Customer Loyalty ProgrammesThe need for customised communications

24th September 2010

Simon RowlesVice President Asia Pacific

The information contained in this document is confidential and proprietary to Carlson Marketing Group. Carlson Marketing Group shares this document with the understanding that it will be held in strict confidence, and will not be disclosed, duplicated or used in whole or part, without the prior knowledge and approval of Carlson Marketing Group.

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Carlson Marketing New Zealand :

Financial Services

Channels EmployeesCustomers

*HSBC owns remaining 40% of Air Miles Middle East. **Oney Banque Accord owns the remaining 25% of Nectar Italia.

U.K. Italia Chile

We manage over 1,5 million Kiwi programme members

Our sister companies in Groupe Aeroplan

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Marketing spend continues to shift from Above The Line to Direct To Customer

Spend by channel type, top 100 USA advertisers, 2004 – 2008 CAGR %

Above the line

Below the line

Source : McKinsey research

4

Customers don’t listen to or trust marketers.

Beer

Soft drinks

Drug

Clothing

Home Products

Fast food

Pet related

5%

22%

32%

33%

42%

45%

56%

Companies social networking sites

Friends social networking sites

Online content sites (eg:TVNZ)

Consumer product ratings/reviews

Direct mail from a company

Email from a company

Email from people I know

0.18

0.390000000000001

0.25

0.28

43%

60%

77%

Customers are electing to actively ignore adverts

% of adverts actively ignored

32%

83%

46%

62%

90%

96%

82%

% of adverts skipped with DVR (eg: MySky, Tivo)

And they don’t believe what they’re being told. The believe each other.

How much do you trust the following information sources

2006

2004

2002

6%

9%

13%

I believe companies generally tell the truth in ads

Source : Forrester Research, eMarketer, BusinessWeek

>

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And. Facebook.

5Sources : Experian Hitwise, "New Zealand Data Center," May 18, 2010 and comScore World Metrix April, 2010(Penetration is 15+, home and work) - IAB and Comscore. Data is from the February 2008 "Hitwise Asia Pacific Social Networking Report.”

Facebook has the highest market share of visits in New Zealand (May 2010)

4.5%

Monthly increase in user base

…and is still growing the user base (millions of users)

63.6%

Current penetration

36% -8%

In February of 2008 – Bebo had 42% of the market, Facebook 35%, MySpace 9%

…early leader Bebo has conceded defeat (and AOL’s trying to sell it or shut it down))

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Loyalty. Works for Tesco.

SOURCE: Company websites; Press search; McKinsey Retail practice

The merchandisin

g analytics trend is now spreading to US and other

marketsEYCEYC

dunnhumby

dunnhumby

EmnosEmnos

1990s2000-

052008-

092006-

07

Tesco attributes its success to merchandising analytics and dunnhumbyTesco UK market share, percent

11%13% 18%

25%

1990 1994 2000 2005 2009

Loyalty programme launched

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21.3% 19.3%34.3%

79.0% 77.3% 80.2% 75.0% 80.4% 77.6% 74.2% 73.1% 73.7% 75.1% 72.0% 71.4%

a b c a b c d a b c d a b c d

<3 years in programme 3-4 years in programme 5 years in programme >5 years in programme

Loyalty. A regional case study

% of customers taking up offer and doing so within predicted days

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In mature markets – growth comes at the expense of your competitor. Our results : loyalty programs drive market share gains for our clients.

Not in program

In Program

$1

$3.00

2 – Spend more Result – loyalty program customers spend 300% more

3 – RecommendResult – loyalty program customers are 70% more likely to advocate for the brand

1 – Remain a customer longerResult – loyalty program customers stay customers twice as long

Year 1 Year 2 Year 3 Year 4 Year 5

80%

39%

Not in program

In Program

32%55%

Joins program 1st redemption 2nd redemption

Enterprise A - share of customer’s wallet through program.

Competitor’s wallet shareEnterprise A – current share of customer

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Increasing degrees of customisation together with increasing relevance drives increasing value.

Low Degree of customization High

High

RelationshipStrength

Low

Low Degree of relevance High

High

Relationship Strength

Low

35% 39%

.

Customisation of communications Customisation of offer

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The virtuous circle of loyalty program operation ®

Points, status, credits

Remain a customer longer Spend more

Contact centre

DM, EDM, Website

Enterprise goalsWhat the Enterprise wants from it’s

customers

Relevant

Rich

Customer goalsWhat customers want from the Enterprise in exchange.

[4]Comms

[2]Spend

[3]Earn

[1]Enrol

[5]Redeem

Social Media

Recommend to friends and

family Publicmessages

Customisedmessages

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Printed communications are a critical part of the communications mix

Year 1Frequent Customised Printed Communications

Year 2Less Frequent Customised Printed Communications (lesser stock and design)

Year 3No Printed Communications

Year On Year Monthly increase in redemptions

Average27%

Average18%

Average2%

And : Fly Buys wins international award for statement

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Loyalty programme adoption

CPG / FMCG

Retail

Credit &

debit cards

HotelsAirline

s

Retail banki

ngTelco

10% +10% +1% 5% 15% +

1% 5%

New Zealand % of the customer base penetrated

Global benchmark% of the customer base penetrated

Value% of sale value returned to customer

Emerging Mature

Key issues Churnreductio

n

Relationship

Marketing over mass

Customer data

Share of wallet

Share of wallet

Share of wallet

Products per

customer

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Points values have declined

AIRLINES : creating cynicism

2.5c 1.1c

20 trillion

5 trillion

1981 1991 2005

CAGR4.43 %

CAGR42.4 %

2000

Source :The Redemption Dilemma - Strategic Considerations of Dynamic Rewards - FFP Conference 2008 – Istanbul – Craig Landry AeroplanSource : Airline’s New Cash Cow: Frequent Flyer Programs” - International Herald Tribune April 2008Source : Aeroplan Global FFP Benchmarking Survey 2006Source : Bain & Co

RPKs – Revenue Passenger Kilometers

3% of RPKs = FFP redemption volume

ASKs - Available Seat Kilometers

Points

Seats

The new Qantas business model

15 Source : Qantas Supplemental Information – Investor Presentation 17th August 2009 - http://www.qantas.com.au/infodetail/about/investors/qffSupplementaryInformation.pdf (6m members)Source : Raymond James, Carlson Analysis

Jetstar's EBIT was $131 million, Qantas Frequent Flyer EBIT was $328 million

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2005 2007 September 2007 April 2009 Today

Woolworths Australia’s journey

Fuel dockets cents per litre offers.

Convert the dockets to a card with online

account

Launch an online community

Community drives Qantas Frequent Flyer

loyalty program alliance with Twitter

support.

7.2m customers (auto-enrolled all of QFF).190,000 community

members

Manage the burn or redemption proposition – have Qantas points

used in store

Competitor – Coles and Fly Buys

“At the Caltex Woolworths…sites there has been an

average 80% increase in petrol sales”

“When the offer is 12 cents, sales go through

the roof” *

Card links the customer transaction. Customer

transactions now tracked, customers

known. Register customers addressable.

50,000 members of online community

Link transactions to attitudes. 1:9:90 rule holds. In Woolworths

parlance : MFC’s (“most frequent contributors”),

responders and lurkers.

90,000 members of online community

3.8 million Everyday rewards card

customers (1 in 6 Aussies)

4th quarter Woolworths sales rose 5.4 %

Carlson’s view: Qantas points are a currency

for Woolworths – danger is the points

being burned outside of the network.

Woolworths need them to be burned in store

bringing customer back

Fuel dockets

* Source : “Petrol Price Discounts: the new pull” Australian Convenience Store News March/April 2005

Convert the dockets to a

card with online

account

Launch an online

community

Community drives Qantas

Frequent Flyer

alliance

Attract Qantas points

redemption proposition

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Future: Interactions count as much as transactions

EVOLUTION 1.0 EVOLUTION 2.0 EVOLUTION 3.0 EVOLUTION 4.0

PROGRAM MODEL

Points & Prizes+ Engagement,

Sub-clubs+ Relationships,Segments of One

+ Marketing Networks

CONSUMERSWANTS

Rewards and discounts

+ Information, Access, Status

+ Choice, Control, On-demand dialogue

+ Partners, Peers, Real-time,

Location-based

DATAMass Targeting(One Size Fits

Most)

Segments(One to Some)

Enabling CRM(One to One),

increased modelling

Multi-party collaboration, rapid

application of predictive analytics

COMMS Mass DMWave-Based Campaigns

(email heavy)

Integrated multichannel,

(w/Digital +Mobile), Social

Everywhere the Customer Is,

Customer Experience

Management

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Conclusion

• Sophisticated analytics are available to all industry sectors – now they need to be able to communicate the messages– Some use them more (retail) than others (telco)

• Customised communications drive predictable, quantifiable revenue and margins gains– The business case is clear and you can take risk in it

– There’s low adoption of customised communications (retail)

– There’s reticence to use electronic channel (bank)

• Right message, right offer, right channel right time - print has a part to play