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Breaking Loyalty Part 3: Fixing Loyalty for the Modern Age

• Mike Giambattista, Mike Ribero • Season 2 • Episode 42

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Join us for the third in our 3-part Series on Breaking Loyalty with Mike Robero, an expert in loyalty and customer engagement. In this episode, we take a closer look at how loyalty programs can evolve to meet the changing needs of today’s diverse consumer base. We address the key question: How can brands "fix" their loyalty strategies to build meaningful, lasting connections with customers?

We explore the shift away from traditional, one-size-fits-all loyalty models and consider how brands can engage with customers as partners. By focusing on emotional connections and fostering trust, brands can create loyalty ecosystems that reflect the way consumers interact with multiple brands. This approach allows for more personalized experiences and better use of customer data.

We'll also examine the economic and strategic advantages of rethinking loyalty in this way. Learn about overcoming common challenges like accrued liabilities and siloed data, and how empowering customers to manage their own data can enhance engagement while reducing costs. Tune in for practical insights and examples for brands looking to innovate and strengthen their customer relationships.

Mike Ribero:

Brands seem to think that personalization is really focused on the business that I do with you as a customer. But true personalization understands the customer holistically and what they're doing when they're not doing business with you, because that can help you understand how to maintain your relevancy when they're not.

Mike Giambattista:

Today is part three of a very special series called breaking loyalty. I'm here with mike robero and, if you've missed the earlier episodes, by way of brief introduction, mike robero is a loyalty and customer engagement architect. That that's my description, mike, you'll have a better one for yourself. But Mike has designed some of the biggest programs out there from scratch, mind you? Not just deploying somebody else's platform and tweaking it, literally. Concepting things from scratch is one of the brightest minds in this space that is filled with very bright minds, is one of the brightest minds in this space that is filled with very bright minds, and over the past two episodes we've been breaking it down what's going on in loyalty, what are the fixes in loyalty, what customers are demanding, and so here in part three, we're wrapping that all up in a nice little bow. Mike, thanks for joining me.

Mike Ribero:

I'm glad to be here, mike, and this is obviously something I'm very passionate about. Having designed some of the original loyalty programs in the airline and hospitality industry, it's been both challenging and frustrating to see the lack of progress that programs have made despite the massive changes in the marketplace, and so I thought today we would focus on what needs to happen to address those changes so loyalty programs can once again have the kind of efficacy and economic power that they once did when they were first launched, almost 40 years ago now.

Mike Giambattista:

Can we just spend a moment before we jump hard into part three here and just super high level recap some of the issues that have been dogging loyalty for the past decade or so?

Mike Ribero:

The biggest one is the lack of evolution. Loyalty programs have pretty much still operate the way they did when they were first launched, despite the massive social changes that the marketplace has gone through and the consumer has gone through. The changes that have been made haven't been well thought out Things like expiring points and miles, which only served to completely disenfranchise the occasional user and made things difficult for the frequent user. And then obviously, there's the whole issue of conflicting interests and the fact that the larger programs are now selling their currency to third parties at a point in time where their best customers are having trouble converting their currency into anything that has value because there's no availability. So there are issues, and the good news is they can all be solved, and solved fairly readily, if people think beyond what they've kind of limited themselves to in the recent past.

Mike Giambattista:

Thank you for the beautiful segue. To jump right into the fixes and I want to hit this at a I mean I'll speak very high level, but I'll look to you to add depth and context to this. But let's just say item number one this is something I relate to and I'm deeply passionate about is customer expectations have changed radically. There's all kinds of data that's out now, and has been for decades, showing how consumer expectations in every single vertical are rising faster than brands' ability to keep up with them. Which brings you to as it relates to loyalty customers demand a different kind of relationship now than they've had.

Mike Ribero:

And that couldn't be more true, mike. Not only do you have changing expectations, but you have a customer base today that is more diverse than ever before. You have five distinct generational segments, each with their own unique needs and wants, and they're far more informed because of social media and other things. They're far more empowered and they have more choice. That type of situation requires more of an equal, more of a tighter and personal relationship that's on equal footing. I like to say that it's time to move from membership to partnership.

Mike Giambattista:

Can you explain that a little bit, because we've talked about that before again? High level, but that can mean all kinds of things.

Mike Ribero:

I think partnership implies that parties have their interests aligned, they're working as equals and the relationship is built on a couple of key factors Reciprocity, which doesn't exist today. I think most people would agree that while brands are asking you to be loyal to them, they're not necessarily loyal to you and there's very little reciprocation in the marketplace today.

Mike Giambattista:

Let's talk about that for a second, because I think there are people who would argue well, reciprocity looks like, join my program, I'll give you some discounts, but what you're saying is something that's very different from that kind of a quid pro quo. You're saying that the loyalty, the actual emotional components of loyalty that brands are looking for, maybe they need to be giving those back to the consumers themselves.

Mike Ribero:

And I think it starts with trust.

Mike Ribero:

I think a lot of programs are designed to focus on the less than 1% of people that are going to try to defraud the program or take advantage of it, as opposed to the 99 plus people, percent of people that are literally want to make the most of it and add value to their favorite brands. And so it's a combination of issues, mike. It starts with the relationship and being on a more collaborative and cooperative basis, so brands don't get out of step like they did more recently. If they're constantly collaborating and communicating with their customer, they're always going to be apprised of what their needs are and they can work together on a solution that works for both. The same goes for the value they offer, and I think the day of a single brand loyalty system is going to give way to more of an ecosystem approach, because of the reality that brands or consumers today have been for all time. They're not just loyal to one brand, they're loyal to a variety of brands, and oftentimes those ecosystems already exist in the marketplace today. They don't have to be recreated.

Mike Giambattista:

Let's if we can, add a little bit of street-level reality to this when we're talking about memberships versus partnerships. What would a healthy partnership relationship look like between a brand and a customer?

Mike Ribero:

First of all, it's a personal relationship. Unfortunately, today, with the advent of technology and automated attendance and chatbots, it's very hard to form any kind of personal relationship with a customer. I think it requires dialogue. The only way you're going to get real-time information from customers is by talking to them, and that is the foundation of a personal relationship. It may not be feasible with all customers, but it's certainly feasible with your best customers, and that's where it needs to start. There also needs to be a demonstration of reciprocity that if I help grow the brand, I'm going to get something in return. It's not just we're going to all march to the beat of a single drummer and the brand will benefit and I get nothing in return. Unfortunately, that's where things are today, given the inability of me to monetize the currency that I've earned.

Mike Giambattista:

Which is a topic that may have to go to episode five, because there's so much to talk about there with you know personal data and its value in the marketplace, and the different ways that brands are deriving value, internal and external, and all of the different ways that consumers could, if they were only aware. A groundswell starts small, quietly building into something powerful, unstoppable. That's also how market momentum works. If you're launching a startup, introducing a new product, rebranding or rolling out a new service or initiative, it's not enough to simply show up. You need to build momentum strategically.

Mike Giambattista:

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Mike Ribero:

So it's interesting when you look at the airline and hotel programs today, they are already ecosystem, they're just not fully functioning ecosystems. You look at a United or American, they have a bunch of partners that are part of that program, but those partners don't have the same access to the customer that the airlines or the hotels do. Just take that extra step and give those partners an opportunity to engage with that customer who that customer might be loyal to as well, and now you've significantly enhanced the opportunity for that customer to earn and to derive value without having to join 16 different programs.

Mike Giambattista:

How does that work in practicality, though? Because you know that's uh, you know, having spoken to countless loyalty people over the years, that's always been something of a of a brass ring that you know the ultimate goal is to uh, to give all of those options to the consumer to earn and redeem across, you know, uh, brand boundaries. But how do you? How do you do that?

Mike Ribero:

Well, it's really easy, mike. You start with brands that have large customer bases and they become the kind of, in a sense of the word, the general partner responsible for that ecosystem. Then there are limited partners, other brands that participate. So, whether it's Hilton's a general partner and all of their current partner become limited partners, or it's T-Mobile, where they're the general partner and all of their T-Mobile Tuesdays and Magenta status partners become the limited partners. Those limited partners are able to reward people for making purchases, for writing reviews, for making a referral, for sharing personal information with them, just like T-Mobile is, and the customer decides who they want to engage with and at what level. It's not hard. The challenge is really kind of thinking that, oh, I don't want to share my data with another brand, but you're really not. You're sharing a customer to share my data with another brand, but you're really not. You're sharing a customer and you're doing that already. Just the fact that you're doing it with separate programs that make it harder for them, the customer.

Mike Giambattista:

Right, and you've said this before in prior conversations and it's a known thing is you know your customer doesn't only shop with you, they were shopping across entire different ecosystems and adjacent verticals, and what you know about your customer because of their direct interaction with you is only one fraction of the interactions they're having with everybody.

Mike Ribero:

And that's why the average US consumer belongs to 15 to 16 different programs and are only active with four to six, because they can't stand the hassle of trying to keep up with them all. So if you can kind of mitigate that for them and maximize their benefit across a litany of brands that are non-competitive for the most part, then it's a win-win for everybody involved. And, by the way, mike, we're going to talk about this a little later. But I do believe that loyalty programs are ideally positioned to address the issue of consumer privacy because they have the infrastructure, the foundations necessary to allow customers to monetize their personal data in a way where they have control, given the currency that these programs have and the relationship that is built, that's hopefully built on some level of trust.

Mike Giambattista:

And we've talked a little about the relational aspects of this here. But I think we'd be remiss if we didn't also talk about the economics of this kind of ecosystem approach, because the gains, the economic gains, are exponential, I would think.

Mike Ribero:

Undoubtedly not only on the revenue side but on the cost-saving side, Mike. I think by moving to some of these different approaches not only ecosystem approach, but rewarding for customers for more than just purchases but other ways that they can add value, whether that's sharing personal information, making referrals or becoming an advocate on social media or even writing reviews there is significant direct and indirect economic value that that customer can bring. But the cost savings associated with consolidating so you don't have 16 different programs but you have one master program or two master programs the ability to address the currency situation and we'll talk about that as well. Well, and finding a more efficient and effective way to give the currency to loyalty, currency value. And addressing the issues with accrued liability, which is only going to crush the industry if it continues the way it is. There are economic factors here that are considerable and potentially game-changing if the industry moves with some level of alacrity, given the financial realities that are confronting it.

Mike Giambattista:

You're bringing up a topic that I think a lot of loyalty marketers frankly, cx practitioners, marketers in general struggle with. Has to do with the cultures that are embedded in, especially in some of the larger companies, where it's not just the way they're thinking about their customers, which would be core to the whole thing, but the systems they've got set up to address them in these ways are so entrenched because of the siloed data, siloed technologies, because people's KPIs and metrics and bonuses are tied to certain things that you know they are. They are woe to move on and and change those things because it's all you know. It becomes very personal at that level. But the benefits if you're able to just kind of stick your head up out of the gopher hole and look around at what the we're going to keep using this, this ecosystem word, what the ecosystem could hold for you, it it really does. It really does open up a whole new world.

Mike Ribero:

And one of the things you mentioned is I really believe that the brand or brands that take a leadership position here are going to benefit more than anybody else, because they're going to be the ones that are singled out of saying you listened, you actually solved this issue for us, you solved the problem and, as a result, a lot of customers are going to give them their business because of the frustration that people feel when trying to get the value they believe they deserve that they can't access today.

Mike Giambattista:

So real quick, how do you think, how should brands start thinking about this ecosystem? You know there's a lot of different connections you could make out there, but if you have to start somewhere, what are some ways that brands can start just concepting through an ecosystem approach?

Mike Ribero:

So start kind of in the simplest and most natural ways possible. Think about, for example, automotive For automotive, you've got car brands. For automotive, you've got car brands. You've got auto insurance, you've got fuel the different fuel brands. You've got tire manufacturers and retailers. You've got car care products, you've got accessories you've got an entire marketplace of related products and services that represent a very viable ecosystem for the brand that steps up and says I'm going to basically build an ecosystem around my core category. And there's a lot of examples of that. But there's also proximity and geography.

Mike Ribero:

A shopping mall is a good example. A shopping mall is competing with big box retailers and specialty retail. What they want to do is get people back into the mall. So if all of the mall tenants group together as an ecosystem to try to drive value, they're going to be much more successful than they would be individually. Sports teams another good example. Sponsors are looking for more tangible benefit from their relationship with the various teams, and who better than fanatical followers of a team that are probably more inclined to engage with those sponsors if it provides reciprocal value? So the examples out there, mike, are numerous, and you don't have to reinvent the wheel to identify an ecosystem that makes sense and, frankly, there are a lot of brands out there that have a sizable enough customer base that can take a leadership role in building an ecosystem for the benefit of their customers.

Mike Giambattista:

They could literally redraw the geography for so many other brands Exactly and take a leadership position, as you're saying, in doing so.

Mike Ribero:

And the beauty of it is everybody wins the sponsoring brand wins, the partners win and, most importantly, the customer wins. And it's all driven by the growth of the brand, because when the brand grows, everybody benefits.

Mike Giambattista:

I was talking to somebody just actually earlier this week who said and everybody does that their company is fully customer-focused and customer-centered. Every company will tell you that. I think you kind of have to. This company actually did so. I was asking them what about their approach? How do you prove that out? How do you prove that out Customer centricity? There's a huge spectrum of reality there, from we say it to we actually do it. And the way he explained it it was almost like I was talking to Mike Ribeiro. He said we really look beyond purchases, beyond the actual transaction, to the broader engagement. What does this engagement look like for us? And though it's a more complex valuation and deriving direct ROI sometimes is tricky, the company's view is that by taking a longer view of the relationship than the simple transaction or than just the successive transactions, that they can have a bigger effect on their customer ecosystem.

Mike Ribero:

Well, mike, there are a lot of examples now where going beyond a single purchase just makes economic sense, plain and simply, and I would suggest that, as it relates to customer centricity, there's people who talk the talk and then people who walk the walk, and we can talk about examples of those that I think are really walking the walk. But let me give you an example. It could be that and it'll vary by industry and brand there isn't kind of a universal, there's no silver bullet out there. There's some brands that benefit more from a certain set of activities that the customer can engage in and others that will be completely different. There's some brands, for example, where they're having trouble getting the customer to download the mobile app, but they know that once they do download the mobile app, that customer has a value that's significantly greater than those that don't. So just doing that can provide an instant economic benefit.

Mike Ribero:

The same thing with influencers on social media or just posting a verified review. There's research out there that shows that if you have a minimum I think it's 12 or 13 posted reviews on your site, your business increases significantly because it's essentially verified word of mouth. So there are a lot of different ways, but it's going to vary by category and a brand needs to determine what they want to accomplish. For example, in the grocery industry they may want to try to get back to establishing that direct relationship with the customer that may have been affected by brands like Instacart and others that now people are ordering through Instacart instead of ordering through the grocery store, or the same with restaurants and Grubhub and DoorDash and similar. So it really depends on each brand what their strategic objectives are and what behavior they want to elicit from their customer and then determine what that's worth to them and in most cases that should be relatively easy to understand or to calculate.

Mike Giambattista:

You would think. I mean, you're starting with the end in mind and then working backwards in so many cases. Before we leave this topic entirely, I'd like to talk about something that comes up fairly frequently in our conversations as well, which is the difference between rational engagement and efforts to connect rationally and emotional engagement, and what the difference there is and the importance of it, because I know you have some very definite thoughts on that.

Mike Ribero:

Well, it's funny, that's what I was going to talk about next, because that's one of the things that I think has to be fixed. That and the currency issue are the two major facets of loyalty programs that are broken today, and it seems like when loyalty was first being developed, it was clear that loyalty required a combination of reward to reinforce rational factors of the product or service and recognition to reinforce the emotional. As pressure increased and pricing and value became an issue, rewards took the forefront and people forgot about recognition. That situation was exacerbated by the advent of technology, which kind of eliminated the human factor and replaced it with technology, making it almost impossible to forge an emotional bond with the brand.

Mike Ribero:

That's one of the big reasons why millennials and Gen Z consumers aren't loyal is it's hard to be loyal when there's no emotional attachment, restoring a balance and that is not just as it relates to recognition and reward, but really the experiential side of the brand, value proposition, things like better service, true personalization, where you get to know the person beyond the business that they do with you. And that's one of the big concerns I have is brands seem to think that personalization is really focused on the business that I do with you as a customer. But true personalization understands the customer holistically and what they're doing when they're not doing business with you, because that can help you understand how to maintain your relevancy when they're not. It was one of the biggest challenges we faced in the hospitality industry, which is how do you maintain relevancy when people aren't traveling? And there's a way to do that if you know more about your customer.

Mike Giambattista:

I feel like that statement you made a moment ago true relevancy is based on a 360-degree call it holistic understanding of who your customer is, not just a transactional one, and that's a solvable problem. Now, that wasn't always the case. That's only a fairly recent development that we can have those kinds of insights and understandings of who all of these people are and devise ways of building relationships with them.

Mike Ribero:

You know, mike, getting back to the original, when these programs were first launched, it was first about creating an opportunity cost for non-exclusive use of a brand. You wanted to create some pain when people had to buy a brand other than the program that they belong to Reward and recognition. And then the third one was about the data. It's about getting to know your customers better so you can have a true personal relationship with them, and there was that kind of attachment that made it really difficult for a competitor to come poach them, kind of attachment that made it really difficult for a competitor to come poach them.

Mike Ribero:

That facet has been lost and it has to be reinstated because unless there is rational and emotional alignment, a customer is always going to be at risk. Because, number one, you can always buy the rational side of the equation. You can price yourself cheaply, you can add longer warranties. It's really easy to buy that side. The other side isn't as important, but it's not. I mean, it isn't as easy to trump having an emotional strength but practical weakness. But it's really not in play today because few companies really make that a priority, and so you must have both to have not only long-term but sustainable commitment.

Mike Giambattista:

I want to shift the conversation a little bit to something a little more prescriptive. What do brands do with all this? Because we've now spoken at length about what the key core problems loyalty is bringing into the market, what they're facing, why customer engagement isn't what it should be. We've talked about what customers are really looking for. We've talked about some of the mechanics that modern loyalty programs should start looking at. But let's lay it out here In this last little segment of part three of Breaking Loyalty. Let's leave our listeners with what they can be doing, what they can be thinking about to take their loyalty programs into the future.

Mike Ribero:

So very easy. Take a look at your relationship with your customers. Start talking to your customers and asking them what kind of relationship they want, and don't just kind of blue sky them. Give them some models, let them react to that. Customers are not good at blue sky. They react to things. Explore an ecosystem that revolves around your brand. Or, alternatively, if you don't have a large customer base, are there partners you have that do and can you work with them? Expand the horizon of value that a customer can add to you beyond purchase. Where can they add value the most? Is it buying a subscription, for example? So there's recurring revenue? Is it referrals? Is it reviews? What behavior can you elicit from your customers that can drive incremental value?

Mike Ribero:

Then you've got to fix what's broken, and one of the biggest areas, mike, is the currency. I remember when we first launched Hilton, we said you get 10 points for every dollar you spend, because we wanted to inflate the perceived value. In today's world, people know exactly what the currency is worth and you're not pulling any wool over their eyes today. So it's better to be transparent and there are solutions to the currency issue. You just need to make the currency easy to earn, easy to access and you've got to give it utility beyond the reward charts that exist today. That limits the brand and it limits the customer and it undermines value. That's not hard to do and we can talk about that in a separate session on how to fix that specific problem.

Mike Ribero:

Then, lastly, is start thinking about how you can empower your customers by having them share data with you in a way where they get some value in return and that way you start learning more about them in a way that can help you then guide your strategy going forward. And the last couple of things I'd say is focus on maximized flexibility, minimize complexity Programs are far too complex, they've been over-engineered to focus on the 1% that's going to try to take advantage of you as opposed to the 99% that aren't. And keep it simple and focus on continuous improvement, because that's what the customer expects. And in today's world, unless you can kind of convince yourself that what you're doing is more, better, faster or, as one of the loyalty firms said, instant, everything, you're not doing enough to meet the needs of today's customer. I think it's as simple as that. Maybe not so simple, but there are steps you can take and start with the customer and building a relationship with them and then going from there, because they will guide you.

Mike Giambattista:

Mike, this has been a fascinating series. It's been fast-paced because that's who you are, but it's been packed with stuff that I think is eye-opening and I think it's actionable and I think it's important to anybody who's either actively working on their loyalty program, considering an upgrade, trying to figure out why their loyalty program isn't doing what it should. Any of the above, and I'm going to just in terms of a shameless plug here. We've got lots of resources and materials on the customer at customernet related to these issues, Lots of fixes with lots of vendors. Further, if you would like to get in touch with Mike Ribeiro, please reach out to us at the customer, because he's a master architect in this world. That said, Mike Ribeiro, this has been a fun series.

Mike Ribero:

Yeah, it has been, and I look forward to talking more about where loyalty goes from here.

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