Loyalty programs and couponing are at the heart of many merchants’ customer engagement strategies. Supported by mobile technologies and services, a loyalty program can build a sense of affinity between consumers, brands and merchants. This leads to greater customer retention, interaction and sales.
Mobile Network Operators (MNOs) can help merchants or brands use multiple datasets to make loyalty programs directly relevant to individual consumers. With the permission of the individual, a broad array of contextual data captured by the MNO, such as location, direction of travel and web browsing history, can be analyzed and used to provide relevant information and offers to customers in real time via the mobile networks and contactless technologies. With the right contextual information, a merchant can effectively give customers a ‘VIP loyalty experience’ that makes them feel like they are receiving special treatment.
As individual consumers interact with many different merchants and brands, they need a straightforward and consistent approach to organizing digital vouchers, loyalty programs, payment cards, tickets and other items. A mobile wallet, essentially a digital container, can meet that need. The mobile wallet can also enable consumers to browse their coupons and ‘activate’ them ready for use. It places coupons on their SIM card, which acts as a secure element, so that they can be read by an NFC-enabled PIN entry device functioning in card emulation mode or an NFC reader. Much like physically walking along the high street, the mobile wallet can act as a ‘street’ that provides access to many different stores’ promotional information – the merchant and brand applications also running on the device. Ideally, the composition of the ‘street’ will change with the context, such as the consumer’s location, the time of day and whether they are working or relaxing. To create the best customer experience, the merchant needs to be both in the ‘street’ (wallet) and have a ‘store’ (a merchant application on the handset), giving the user the flexibility to begin an interaction in the wallet and then explore further by using the merchant’s app. A MNO could use a mobile wallet as a bridge between merchants and brands’ own apps and the consumer, optimizing the user experience.
Loop of interaction
MNOs can help merchants and loyalty providers to draw a direct correlation between their loyalty programs and coupon distribution and actual sales – i.e. close the loop. For example, mobile technologies, such as NFC, can help merchants and brands determine the effectiveness of a specific campaign by registering the redemption of coupons and loyalty points at point of sale. Moreover, the MNO can also facilitate the expiry of unused coupons and loyalty points (known as breakage). The MNO can also feed expiry data back to merchants and brands ensuing they have up-to-date information on how many outstanding coupons and loyalty points are in the hands of consumers.
Within the loyalty and couponing ecosystem there are essentially three key domains – the MNO domain, the merchant domain and the brand domain. Color-coded by domain, figure 1 shows the different elements generally required to deliver sophisticated mobile loyalty and couponing services. Within this ecosystem, a merchant/brand would have the flexibility to interact with a consumer directly (for example, via email or face-to-face in store), via their mobile app and via the MNO’s wallet. A merchant could also interact with MNOs individually and/or via an aggregated MNO platform, such as that established by the Weve joint venture in the UK or the Isis joint venture in the US. Similarly, a brand would be able to interact with a consumer directly, via their own mobile app, via a merchant’s app and via the MNO’s wallet. Like a merchant, a brand could interact with MNOs individually and/or via an aggregated MNO platform.
Value chain
Each element of the value chain needs to work together to create a compelling service experience. First and foremost, a mobile loyalty solution needs to be able to identify consumers rapidly at point of sale so they can accumulate reward points and redeem coupons without having to wait. Consequently, the solution will need to be able to work offline, as well as online, so the consumer isn’t waiting for the service to connect to a server or gateway, and enable the merchant to process these interactions in batches. At the same time, the solution needs to give consumers the option of redeeming or not-redeeming valid coupons. It would also give the merchant the flexibility to make offers in real-time in line with its business rules. To ensure completing a transaction is straightforward for both consumers and store staff, the process needs to consistent across wallets, phones, MNOs infrastructure providers and merchants. Consistency across multiple providers will enable consumers to become familiar and comfortable with mobile loyalty and coupons, while ensuring equipment vendors can gain economies of scale. To that end, mobile applications should, as much as possible, use standard technology and protocols. Similarly, a point of sale terminal should use a standard set of messages and procedures to interact with both consumers and store staff. Next steps If they aren’t already, MNOs in each market could discuss adopting a common approach to mobile loyalty and couponing based on the GSMA’s work in this area. Both handset vendors and point of sale infrastructure vendors could be involved in these discussions to ensure that their equipment can support the proposed technical architecture. MNOs can also actively support the GSMA’s work around mobile loyalty and couponing.
Loyalty today
Merchants have been using loyalty programs for decades. They are generally designed to enable a structured and long-term engagement in which customers are incentivized to remain loyal to a specific merchant or group of merchants or brand. Incentives might take the form of discounts, special offers, rebates, points or prizes. Successful loyalty programs generally: • Motivate customers within a specific or adjacent market to return often and make frequent purchases • Reduce churn • Improve brand affiliation. But loyalty programs also have another purpose. Crucially, they are a mechanism to enable merchants and brands to obtain knowledge about both individual customer behavior and aggregate customer behavior. They can use that knowledge to engage with individuals in context through email, social networks, web sites, mobile apps or another mechanism. For example, a supermarket might send a customer who regularly buys red wine on a Friday evening a voucher offering a 20% discount on cheese an hour before the customer typically arrives at the till.
A merchant can also use the aggregate data collected by loyalty programs to gain insights into consumer behavior, such as how frequently individuals buy a specific product. In a bricks and mortar context, most merchants’ loyalty programs require the customer to present a plastic card at point of sale. This step enables the consumer to collect loyalty points and the merchant to collect transactional data for that customer. In a growing number of cases, these cards are being supplemented by mobile applications, which can use contactless technologies, such as NFC or a QR code, to enable the consumer to both accumulate and redeem points at point of sale. Note, smaller merchants may take a more basic approach, simply stamping a card each time the consumer buys a product or a service. In this case, the merchant isn’t collecting much data on the consumer and the purpose is simply to incentivize consumers with rewards for remaining loyal to a particular merchant.
Program types
There are two major types of loyalty program. First, coalition loyalty programmes serve multiple merchants, sometimes spanning several vertical sectors. Consequently, consumers can spend and redeem loyalty points across multiple merchants. Examples of coalition loyalty programmes include Nectar and Avios. The second, merchant/brand-funded loyalty programs are run by a single merchant and typically support engagement with a single brand, but they may also involve cross-brand partnerships. The management of these programs is generally contracted out to a third party.
Examples of individual brands running loyalty programmes include Nestle, Citi, Hertz, British Airways, Lego, Kraft, Chipotle Ordering, Coke, Pepsi, Marriot, Vue, Cineworld and Asos. Major retailers running loyalty programmes include Subcard, Starbucks, Shell, BP, Monsoon, Coles, Vodafone, B&Q, Debenhams, Tesco, Auchan, Casino, Metro Group and DeSpar. Starbucks runs a widely used loyalty programme called ‘My Starbucks Rewards’, enabling the global chain of coffee shops to capture valuable data on a large proportion of its customer base. The Starbucks program combines loyalty with payments and technology to provide its customers with both value and convenience. Consumers can also use a Starbucks mobile app, tied to the Starbucks Card, on a smartphone to make payments and accumulate loyalty points. Consumers can also store value on the Starbucks Card.
Not all loyalty programs are as successful or as sophisticated as that of Starbucks. As loyalty programs have lost some of their novelty value, time-pressed consumers have become reluctant to go to the trouble of registering their details or carrying yet another plastic card. As a result, it can be difficult to attract new members. Even active members frequently neglect to bring the relevant cards when they go shopping or forget to take them out of their wallet at point of sale. As most programs are not using mobile technology to capture customers’ location data, merchants do not know who is in their store until the customer reaches the point of sale, by which point it is generally too late to attempt cross-selling or up-selling. Moreover, there is limited, if any, sharing of information on consumer behavior between individual programs meaning that most merchants have a narrow and incomplete picture of their customers. Although coalition programs have a broader view of an individual’s behavior, they rarely have a complete picture of the consumer’s preferences and predispositions. Multiple third parties, such as Bopsy, Perka, Groupon, Fidall, Apple’s Passbook, Lemon Wallet, SAP and Foursquare, are using a combination of loyalty wallets and QR scanning to try to address the issues outlined above. But none of these players have attracted the critical mass of merchants necessary to make their proposition really attractive to consumers.
Couponing
Although many coupons are issued entirely independently of loyalty programs, these two marketing tools can complement each other very effectively. In fact, coupons can be an integral part of the customer engagement process for both brands and merchants. Although coupons can be used as a one-off incentive from a brand or retailer to change a consumer’s behavior, they can also be used to initiate and sustain an on-going relationship within the framework of a loyalty program. For example, a clothes retailer might offer a consumer a 15% off voucher if they register for the store’s membership card. Coupons are issued in many different ways, such as via direct mail, hand outs, in a pack, on a pack, in an advertisement, via the Internet or email, on shelf pads, inside a magazine and bounceback (a coupon distributed following a customer services call as a goodwill gesture). In 2012, brands distributed 310 billion traditional consumer packaged goods coupons worth $484 billion in the US market, but just 1% of these were redeemed, according to Inmar’s
The most popular distribution mechanism was free-standing inserts in publications. In the US market, the average potential savings for each consumer in 2012 was $1,535, however the average consumer only took advantage of $10.75, according to the report. In the US, food-related coupons (41% of all coupons) are twice as likely to be redeemed as non-food coupons.
Digital coupons
Digital coupons (e-coupons) are in their infancy: The Internet accounts for just 0.1% of coupon distribution, as do electronic shelf coupons, which are dispensed from a box attached to the shelf near the product for immediate use. Similarly, mobile networks and services account for less than 0.1% of coupon distribution. Excluding print-at-home coupons, 27 million digital coupons were redeemed in the US in 2012. The average redemption rate of digital coupons was 11.2% – eleven times higher compared to conventional coupons, according to the Inmar report. By 2015, distribution of digital coupons in the U.S. will rise by 898% Inmar predicts, and will have a total face value of $150 billion. At the same time, the traditional couponing market is set to decline slowly over the next few years (for example, Inmar forecasts that distribution of free standing inserts will decline by 3% by 2015). However, traditional coupons will continue to co-exist with digital coupons for the foreseeable future.
In addition, many MNOs are deploying mobile commerce services that support loyalty and couponing. Examples include the SK planet’s Smart Wallet in South Korea, Weve’s joint venture in the U.K., the Isis mobile commerce joint venture in the US and KT’s MoCa wallet platform.