A FREQUENCY MARKETING FORECAST: MORE GROWTH, NEW CHALLENGES; THE TRENDS THAT PREDICT FUTURE

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Frequency marketing will evolve and expand rapidly in the first decade of the new century, affecting people's lives more deeply and broadly than anyone imagines. Seven trends point the way.

nTrend 1: Customer relationship management -- the new business model. All customers are not created equal. Keeping the right customers is as important as acquiring them. Consultants and technology suppliers provide the means to assess customer value and orchestrate customized, integrated strategies for interacting with customers.

MORE PROGRAMS

Trend 2: Program proliferation -- accelerating momentum. It's estimated more than 60 million Americans belong to frequent-flyer programs. In one major market, three of four households belong to at least one grocery frequent-shopper program and half of all households belong to two. Credit cards with "rewards components" are the fastest-growing segment of the credit card business, and rewards offers are also being attached to debit cards. Everybody's doing it -- because it works (usually); because it's easier and less expensive to do than ever before; and because customers have come to expect it.

Trend 3: Program parity -- stagnation and imitation. One consequence of success is imitation, and imitation is the first step in commoditization. Launching look-alike programs is a trend, probably because it's cheap and easy to do. It contributes to the larger trend of emerging program parity and declining effectiveness.

MAKING IT WORTHWHILE

Trend 4: Innovation -- benefits worth earning. The original trips-and-prizes phase of frequency marketing is coming to an end, and innovative experimentation is being driven by both established frequency marketers, in industries where programs are already at parity, and by marketers whose industries are just beginning to adapt frequency to their ideas.

Customers are becoming choos-ier. Soft benefits -- such as unique cards and bag tags, special access to reservations, customer service and product information and special deals and discounts are so widespread their impact is diluted. Likewise, traditional hard benefits, such as miles and points for free flights, saturate the environment with two significant detrimental effects.

First, it's harder than ever to redeem miles and points for flights and nights. Too much promotional currency is chasing too little available inventory. Second, the 1% to 2% standard funding rate for rewards offerings in retail and credit card programs becomes more inadequate as customers play in more programs and experience multiple instances of low return on their loyalty investment (RLI).

Trend 5: Real time marketing -- Net effects. As more member interaction takes place on the Internet, exchanges of information and value between members and marketers will increasingly take place in real time. There'll be no more waiting for a quarterly statement with information on it almost six months old. Artificial intelligence functions will allow sophisticated variable combinations of recognition and reward to be applied and communicated almost instantaneously.

MORE LEVERAGE

Trend 6: Coalition programs -- maximum leverage. Imagine the effect on a frequency-marketing program if the frequency and impact of communications with members could be increased while the cost of delivering promotional messages was radically reduced.

Now assume recognition and reward are provided at five times the current rate without increasing the funding rate.

Finally, consider the value of a steady flow of new customers obtained at an acquisition cost of less than 10% of what is currently paid. Such compelling economics are part of the case to be made for "coalition frequency programs." In them, several companies "share" a program, pooling their budgets and their customers to share expenses and leverage opportunity.

As market pressures build, the coalition model will become irresistible, ushering in an era of "multibranding," the results of which will exceed anything seen to date from co-branding.

Trend 7: Preeminent privacy -- permission marketing. Today's powerful data management tools enable marketers to marshal incredible amounts of information in the service of customizing their messages to consumers. Will marketers have the good sense and fundamental integrity to respect the customer's privacy voluntarily? Some will; some won't. But customers will find other means to preserve their privacy.

Ironically, at the moment marketers have come to embrace information-driven, individualized marketing, the customer is running for cover, sensing a new vulnerability in this information age.

As a result, strategic advantage will no longer consist of just having customer information. Customer information is fast becoming a commodity. Strategic marketing advantage will arise from having the customer's permission and collaboration in using that information. It will therefore be more important than ever to create genuine, mutually beneficial relationships with customers.

Frequency-marketing programs, using differentiated combinations of recognition and reward to convince customers to become members whose permission and collaboration allow information to flow freely, will become the central marketing engines of the next century.

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