership, you know, leadership of of of the customer and customer outcomes in a business, it's it's a

01:06:45 - 01:07:40

constant challenge, which is how do I balance this uh investment in new customers versus the existing customers I have? And and the the um the simple way to to to think about this is that you got to do both. Well, do you find that there's a ratio like 50/50 or 7030 that that tends to appear time and time again? Uh yeah, there's a there's a lot of uh there's a lot of ratios that get put out there. You know, if you if you if you look at um Bennett and Field, they've got ratios that they would

01:07:13 - 01:08:24

publish. They would say that you got to do, you know, you got to go 60 long, 40 short, or 70 long, 30 short, like 70% of my budget in building brand and 30% on promotional activation. Um and it it varies by sector. Um it's really interesting. um you know pe people have to be careful how they how they interpret some of this perspective because if you if you're if you're the retailer if you're Woolworths you you need to act very differently to if you're Nestle right but but often what gets mixed up

01:07:48 - 01:08:40

is that we apply these sort of rules of or laws of marketing to a Marsbar which is quite different to uh you know the shelf that's owned by Woolly's So, you know, and this is where it's really interesting because loyalty is really topical. Some people hate the word and everyone's like seems to love it at the moment. Everyone's investing a lot of money, but but some people out there would say loyalty programs are a waste of money. You shouldn't waste your money doing that. You should just focus

01:08:14 - 01:09:12

on, you know, uh more traditional forms of brand building and promotional activation. And that that's 100% right in the case of maybe a CPG company or an FMCG company. But it's wrong. that's flawed in the context of a lot of other categories where you are retailing and you are wanting to have a direct relationship to the customer and those other benefits. So um you know this I think this is where um the what we're seeing which is great is there's a lot more data there's a lot more academia

01:08:42 - 01:09:52

coming into it um but um there's I don't think you can apply generic rules um to different industries and different sectors because the the dynamics are always different and you mentioned there that people would say that um these types of programs are a waste of time why are they naive saying that like what are they not seeing? Uh look in c in a certain context they're they're right. Um let's take the case that they're not. The perspective that loyalty programs don't make you money.

01:09:18 - 01:10:28

It's it's it's invalidated by all of the comprehensive analysis and modeling and and assessment that that that has been done across a whole lot of consumer industries that have invested heavily in loyalty. and the and the returns are scientifically proven. Um so so loyalty loyalty does work and it can work if you get it right and if you get it wrong if you apply it in the wrong way then the the inverse of that happens you lose money. Um, so I think I think the context is is really important. But but the the value pools

01:09:54 - 01:11:00

are quite clear when you when you look at it. If you think about it simply, um, loyalty can help you acquire a new customer. They can help you get a customer to spend more and that's a bigger basket or an extra trip or combination. Um, they can help you get the customer to stay longer. uh they can help you improve your margin because you're not relying as much on price versus other types of incentive points etc. And they also help you build new businesses that unlock even extra sources of revenue such as retail media

01:10:26 - 01:11:35

networks. So do you have some specific cases um of these programs that you've built that our listeners could implement into their service- based businesses or their product based businesses? like some fundamental like structure where it's like make sure you guys are thinking of these things doing these things are there any like crucial pillars that people should keep in mind yeah look I think I think uh uh pro program type and loyalty models quite important if you're going to build your own program you got to invest in

01:11:01 - 01:11:51

building something that customers care about which means that you need to it's a it's a long-term pursuit And you have to be prepared to invest to educate customers and drive awareness so that they care about it. And and we all get offered lots of loyalty programs to join all the time. And some cases you'd be crazy if you didn't, right? You go in there and it's like, "Ah, if you're a member, you get that for 10 bucks cheap." It's like, "Oh, sign up." Now, I

01:11:26 - 01:12:20

I didn't the membership program didn't generate that sale. I just gave away $10 worth of margin. So, I don't know if that's a wise way to do it. Um, but there's we're all in loads and loads of programs. And so uh the and this comes back to return on loyalty for us. What what's really important is that we're we're we're spending money in these things in a way that generates incremental returns. We have to get the customer to care about it. And so um this is where if you're thinking about

01:11:53 - 01:12:55

loyalty and you're thinking about doing it, you got to be able to think about that sort of uh feasibility lens. You got to think about uh am I prepared to to to to stand something up and operate it and go on that journey to to put something in place that could be quite complex or should I start quite simple? And so this this is where there's a whole lot of different program types and models that that that brands could um you know investigate and deploy. If we were to keep it like uh if we were to

01:12:23 - 01:13:31

like keep simplify the process and you were to say like these are like kind of the unspoken laws of a loyalty program. But if we were to keep it simple like what what are some of the easiest light lifts that someone could do? That's good. Uh well number one connected to the connected to the core experience. It should be connected as closely as possible to the relationship that you're offering. Um we should we should try to use uh collect and use the data wisely. So learn more about our customers. Um

01:12:58 - 01:13:57

you know we we often need to partner for growth which means leverage other companies assets and audiences. Uh and really importantly we need to allocate our loyalty investment really carefully. We can't spend money on everybody. So work out where the value is and focus on something that unlocks that spend. So if you were to say okay like um a famous example that Paul Wy shared on this podcast which was um GDUP where like if you buy this you go in the draw to win a helicopter trip. Yeah. And

01:13:28 - 01:14:27

you know they sold out of millions of dollars of product in a matter of hours. You're saying that sometimes you know as a business you have to go well which cohort within our ranks would we invest our money in? And then what experience does that cohort want from us? And then how do we give it to them in a way that's cost effective but incentivizes more loyalty. Yeah. And that's a that's a great example. Quite simple. I mean relatively expensive but when you're generating million dollar millions of

01:13:57 - 01:14:54

dollars of incremental revenue presumably good margins the helicopter trip is quite broad broad appeal. I mean gup uh it it skews male. So I don't know like I don't know if my wife wants to go on a helicopter trip you know she might go I'm not interested in that. But you can kind of see for the customer the core customers that going after that's cool. Yeah. So I think these things should be as simple as possible. So what's really interesting is this sort of like uh uh elasticity factor when it

01:14:26 - 01:15:23

comes to discounting and sales stimulation. And what we're trying to do is give the customer the smallest amount of discount possible to stimulate the most amount of revenue. Aren't we? Where's that sweet spot? Well, the sweet spot's changing. The sweet spot now is not really much of a sweet spot because what what's happened is it's it's actually now something like four or five times more discounting to stimulate the same level of sales that we were seeing only maybe 10 years or so ago. Really?

01:14:54 - 01:15:45

Yeah. It's dropped that much. Yeah. Yeah. It's dropped significantly and we've got we've got some really good data to support this. But what what it says is that a lot of sales promotions now are unprofitable because we're having to put so much extra value in terms of a discount in front of the customer to get them to spend that we're giving away all of our margin. And this is really important. It's like we want to we want to be able to continue to generate our top line. We

01:15:20 - 01:16:11

want to be able to sell through. We don't want stock sitting on the shelves or in the warehouse. We need to be able to keep selling, but we can't do that at like, you know, at uh unsustainable levels levels of discounting. We're left with no margin. And you you would see that everyone everyone knows that there's always a deal. Like, you know, not many brands have been able to sort of like resist the urge to do price promotions. And um you know, right now where there's a lot of challenge out

01:15:45 - 01:16:37

there in ecom, land, and in retail, there's heaps of deals out there. So this this is where it's really important that we, you know, have a have a strong sense of what are the best types of promotions to stimulate revenue and price promotion is less effective than it's ever been because customers just go, "Yeah, I can get that deal anywhere. We're just used, we're just used to a deal." That's where if you have other incentives, other forms of stimulants for sales, points and cash backs and

01:16:11 - 01:17:05

helicopter flights and those sort of things. If you get that right, they cost you less than a big discount and they're more effective at stimulating sales. Okay? So, instead of giving away 100 grand by doing a 30 40% sale of margin, it's like let's invest 50 grand in an experience or let's do a giveaway or let's do something else exciting. Yeah. And it could just be how you structure structure your price promotions as well. As opposed to a discount, it could be if you spend this amount, you get this on

01:16:38 - 01:17:35

your next transaction. if you, you know, hit this threshold, then there's an incentive waiting for you. So, it doesn't necessarily always need to be a competition or doesn't even need to be points. In some case, those things work well. Um, it's it's it's it's actually it's it's creating more levers in your promotional sort of artillery that work across the different priority customer segments that you have to ensure that you've got those things working in concert to maximize revenue

01:17:06 - 01:18:01

and preserve your margin. And what's really important is that you try to avoid those things compounding each other. If you were to have a tiered system, one which is like I can save money, two which is like if I buy now I get this extra thing like a gift with purchase or something cool. Three I go in the draw to win. Do do you find that any of these levers are more I guess strong than others broadly speaking? There's a couple of really interesting things going on here. Number one though

01:17:34 - 01:18:34

is what we're seeing through a lot of the analysis is that um you know customers care more about something that they have to earn over something that they are are given. So um think about this in terms of something that you've worked for something that you've saved for even something like if you accumulate like lots of velocity points you really take a they it matters to you a lot how you spend them like I've earned this. Yeah that's right. there's like a whole lot of attachment to the

01:18:04 - 01:18:58

process of accumulating those. So, you might have a 100,000 velocity points sitting there and you've you've worked hard to accumulate those. Um, depending upon how you redeem them, they they might be worth five or six or $700 worth of cash equivalent. What we see is that customers actually and members actually who are engaged in that program, they actually they actually would rather spend their hard-earned cash ahead of burning their hard-earned points. Why? Well, because there's a whole lot of

01:18:31 - 01:19:26

emotional connection to that accumulation and and um is it because people spend money every day, but they don't accumulate points every day? I think we've got less we've got, of course, we don't want to sort of course we have emotional connection uh connectivity to our our our money, our cash. Uh but there just seems to be a higher degree of affinity when it comes to the points that I've worked so hard to accumulate. And isn't that just fascinating? like $500 in cash is like,

01:18:58 - 01:19:52

you know, that's that's real tangible money. And we've got this synthetic currency of points. It's like fiat currency. Like, I don't want to spend that. Well, it it isn't. It isn't. Fortunately, the regulator forces the these businesses to um, you know, to account for it in the balance sheet. So, there's there is real money sitting behind it. But you've got an intangible virtual currency that is worth more in the customer's mind in terms of how they get utility out of it than their own

01:19:25 - 01:20:14

hard-earned dollars. That's crazy to me. Like I I I guess I'm I'm thinking back to like my AAX points because as I was accumulating my points on my AX, I was like, let's just be real careful about how we spend that, but let's throw money at this other thing. I didn't even think of that until now, until you pointed this out. It's like I I don't even know why I did that, but it seemed like maybe in my mind it's more scarce as a resource. Yeah. Whereas money seems like

01:19:50 - 01:20:46

something I can get infinitely if I go work hard. But it's like, well, I can't just get infinite AX points unless I just spend money. But this this whole thing is a bit of a short circuit in my brain. You you make a good point with that because if if you could create an alternative currency through your brand, you're kind of creating a somewhat cultlike status where people don't want to spend it, they want to preserve it. That's right. It's not like money is easy to get either. No, we work really

01:20:18 - 01:21:09

hard to earn money, yet we spend that more easily than we do our hard earned loyalty points. That's crazy. But, you know, they're this this phenomenon is true when the customer gives a and cares about the loyalty points in a lot of if unless if they don't care about your program, they just let them expire. They let them break. But when when you can be the program that the customer cares about, you get this hugely irrational behavior change because of them. A couple questions in closing

01:20:43 - 01:21:47

here. What are some musts that a program has to have included in it? The very the very simple answer to that is rewards that customers care about. You know, there's the the means to the end is the accumulation and the you know the the incentives that the the the the pathway that you make customers go through to get a reward, but ultimately they need to care about that being something that they want. I mean, Mecca does this really well with their beauty boxes. You know, pe people love those beauty boxes and that the higher tier

01:21:15 - 01:22:13

you are, the better they are. Um, and it really creates this sort of fabulous kind of like flywheel where a Mecca customer is, you know, will always only ever shop at Mecca because they're they're on this pursuit for an ever better beauty box. It's a great reward. Yeah. Cuz if you take Gop, it's like sports cars, helicopters, and parties with hot girls. Whereas Mecca, it's about getting this status box like I get the box you can't have. Yeah. You know, whereas Ferrari, it's like access to exclusive club like

01:21:45 - 01:22:43

events. Yeah. So, you're saying you need to tap into people's, I guess, desiraability to have status, desiraability to have access to things others don't to maybe get some kind of reward framework. Well, it's yeah, it's working out what your customers care about and what they'll change their behavior for and putting that in front of them in a way that your competitors can't. So, that that creates that affinity for pre preference. Ultimately, it it creates then the um behavior

01:22:14 - 01:23:30

change we're looking for because the customer more than just buying the product at a good price, there's something else on offer. And one last question in conclusion here, what's a quote or a mantra that you've carried with you on this journey that if you could immediately bestow upon our listeners to immediately implement, what might that be? Uh I I quote my my best mate Tim for one of these. It's it's um you know the um these sort of programs should be as as simple as possible but no no simpler. So

01:22:53 - 01:23:42

there's an unavoidable amount of complexity when it comes to putting these things together, but we can't over complicate them unnecessarily. Uh but my favorite one is that in loyalty the costs are real. It's easy to it's easy to add it up. It's easy to spend money, but the uplifts are a promise and spend that money today on the promise that customers are going to behave, change their behavior in the future. And so, anyone out there that's doing loyalty, but you got to be a bit

01:23:18 - 01:24:10

careful. It's easy. It's easy to spend the company's money back on things that customers might want, but do you have confidence that the headroom, the value pools that we're trying to unlock are going to turn up? And I think that uh if you do, then great, go down that journey. But you got to make sure you understand how to measure it and how to attribute it and and when you get that right, it becomes a hugely profitable, great commercial driver of the business. So, it's good fun and good luck to

01:23:44 - 01:24:34

anyone out there that's going on that journey. If you need a hand, we can help you. But, uh, you know, welcome to the loyalty industry. It's kind of, you know, it's it's a weird quirky thing, but it's it's really cool. It's, um, there's lots of things going on. There's data, technology, analytics, loyalty, finance, you know, marketing, uh, and the list goes on. So, no one's really an expert. There's so much to to to unpack and but if you get it right, the returns

01:24:09 - 01:24:53

are worth it. Especially right now, I think we're in a market where people need to get creative. They need to explore things that they've never thought about before. Um, and as far as your services go, what we'll make sure we will do is, um, in all the descriptors, we'll put in links so people can reach out to you and and make contact with, um, uh, Ellipsus and and and, you know, speak to you and your team. And I think what you're doing out here is exceptional. You've worked with

01:24:31 - 01:25:21

some of the biggest players in the industry, and I think that, um, loyalty programs aren't something I've ever really honestly thought about. And even now, I'm trying to think about like, can I throw a dinner? Can I invite our clients to come to an event? Can I run some type of competition if they refer a business to us? I I'm thinking in my mind how to get a bit more creative about that myself. So, um, but yeah, if anyone's listening to this and wants to engage with you, we'll make sure that

01:24:55 - 01:25:49

they can find you. Thanks, Dane. This has been good, mate. On, mate. I've enjoyed it. I I think there's so many more things I I wish I had the time to unpack, but we'll we'll certainly, you know, extend the olive branch and get you back again. And uh I've just found this extremely insightful and just thoughtprovoking about how people are, you know, finding currency that a company can create more valuable than their own money. And I think there's there's something there that I want to

01:25:22 - 01:25:37

figure out for ourselves and how we can utilize. But I just appreciate you being here, man. Thank you so much. Thank you, mate. My pleasure.

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