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Over the past three Fridays, we posted an extended interview with Rick Ferguson, editorial director for COLLOQUY and, which has been providing editorial, educational and research services to the global loyalty marketing industry since 1990. The piece was hugely popular, as the issues, advantages and challenges that surround loyalty marketing continue to weigh heavily on the food industry's collective mind.

We continue to get email on the subject, and thought it made sense to post it as a way of continuing the dialogue on this important subject.

One MNB user wrote:

"Let me begin by saying that I thought the interview with Mr. Ferguson was quite interesting, and from my vantage point, pretty much 'right on' in its analysis.

"I do have to say; though, that I was kind of puzzled by Mr. Ferguson's response when you questioned him about, 'What company is the model for loyalty marketing excellence?' Is it just me, or do others find it disconcerting or ironic that 'airlines' are held up as 'the model' for excellence?

"If Mr. Ferguson is correct in his assertion that a proper loyalty marketing model 'rewards profitable behavior, encourages retention, becomes a barrier to exit, provides incremental revenue and all of the other things that loyalty is supposed to do,' then how is it that an industry (not just a particular airline) beset by bankruptcy, operating losses, closures, etc... could be considered the model for loyalty marketing excellence?

"I can only assume that Mr. Ferguson considers his 'airline' example to be one that upholds his assertion about what constitutes a "proper loyalty marketing model". If that's the case, then the example doesn't seem (to me, at least) to fit the bill. You have to look no further than the wording of his example to see what I'm talking about: "Frequent flyer programs have become so profitable and so important to the airlines that in many cases they generate as much or more revenue as their core business, which is flying the planes. Air Canada recently spun off Aeroplan into a wholly-owned subsidiary in order to free it from the airline's operating losses."

"I know some will say that I'm missing the point because he's referring specifically to the loyalty marketing component - that's what's profitable! Correct me if I'm wrong; though, but shouldn't any loyalty marketing program that's of any value be part of a company's overall marketing / business strategy that leads to, or at least maintains, profitability? The example given nearly undermines the whole premise of loyalty marketing as we know it and as Mr. Ferguson presents it.

I much prefer to think that Mr. Ferguson may have been more on target when he said that, "For grocers, it's difficult or nearly impossible for them to duplicate the airline programs' success because of the reasons we've discussed. But it's certainly possible to move away from discounting and towards a model that rewards profitable behavior, encourages retention, becomes a barrier to exit, provides incremental revenue and all of the other things that loyalty is supposed to do."

Rick Ferguson responds:

    "If your reader is using the airlines' financial troubles as evidence that their frequent flyer programs don't work or are otherwise bad examples of successful programs, then I have to respectfully disagree. The airlines' profitability problems are unrelated to their loyalty programs. Frequent-flyer programs are designed to maintain and increase the yield from best customers, and they accomplish these goals quite well. What they can't do very well is acquire new customers or encourage more people to fly if the economy or the threat of terrorism or other economic, social or political forces are working against them. Loyalty programs aren't effective acquisition or advertising vehicles, but they're not supposed to be.

    "In fact, airline and hotel loyalty programs have actually helped speed the recovery from major events, such as September 11, that negatively influence travel. Because the airlines and hotels understand and manage their customers so well through these programs, they are able to design very specific, targeted offers to get them flying and renting rooms again as quickly as possible. So the programs do contribute to profitability by shortening the recovery period after major downturns, and by insulating the core brand from consumer dissatisfaction.

    "To use a crude analogy, you can liken the loyalty program to a field goal unit on a football team. if the two teams are evenly matched on offense and defense, then the field goal unit can win the game for you. But in order for that to happen, the offense has to move the ball down the field. The defense has to stop the opponent at the line of scrimmage. Otherwise the field goal unit can't even get into position to win the game."

Other responses to the general discussion about loyalty marketing included this email from a member of the MNB community:

"Please help me. I may have missed something, but why are so many people against so-called loyalty cards? Are they afraid that they might start receiving circulars in the mail more often for the things they buy? Are they afraid that the government is going to knock on their door and tell them that they are buying to many Doritos?

"Are the people that are against loyalty cards also against coupons? Weren't coupons developed to get an understanding of regional buying habits? Are loyalty cards the same thing - yet more accurate? That is to say, if these chains really are using the data wisely. I don't think they are yet.

"Personally, I could care less if my supermarket knows what I am buying, as long as I am saving money. My family pays attention to the circular and buys what they have on sale with the card. We use less coupons too (when we remember to bring them with us to the store!) Many times we go to a different store to buy the staples.

"What is the fear?"

MNB user Jerome Schindler offered another view of loyalty marketing:

"In last week's Walgreen newspaper insert I observed a great idea I had never seen before. The insert had numerous "sale" items that required a coupon cut from the circular. But on the first page was a "Super Coupon - Clip once and save!" which when scanned gives the customer the advertised savings on every coupon item in the circular. Less hassle for the customer. More productive for the retailer. Speedier checkout. Probably eliminates errors - no missed or stuck together coupons. Sort of like a "loyalty card" but without the invasion of privacy issue."

MNB user Norma Gilliam wrote:

"Ever been to WAWA? It seems that they have "part" of the concept. You go to a terminal in front of the deli area and place an order on-screen for your sandwich. Now, if you had a customer card, the screen could say "Hello, Kevin, welcome to WAWA.......The card would track "you" and your sales, etc.

"The best retailer I've seen do a customer loyalty program is Dorothy Lane in Dayton, Ohio."

(Actually, you could say that Dorothy Lane Market is best at a lot of things…loyalty marketing is just one of them.)
KC's View:
The loyalty marketing debate and dialogue continues, and will only become more pronounced as c-stores and fast food restaurant chains and other venues start to invest in strategies and technologies that will make it work for them. And we know that MNB users will be at the front of the thought leadership on the subject, examining all the angles and coming up with reasoned, relevant arguments.

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