The Net upends tenets of loyalty marketing

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In the realm of loyalty marketing, it's time to adapt to the new millennium's realities by watching Internet-related trends:

* The death of discounts.

As a loyalty program benefit, discounts have always been a lame excuse for compelling added value. There are exceptions, such as General Motors Corp.'s GM Card and its 5% rebate towards the purchase of a new GM car. But 10% off this and that, now and then, is a no-brainer, and close to brainless when it's applied indiscriminately. But up until now, discounts have been easy to do, and customer research shows (surprise!) that customers like it.

Enter eBay and countless eBay clones. Enter Priceline.com and its progeny. Say goodbye to list price. On the Internet, it just might cease to exist. And if there is no list price, how will we define a discount? It can't be done. That means marketers will have to focus on something other than price. I suggest real rewards. Points anyone?

* "Trash & trinkets" to moments and memories.

The promotional world once turned on toasters and fishing rods, golf clubs and stereos, dinnerware and jewelry -- to use a crass term of the trade, "trash and trinkets." Then came frequent-flyer miles. Then came Wal-Mart, a decade of declining unemployment, Priceline.com, countless other Internet shopping engines and more frequent-flyer miles.

Have you noticed how seldom these days any loyalty program relies on branded merchandise for its primary reward offering? Have you noticed how many ways you can earn frequent-flyer miles?

The simple truth is we all have mountains of "stuff" in our lives. By stuff I mean material objects, both necessary and discretionary, which were not so easy to come by in our parents' day. Stuff isn't nearly so precious anymore.

CAPTIVATED BY STUFF

What captivates us now is special stuff, stuff that only a few of us can get, stuff that stands for something or symbolizes something. And, more compelling than stuff, are experiences -- events, trips, places, sights, sounds, tastes that are out of the ordinary, memorable in their own right, precious in their uniqueness and fulfilling in a way that seems to make us more than we were. Frequent-flyer miles plowed that ground originally as those miles turned into trips, destinations, moments and memories.

Some describe this phenomenon as "the experience economy." Sounds right. It sounds like American Express Co.'s "By Invitation Only" events, such as the backstage cocktail reception for Platinum cardmembers with the cast of a Broadway show.

It sounds like Saturn's "Homecoming," which welcomed thousands of Saturn owners to a long weekend in Nashville. It sounds like CBS Sportsline's rewards program, where members can use points to buy or bid on special opportunities to chat with or even dine with sports celebrities. Memories are made of this. Loyalty, too. Bet on it.

* Communities of customers.

Years ago, a genuine marketing visionary, Stan Rapp, described frequency programs as having the potential to become "relationship brands." He said this was because the programs created a special relationship between the customer and brand, repositioning the customer in his own mind from the role of an outsider to the status of an insider. This transformation created an atmosphere of collaboration. And ultimately, collaboration might evolve to genuine advocacy.

Indeed, at least one early loyalty program consisted entirely of collaboration and advocacy. Ten years ago, MCI Corp.'s "Friends & Family" succeeded brilliantly by inviting customers to enroll and volunteer the names of friends and family, to whom MCI would offer preferential discounts on long-distance calls within the members' referral networks ("calling circles"). But, since the primary benefit of the program was a discount (and discounts make lousy rewards), "Friends & Family" lacked staying power.

What might have happened had MCI been able to take advantage of the Internet to turn those calling circles into ever-widening communities of customers? In "Friends & Family," MCI's customers offered lists of names and permission for MCI to refer to the member in its direct solicitations.

In today's Internet-enabled world, recruitment could be far more effective and personal, and far broader in its reach. It would be as easy as forwarding an e-mail.

And consider the opportunity for "Friends & Family" to have operated as an onsline community, with "family chat rooms," photo albums, bulletin boards, streaming audio and video. MCI would have had a shot at becoming a positive and durable part of its customers' lives.

LEVERAGING COMMUNITY

The implication for the future is significant. The Internet's power to create, sustain and leverage such communities of customers -- both online and offline -- will become an increasingly powerful marketing tool. The ability to e-mail referrals and shared benefit offers to dozens, even hundreds of acquaintances with a few keystrokes makes such viral marketing schemes potentially explosive.

Each customer relationship realistically becomes the fulcrum that can leverage dozens more. Spontaneous "neighborhoods" can form within each program community -- members with shared interests, common acquaintances or temporary needs. Such interaction between members adds relationship content to the program, fueling new dimensions of collaboration and advocacy and creating new loyalty hooks.

In the real-time world of the Internet, frequency programs can become more than just relationship brands. They can evolve without boundaries into a context of interactivity in which the members themselves become part of the relationship's content.

This is new ground to be sure, but it's a new day in a new year in a new century in a new millennium. So what are you waiting for?

Mr. Barlow is chairman-CEO, Frequency Marketing, Cincinnati.

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