The Most Important Leadership Book I Have Read (and the shortest blog post!)

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Net: One of the most important roles of leaders and managers is to “look for people doing things right and tell them.”

Like most companies, The Loyalty Group (now the LoyaltyOne division of Alliance Data) had Operating Principles.  Ours were:

  • Work together
  • Be at cause
  • Respect & challenge each other
  • Teach & learn
  • Have fun

One of my goals when seizing the opportunity to start a new company was to create a culture where we were we were all driven by the goal of creating the future first and doing what others found impossible while treating people with respect and having fun along the way.  I quickly learned that simply espousing these principals and putting them on the walls of our offices was perhaps necessary but terribly insufficient to create the kind of culture we envisioned.

After a few (painful) false starts we built these principles into several company processes and policies:

  • Recruiting – no one was asked to join the company before a senior executive (often me) had shared our Operating Principles with the potential employee and received their commitment to leading by these principles.
  • We hired an industrial psychologist to conduct an anonymous employee feedback survey twice a year. The survey included questions about our managers’ leadership style and asked employees to rate their managers on how well they modeled “leading by the Operating Principles.”
  • 10% of the bonus for anyone who managed one or more employees was calculated based on their team members’ responses to “leading by the Operating Principles” questions.
  • We probably terminated more employees for violating our Operating Principles than for any other reason.

Given the importance of our Operating Principles and our commitment to taking employee feedback seriously, the semi-annual meeting when our industrial psychiatrist presented the results was well attended and no one was checking email or otherwise “not present.”

Although over two decades ago, I still remember the first meeting we had with our psychologist to review the employees’ feedback like it was yesterday.  Our team member’s feedback was fairly positive until she came to the section on “communication.”  Although our industrial psychologist was a highly professional and buttoned down PhD, I believe her exact words were “you all suck at communication.”  She clearly had our attention as everyone on the management team was at least somewhat stunned at her proclamation.  We thought we were doing all the right things when it came to communication – we had monthly town meetings, a frequent feedback culture, shared company updates through email blasts, I had lunch with five customer service representatives every month and our leadership team “double jacked” in our call center several times a year.

Our psychologist told us we needed to read The One Minute Manager.  Published several years before our meeting, I had seen the book in bookstores but never bought it.  At that time, I was a big reader, but focused on consuming “serious” books published by Harvard, MIT or Oxford; books on strategy, leadership and customer service.  The One Minute Manager looked to be about 50 pages long and I didn’t think it could possibly add value to me or other leaders of our company.  But given her feedback and alarming “you suck” conclusion, I bought it at Toronto’s Pearson Airport that evening and read it on my flight to Montreal.

The book’s most important message was simple: Leaders and managers should make it a priority to “look for people doing things right and tell them.” This is especially important for entry level team members and anyone joining an “apprenticeship business,” like Bain Consulting in the 80’s, Loyalty or Year Up where, over the course of their existence, these industry leaders have developed approaches, processes and other practices to deliver their mission.

Looking for people doing things right and telling them is critical for at least two reasons:

  1. Team members, especially those new to the company or industry, often do not realize when they are doing something “right.” I remember this being modeled expertly by my Bridgespan colleague Susan Wolf Ditkoff when we were developing a strategy for the nonprofit Common Cents.  On one occasion, Mandy Taft, a relatively new member of our team (but with significant work experience prior to joining Bridgespan) had presented to our client.  As soon as we got in a taxi for LGA, Susan said to Mandy “you did a great job presenting this morning and let me tell you exactly what you did that was effective…”
  2. Thankfully, our industrial psychologist told us exactly what we were doing wrong during the meeting mentioned above at the Loyalty Group. Our leadership error wasn’t that we didn’t give positive feedback – it was that we almost always followed up a “great work” comment with something like “but, did you ever think about doing this…” or “what if we added this…”  Unbeknownst to us, a lot of our team members where hearing “she/he thinks I could have done this better.”  Immediately after this session, our leadership team made it a priority to “look for people doing things right and tell them” and also were more conscious of and thoughtful about adding constructive feedback – often separating the “plus” from the “delta” in Year Up parlance.

Although I believe LoyaltyOne’s specific operating principles have evolved over the past two decades, I’m pretty sure their spirit lives on and that they are one of the major contributors to the company’s extraordinary track record. Long after I handed over the leadership reigns to JS and BAP, the company continues to define what it means to “create the future while treating people with respect and having fun along the way.”  Few companies can match their accomplishments, including: 20%+ annual growth; one of the key drivers of the highest performing North American stocks; perennially selected as one of the best companies to work for, best companies for diversity, best companies for women,and best corporate culture.  I will forever be grateful to Sir Keith Mills who gave me the opportunity to play a small part in getting this wonderful enterprise off the ground, but the real credit goes to my leadership team members, every one of our associates and those that continue to lead the company into the future.

Love to hear your favorite leadership books or others that have had a significant impact on you.

CHU

 

Leading by f*ing up

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My brilliant friend Morra Aarons-Mele, creator of the podcast “Hiding in the Bathroom” and author of a book by the same name subtitled “An Introvert’s Roadmap to Getting Out There (When You Would Rather Stay Home),” recently posted the poignant question “How do you stop obsessing over a f-up?” on Facebook.

I responded to her post:

Here’s how I TRY to put f-ups behind me. 1. Write it down 2. Identify lessons learned, if any. 3. Share my mistakes with team members and mentees.

 At our company The Loyalty Group, we hosted annual Experience Sharing Conferences with the management teams of our sister companies from around the world. A highlight was always the presentations by each CEO on the biggest mistakes made over the past year. One of our Operating Principles was “Learn from you mistakes, don’t dwell on them. Identify the lessons learned, share them and move on.”

Morra’s question and several recent experiences with leaders who seem hesitant to ever admit – much less promote – their mistakes stimulated this article.

Here’s what you can do to use your mistakes to add value to the missions you pursue and the teams you lead:

  1. Be ruthlessly self-candid about the mistakes you have made. Recognize them.
  2. After you recover, think about the lessons learned. What – in hindsight – could you have done before the moment of your mistake to have prevented it?  I have often found this simple matrix from Chapter 3 of Stephen Covey’s 7 Habits of Highly Effective People helpful:

 

In his book, Covey makes the important point that leaders often find their days consumed with responding to and managing both work and personal “emergencies” and “crisis.”  They live in Quadrant 1, spending their time on critically important and urgent issues.  His more important insight is that many of these crisis could have been avoided if leaders focused more on and invested in Quadrant 2 activities and issues:

One of the challenges of this paradox is – in most cases – if you don’t invest in Quadrant 2 initiatives today, you likely won’t lose a customer, key employee or experience other professional or personal pain today.  E.g. If you don’t get some exercise today, it’s unlikely that will lead to a heart attack.  Another challenge is we often find it difficult to find the time to prioritize Quadrant 2 activities because we end up spending all of our time putting out Quadrant 1 fires.  This analysis may be helpful as you think through the lessons learned from your most recent mistake. One of our insights was that we needed to make Quadrant 2 initiatives mandatory and – on the rare occasion  when all else failed – give them same “nights and weekends” priority we would Quadrant 1 emergencies.

  1. Share –  and even consider promoting – the mistakes you have made with your colleagues, the teams you lead and the people you mentor. In order to successfully do this, you need to both lead by example – share your own mistakes – and ensure you have created a consistent culture and a work environment where employees feel safe sharing their own mistakes.  One way we did this at The Loyalty Group (now Alliance Data’s LoyaltyOne division) was to incorporate the company’s 10 Operating Principles into to our bi-annual employee feedback survey.  One section of the survey asked employees to rate their manager’s performance re “leading by each of the Operating Principles” over the past six months on a one to 10 scale.   And we put some teeth in our commitment to leading by our Operating Principles by basing 10% of all managers’ annual bonus on their team members’ responses to these questions.  Perhaps more importantly, I am sure we fired more managers for not leading by our Operating Principles than for any other reason.
  2. Continuously analyze the root causes of mistakes and make sure you are investing in training, capabilities, programs and other resources to decrease the probability of repeating them.
  3. Although we all try to not make the same mistake twice and thereby modeling Einstein’s axiom “Doing the same thing over and over again and expecting a different results is the definition of insanity,” mistakes will inevitably happen.  Sometimes more than once.  If this happens, repeat steps 1-5 and keep moving forward.  I’s OK to cut yourself some slack.

Please share your experiences with learning by and leading from your mistakes.

CHU

4 T-Shirts in the Entrepreneur’s Closet

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Net: A Year Up student recently asked me if I had any favorite any motivational words or slogans.  I told her about the 4 T-shirts we wore at Sports Loyalty International: Carpe Diem; Never, Ever Quit, No Regrets & Breakthrough.  After speaking with her, I realized they applied to my current role at Year Up as well.

My favorite “unsuccessful” company has to be Sports Loyalty International.  We had a great, fun, talented team; phenomenally supportive investors; an all-star advisory board; and what we believed was a uniquely transformative program and business model.  We also had cool T-shirts.

In addition to making the morning wardrobe choice a very easy one, the words on SLI’s 4 T-shirts became motivating slogans to our 8 person team and closest advisors.  Recently, while visiting Year Up’s Atlanta site with GE CTO and Year Up champion Adam Radisch, I met an amazing young woman named Ariel Terrell.

Ariel asked me if I had any favorite words or slogans that I turned to for inspiration and motivation.  She shared that she was planning to cover the walls of her basement family room with inspirational words for her kids. I asked the young lady how many children she had and was surprised when she responded “five.”  Ariel explained that she had adopted her sister’s three children several years ago when her sibling was unable to care for them and then had two of her own.  I asked her “When do you sleep?” and she responded “rarely!” This is one of literally hundreds of stories I could tell you about the grit and determination of our students.  They are the embodiment of the Year Up brand, the primary reason we have grown from serving 22 students in 2001 to 3,700 this year and my greatest source of inspiration and energy.

So, back to our T-Shirts.  I told Ariel about our slogans: Carpe Diem; Never Ever Quit; No Regrets and Breakthrough, and also shared a few inspirational quotes. On the plane back to Boston, I thought about these slogans and realized they also apply to those of us who lead corporate partner development for Year Up.

Carpe Diem

I probably first heard the phrase Carpe Diem in the movie Dead Poets Society.  I also heard it in my head over and over again when making the decision to accept the offer from Sir Keith Mills in 1991 to start the Loyalty Group in Canada. As entrepreneurs at SLI, we realized that every day was a gift from our investors.  They believed enough in our vision and our team to give us the opportunity to create a new type of loyalty program that had never been successfully developed in the world’s largest market. At the same time we were keenly aware – as are all start-up’s – that we had limited funds and therefore days to close the requisite number of customers to create an economically viable business before running out of capital.  To us, Carpe Diem meant seize the opportunity you have been given to create the future every minute of every day you work.    I have a similar feeling about Year Up.  I remind myself every day that I am incredibly fortunate and privileged to work in service to our amazing students and the opportunities corporate partners like GE give them to cross the Opportunity Divide.

Never Ever Quit

True confessions – we stole this from Winston Churchill’s “never, never, quit.” This was our mantra when three of us started The Loyalty Group in a Toronto hotel room in 1991 and became our business development rallying cry during the 8 years I was fortunate to run the company.  While in Canada, I was often asked to speak to business school students and share our strategy and leadership principals at other companies’ management team meetings and executive retreats.  A common question was “what’s the key to success when starting a business?”  Without hesitation, I always responded “creative perseverance.”

Creative perseverance is something I learned from my father who still holds the record for being both the youngest and the oldest person ever elected governor of a US state.  What most people don’t remember is that he actually lost three elections in between these historic milestones – an experience that would have eliminated the desire to ever run for elective office again in most human beings – but not him.  During his successful 1996 campaign, he didn’t re-use the slogans or policies from earlier attempts, but instead developed a platform around using technology to improve the employment opportunities and quality of life for West Virginians.  He adopted the slogan “A Leader for New Times,” secured the URL governor.com and created one of the first political campaign web sites.

The point of creative perseverance is to “never, ever, quit” but – equally important – it is to remember Einstein’s definition of insanity, “doing the same thing over and over again and expecting different results.” When I was Loyalty’s CEO It took me six years to land what became one of our largest customers and likely doubled the value of the company.  Every quarter I emailed the target CEO, but I never sent him the same message as the previous quarter.  I never wrote, “Hey it’s me again, asking for yet another meeting to talk about our loyalty program.”  Instead, I sent him examples of new innovations we had created to add value to other corporate partners: a recent case study on the ROI from investing in our program from a similar business; a new internet marketing application we had developed; a new database marketing product; the increased percentage of households in his store’s trading area that had joined our program; and our latest research showing the number of customers who would increase their spending at his stores if he joined our coalition. After literally six years of this water torture, he eventually succumbed and became (and remains) one of our most important customers.  At the dinner when we celebrated the signing of our contract, he said “you eventually became too logical to ignore.”

While I hope it never takes 6 years to convince a new corporate partner to hire Year Up interns and graduates, I recently realized that while I have diligently followed the mantra of “never, ever quit,” I have often failed to remember the importance of “creative perseverance.” Far too often, I emailed or called unresponsive targets with a message asking for an initial or follow-up meeting.  That actually worked in several instances as I secured meetings with leading companies after months of weekly requests, but – realizing my lack of creativity – I now wonder how much more efficient my efforts could have been if I included new case studies, articles, success stories, etc. from other Year Up partners in their industries.  One of the great things about Year Up is we have not only great “sizzle” – student and partner video testimonials, the 60 Minutes episode, etc., but also great “steak” – real quantitative studies and evidence of the value we create with our partners.  And with 3,700 students in 17 locations providing talent to over 200 corporate partners this year, we are constantly creating a steady stream of new “sizzle” and “steak” that can be used to accelerate our business development sales cycle.

No Regrets

“No regrets” is pretty simple.  At SLI, we refused to say the words “would have, should have, could have” the morning after losing a sale.  It means doing your very best, seizing every opportunity and “leaving it all on the canvas,” to use a boxing metaphor.  Although I loved the three years we worked together to try and get SLI off the ground, I had no regrets when we finally ran out of runway and investor patience. We gave it our best shot and used the full capabilities of our extraordinary team and partners.

But to be clear, “no regrets” does not imply that we never made mistakes.  One of our Operating Principals was “We learn from our mistakes, we don’t dwell on them.” I have always believed that I learn more from my mistakes than almost any other activity.  At The Loyalty Group, we hosted an annual “Global Experience Sharing Conference” where the management teams of sister companies from the UK, Netherlands and Spain would get together.  A highlight of these meetings was sharing “The 10 Dumbest Things We Tried Last Year.”  I recently realized I should be sharing the mistakes I have made over the last several months with the team members who work with me across the country.

Breakthrough

By definition, entrepreneurs are trying to create a product or service that has never existed before – otherwise, there would be no entrepreneurial opportunity.  Successfully creating a new product or service requires all of the above, but it also requires “breakthrough moments” when a prospective customer or investor “gets it.”  Although I realize some other experts disagree with me, I am a firm believer in “shooting all of the arrows in your quiver” when making sales presentations.  By that I mean using both steak and sizzle – data, testimonials, videos, etc. – as efficiently as possible when developing and implementing your sales and marketing tools and materials.  The logic for this is simple – you often don’t know which arrow is going to hit the prospect’s “sweet spot.”  Research tells us that using PowerPoint or other visual devices increases a prospect’s retention of your pitch by 30% vs just having a conversation, but it can’t tell you what form or medium will be most effective with an individual target.  There are several styles of learning and – unless you can get reliable inside knowledge about what forms will be most effective with your prospect – it behooves us to efficiently try all at our disposal.

At SLI, we developed what we affectionately called the “Blow Fish Strategy.” Initially there were just four of us competing against my former company The Loyalty Group – by then a billion dollar enterprise with an impressive 20 year track record – so we needed to develop low cost ways of making us look more substantial than we actually were. Our strategies included:

  • Buying low cost (i.e. $200) iPads from my former Bain colleague’s online retailer glyde.com, co-branding with SLI and our partners logos on a customer “skin”, creating a screen saver that looked like the iPad had been custom developed and programmed to only include our overview presentation, focus group videos of their customers saying they would increase sales if they could earn loyalty points and high quality images of their and other leading businesses displaying our point of sale materials.
  • Bringing on Toni Oberholzer and her “one wonder woman” creative firm OVO as a partner. Toni developed incredibly high quality loyalty program cards, membership kits, mobile apps and partner collateral for our business development meetings.  She worked under and delivered against ridiculous turn-around times and charged us a fraction of what one of the “big agencies” would have cost.
  • We figured out how to transform our presentations Toni’s brilliant creative into a hard cover Shutterfly books. We had these books individually produced with the names of the executives we met with and they arrived at their offices within 4 days of our initial meetings. Best of all – they actually cost less than having a presentation printed and bound with a plastic cover at FedEx!
  • Shout out to my Co-Founder Lauren Creedon for leading all of the above.

We found that individual aspects of the blow fish strategy worked well with different individuals.  For some, the creative mock ups “got them;” for others it was our videos of their customers’ voices or our program results from leaders in their industries from the Loyalty Group’s AIR MILES program.  In a few cases, we had “insider information” and knew – for example – to not share our focus group videos with the Vice Chairman of the Red Sox, who was more of a “numbers guy.”  But if not, we would live test each element to see what worked with each target executive and use their feedback to tailor our message.

Recently, several of my Year Up colleagues and I have realized there exists a “7 Step” business development process we need to progress through to reach our goal of becoming a significant strategic source of entry level talent for our corporate partners:

We also realized that progressing from one step to the next often happens after a “breakthrough” moment and that over our 17 year history, we have developed a number of “breakthrough accelerators” that can reduce the sales cycle between each step. Examples include:

  • A Year Up Champion changes roles or companies, e.g. David Kenny became General Manager of IBM Watson; Jeff Robison became COO of WorldPay.
  • An article is published about a Year Up Corporate Partnership, e.g. State Street and American Banker.
  • A new Year Up Corporate Partner video is developed. e.g. Year Up Cyber Security Curriculum developed in partnership with Symantec, eBay and LinkedIn.
  • The establishment of a cross functional internal Corporate Partner Steering Committee focused on maximizing the value proposition of their partnership with Year Up. JP Morgan Chase, Bank of America and others have done this.
  • Opportunities for Year Up executives to present at high level cross functional meetings, like GE’s CIO Council.

Those of us who lead our largest relationships our now collaborating with marketing and sales operations support to collect and share these and other best demonstrated practices to help accelerate our mission delivery.

Please let me know your motivating words and slogans – on T-Shirts, board room or basement walls or otherwise – and I’ll share them with Ariel and her five children.

Thanks

CHU

Is the U.S. coalition loyalty’s Afghanistan? Overcoming the challenges of the U.S. market.

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Net: Coalition loyalty programs are among the most successful and fastest growing businesses created over the past 25 years, with flourishing coalition programs currently operating in many countries around the world. The one glaring exception – the U.S. market. Why? It certainly isn’t for lack of trying. Over $1 billion has been lost by companies and investors attempting to launch coalition loyalty programs in the U.S.

We believe the reasons no one has launched a successful U.S. coalition program are embedded in the five unique challenges of the U.S. market:

  1. Overcrowded loyalty space – the average U.S. household has joined 18.5 loyalty programs, but remains active in 8.
  2. Lack of nationwide or clearly defined regional businesses in major consumer spending categories – difficult to identify coalition partners with consistent presence across markets.
  3. Few unique rewards – lots of commodity-based, “me too” rewards.
  4. Rewards are expensive – economic value back has become only distinguishing feature; competitors continue to increase percent back to compete, raising overall costs.
  5. Lack of cooperation among U.S. companies – American companies have not historically “played well in the sandbox together” and few examples of long term coalition partnerships for anything exist in the U.S.

So what’s the solution – “cut and run”?  Not necessarily.  We believe there is a path to daylight to develop a coalition loyalty program in the challenging U.S. market. Doing so will require a breakthrough program model that not only incorporates the requisite 6 A’s of Coalition Loyalty Success, but contains the following  elements:

A. Truly breakthrough, motivating assets to cut through the current “clutter” of loyalty programs.
B. Better designed rewards inventory with a selection of rewards that appeal to consumers on both an emotional and rational basis.
C. Critical program elements and unique assets that cannot be duplicated by competitors.

D. A regional approach that makes sense in order to create a strong coalition of leading partners.

E. A technology platform that leverages the new user friendly opportunities for member engagement enabled by 21st century social, mobile and interactive digital media, and finally, most importantly

F. Bold, visionary, risk taking leaders who are willing to “play to win” instead of “playing not to lose” and will benefit most from being the first to champion the tremendous potential of  participating in a coalition loyalty program.

First developed in the late 1980’s, coalition loyalty programs are multi-company, shopper rewards programs. Consumers who participate in these programs are rewarded with a single points-based currency for shopping at exclusive (or co-exclusive) sponsors within each major retail / consumer category: e.g., one supermarket sponsor, one gas station sponsor, one department store sponsor, one credit / debit card sponsor etc. Points earned collectively at these sponsors can then be redeemed by consumers for a variety of rewards such as travel, merchandise and gift cards / discounts at the sponsors.

Coalition programs like AIR MILES (Canada), Nectar (U.K.), Payback (Germany), Fly Buys (Australia) and others have been extraordinarily successful around the world. Unlike stand-alone retailer loyalty programs –  like CVS ExtraCare and Best Buy Rewardzone in the U.S. – points add up much more quickly for members of a coalition program shopping at tens (and even hundreds) of sponsors. This greater “rewards attainability” increases members participation in the program and enables the program operator to include a broad selection of program rewards, including lower value items like free gas or groceries and higher value items such as plane tickets, electronics, computers and vacation packages.

There has been a lot of news in the coalition loyalty space over the past year. AIR MILES Canada, the company founded by Sir Keith Mills, Craig Underwood and an extraordinary team of entrepreneurs in 1991, celebrated its 20th anniversary in Toronto last March.  Last week, Nectar, the U.K. coalition loyalty program created by Sir Keith in 2002 celebrated their 10th anniversary.  Both programs continue to grow and thrive for one simple reason:  they continue to create extraordinary value for their partners. Earlier this year, Sainsbury’s (a leading U.K. supermarket chain) extended its contract with Nectar for seven years. Like many retailer executives participating in coalition programs, Sainsbury’s CEO Justin King – formerly an executive at Asda, the U.K. subsidiary of Wal-Mart, and initially a skeptic of coalition programs – has clearly recognized the measurable economic and strategic value that the coalition model has created for Sainsbury’s.

As companies like AIR MILES and Nectar have demonstrated over many years, the coalition model provides tremendous value and a sustainable long-term competitive advantage for its sponsors. Many of the top programs penetrate 60-70% of all households:

CLP's

If the coalition loyalty model has been so successful in other countries, why has it failed in the U.S. market?  It’s not for a lack of trying as over a billion dollars has been lost by companies attempting to develop a coalition model in the huge, but challenging US market.  So what are the problems with the loyalty “terrain” of the American market that make it the “Afghanistan” of the coalition loyalty space?

Over much of the past decade,  we have analyzed the reasons behind the inability of loyalty companies to create a successful U.S. coalition program. Our team at SLI believe the most significant challenges of the U.S. include:

  1. An overcrowded loyalty space resulting in consumer “loyalty program fatigue” or “supersaturation.”
  2. Ubiquitous discount, merchandise and travel rewards that offer no point of differentiation and therefore can’t break through the clutter.
  3. The costs of rewards are expensive to the companies paying for them which make the economics of their loyalty programs challenging.
  4. Lack of nationwide or clearly defined regional businesses in the major consumer shopping categories needed to create a motivating level of consumer attainability.
  5. Few or no examples of U.S. businesses working together in multi-year coalitions of any form.

Overcrowded loyalty space

Without any coalition loyalty programs currently operating in the U.S. market, many consumer-facing businesses have developed their own single company “stand alone” loyalty program. Others – notably many of the larger supermarket chains – have developed gas discount programs with their own, and in some cases another, branded gas station.  This has resulted in a highly fragmented, cluttered loyalty landscape that can be overwhelming to consumers. Here’s an example of some of the reward programs bombarding consumers in Columbus, Ohio – and these are selected from only the gas and grocery sectors.

Columbus market

According to the loyalty consulting firm Colloquy, a division of Alliance Data Systems’ LoyaltyOne, the average U.S. household has joined 18.5 loyalty programs, but remains active in only 8 programs. In other words, the average American shopper has dropped out of more programs than those they have found rewarding enough to remain active in.  Colloquy conducts the study about every two years.  Graphing the past three studies clearly shows the impact of adding more “me too” programs in an overcrowded marketplace: US households are not increasing the number of programs they remain active in as they try new ones.  Sitting behind the glass in focus groups across the country over the past two years, we’ve heard consumers continually complain about the huge number of low perceived value, undifferentiated loyalty programs.

Bar chats joined vs active

With this kind of fragmented landscape, we believe it will be very difficult for a new loyalty program – even one as well designed as a coalition program – to break through the clutter and capture consumers’ attention.  We believe this challenge will be exacerbated for any program built around a “generic” set of rewards like free travel and discounts on gas purchases.

Few unique rewards

With many consumer-facing businesses developing their own standalone or one-partner loyalty programs in the U.S. market, you would expect these businesses to develop unique rewards and truly differentiating value propositions in order to effectively compete. However, what we see currently in the U.S. marketplace are an overabundance of “me too” programs, typically based solely on discounts / cash back and commodity rewards, with very little differentiating features.

One example of this is the gas loyalty programs that have recently gained popularity in the supermarket space. Consumers participating in these programs can typically earn 1 point per dollar on spending at the sponsoring supermarket. These gas points can then be redeemed instantly at the sponsoring gas station for cents off gallons of gas (typically 100 points = $0.10 off per gallon).  These points are always subject to many restrictions: e.g., points expire after 30-60 days, 15-20 gallons max fill-up, etc.  The gas programs are facilitated by a patented technology that instantly “rolls back” consumers’ price per gallon right at the pump. But a commodity program like this can be duplicated – and in many markets has been duplicated – by competitors.  For example, in the Columbus market, both Kroger and Giant Eagle operate gas loyalty programs.

So what becomes the differentiating feature(s) of the two competing gas programs? Other than the convenience of where the participating supermarket stores and sponsor gas stations are located, it all comes down to the  economic value back to the consumer. Indeed, in recent months Giant Eagle increased its value back by offering 50 points = $0.10 off (vs.previous 100 points = $0.10, which Kroger still offers).  With no unique rewards offering, you can see how this can quickly become a “race to the bottom”.

S&H

It reminds us of the “trading stamps” phenomenon of the 1960’s. Most retailers offered S&H Green Stamps or the yellow TV or Top Value stamps, and at one time as many as sixty percent of Americans collected them.  But eventually, the businesses paying for the stamps realized they did not provide a differentiating competitive advantage and were therefore merely an added cost of doing business and they stopped operating these expensive programs.

Which leads to the next challenge in the U.S. market.

Rewards are expensive

When loyalty schemes such as cash back rewards and the gas programs become merely a simple economic value back proposition for consumers, they can become very expensive to operate. We’ve seen this in the gas programs, where the estimated average cost of sales is 100-150bps, but can be much higher, depending on – literally – the number of gallons your vehicle holds.  This cost would be substantially higher if not for the structural breakage of the program design: e.g., can only be used in $100 increments, points expire within a month or two,  etc.

Other stand-alone retail loyalty programs can cost as much as 5-10% of affected sales.  CVS ExtraCare is 2% on most everything, but routinely offers as much as a 25% discount for a $25 purchase. Target’s in-store credit or debit card program offers 5% off all purchases. We recently met with a leading regional enterprise who was considering offering their best customers a 10% discount on one of their highest margin, most frequent and therefore largest sources of revenue.

Lack of nationwide or clearly defined regional businesses in major coalition categories

Horizontal AIR MILES & Nectar cards

One of the most important differences between countries that have successful coalition loyalty programs, such as Canada and the U.K., and the U.S. is the lack of either: (i) nationwide companies that operate in the critical consumer spending categories of supermarkets, retail gas and banking/credit card or (ii) businesses within each of the key categories that all operate in the same clearly identified regional markets. The development of AIR MILES in Canada was greatly enabled by the fact that in almost every small town and large city in Canada you can buy gas from Shell, Petro Canada or Esso or find Bank of Montreal, The Royal Bank of CIBC branches.  The one major exception is grocery, but one of the first things we learned when starting business development for AIR MILES in Canada was businesses were comfortable defining “Western Canada” as the four western provinces plus Thunder Bay, which is actually located in Ontario.  In the U.K., Nectar was similarly enabled by the presence of nationwide chains in all major consumer spending categories and a similar “mutually agreed upon” regional segmentation facilitated the development of Travel Club in Spain. There is no agreement with U.S. businesses on the geographical boundaries of defined regions, so trying to build a nationwide coalition that will offer sufficient number of households reasonable reward attainability becomes challenging, unless a program developer can get the request number of businesses to operate in a defined region.

As the chart below demonstrates for the retail gas station sector, no one gas chain will give you adequate coverage in multiple regions.  This graph shows the regional market share of one of the largest nationwide retail gas chains in the U.S. While the company has sufficient share in areas like Chicago, it is weak or non-existent in other markets such as Philadelphia, Minneapolis and Upstate New York.  This analysis helps explain why one supermarket chain that offers customers points good for gas discounts told us the percent of their shoppers redeeming for gas discounts ranges from 10% to 70% depending on the region. Additionally, while regional coalition models in the U.S. make more sense, it’s not obvious what regions should be chosen, as the potential coalition partners in each category all typically have different geographic footprints.

Updated disguised gas chain data

Few examples of true multi-company coalitions in the US market

U.S. companies are not accustomed to cooperating with each other to form larger long term coalitions. One reason could be that U.S. business leaders are more likely to employ a “go it alone” strategy where they are implementing something they perceive as uniquely theirs, or as it appears to be the case in many loyalty programs, attempt to “differentiate” with a higher cost version of what someone else is doing.

We also believe a psychological phenomenon we call the “leader joiner” challenge may add to the difficulty of developing a truly effective coalition loyalty program in the US.  Clearly no one has developed an effective coalition loyalty program in the US market; therefore, doing so requires at least one senior executive in each major consumer spending category to take a bold leadership leap.  But at the same time, by definition, joining a coalition program requires just that – joining and collaborating with other companies.  By doing so, no one C-level executive will get all the credit for the breakthrough program and the extraordinary results that thousands of hours of US consumer research demonstrate would accrue to the companies forming the coalition.  Finding “leader joiners” is hard in any culture, and likely even more so in the U.S.

Leader Joiner Matrix

Additionally, with many U.S. consumer businesses operating in slightly different geographies, it’s not always obvious what partners to work with. Few companies have perfectly congruent geographic footprints. Many of the large consumer businesses have nationwide strategies, and if the same partner is not present in all of the companies’ markets nationwide, forming a partnership may be less appealing.

So what are the potential solutions – what is needed to break into the U.S. market?

While the challenges of the U.S. market could lead many to favor a “cut and run” strategy for coalition program operators, we don’t believe these challenges are insurmountable. A well designed program will need to have the following five features:

A. Truly breakthrough, motivating assets

The program brand and value proposition must be truly unique to break through the current “clutter” of loyalty programs.  Consumers need to instantly “get it” and realize the program offers a unique and superior consumer value proposition.  As one head of a Detroit household put it recently when reviewing breakthrough, motivating rewards that resonated with her: “the rewards seem very attainable and they seem not like stupid rewards… these actually seem like they have value to the rewards.”

B. Better designed rewards inventory

A well designed coalition loyalty program will need a selection of rewards that appeal to consumers on both a rational and emotional basis.  A diverse rewards inventory that includes appealing options for “moms, dads and kids” will drive enrollment and increased engagement. As the loyalty marketing experts at COLLOQUY point out, currently in the U.S. market there is an over-abundance of rational deals, discounts and cash back rewards, when it’s really unique emotional loyalty hooks that can be much more powerful in creating lasting bonds with consumers.

Colloquy quote on emotional awards

Rewards that have high perceived value vs. their cost will be most effective, while consumers continue to prefer flexible rewards wherever possible. Rewards that can promote or enhance current charitable, community and employee initiatives will also be well received by key businesses.

Finally, coalition partners will benefit from rewards that can capture the opportunity to use social, mobile and digital media to help all stakeholders enhance their current initiatives and achieve their economic and strategic goals.

C. Unique, exclusive assets that cannot be duplicated by competitors

A breakthrough program will need to have exclusive rewards that competitors cannot duplicate. Although AIR MILES now offers consumers the opportunity to redeem their points for something in excess of 800 different rewards, when we launched the program in 1992, we offered only free air travel, hotels and rental cars.  What some have forgotten, as the program has expanded over the years, is that our initial sustainable competitive advantage came from the fact that we had secured exclusive contracts from four of the largest North American airlines.  No competitor could have duplicated our initial reward offering.  Although in many ways harder to do in 2012 than it was in 1992, we believe a program can be designed with exclusive assets that will drive a sustainable long-term competitive advantage for participating sponsors.

D. A regional approach that makes sense

A regional U.S. coalition program has the greatest probability of creating a strong coalition of leading partners.  The challenge will be getting the major partners to agree to develop a program or programs in the same region.  We believe the opportunity exists to capitalize on the few places where leading regional companies and a limited number of enlightened national players have already recognized the powerful opportunity to join together and tap into local and regional pride that is present in communities across the U.S.

E. A technology platform that leverages the new user friendly opportunities for member engagement enabled by 21st century social, mobile and interactive digital media

During the mid 1990’s SLI’s founder developed over 20 database marketing programs that leveraged the assets of a coalition loyalty program, including the motivational currency, the database and ability to develop micro-coalitions of sponsors targeting collector segments including movers, new parents and farmers.  In 1995, AIR MILES became one of the first loyalty programs on the internet.  In 2008, Underwood Partners assembled an extraordinary consulting team whose members included Nicco Mele, Pamela Rosenthal and Ken Dec to develop a strategy for one of the worlds leading coalition loyalty programs to leverage the capabilities of the internet and social media to increase collector engagement and sponsor profitability.  Our team identified over 50 initial new ideas and initiatives and our final report included 25 specific recommendations.  Since then, the capabilities of the iPhone and Android mobile platforms exponentially increased the ability to connect members to other members and prospective members, sponsors and program operators.  We also believe these platforms hold the potential to enhance the traditonal currency earning possibilities beyond those available to loyalty programs only a few years ago, which can broaden the historical view of “must have” categories and sponsors.

Mobile apps

and finally, most importantly

F. Bold, visionary leadership

Coalition operators must identify and win-over business leaders that will benefit most from being the first to champion the tremendous potential of participating in a coalition loyalty program.

In short, coalition operators need to find the U.S. equivalent of the business leaders at Safeway and Bank of Montreal who we identified in Canada back in 1992 when developing AIR MILES:

“Twenty minutes into the presentation I knew it was the biggest thing ever…It’s a leap of faith but … we have to go in big … You snooze–you lose.”

–          Gerry Geoffrey, Chief Financial Officer, Canada Safeway

(Two weeks later his AIR MILES customers had doubled their average spend at Safeway.)

“About an hour into the meeting, I stopped them and went to talk to our Vice Chairman. I told him, ‘I’d like to hang onto these guys. We need to set up a standstill arrangement so they won’t go talk to another bank’. That’s how excited we were about the program.”

–          Jim Brophy, VP Electronic Banking, Bank of Montreal

Clearly, without these visionary leaders, AIR MILES Canada would have never gotten off the ground and become the tremendous success that it has over the past 20 years.

Based on our findings from over ten thousand in-depth  interviews with U.S. consumers we have invested in over the past two years, we are confident the potential exists for a similar, sustainable coalition loyalty program to be developed in the U.S. market in the years ahead. But doing so will require a few bold visionary leaders who are willing to challenge the status quo and not follow the crowd by launching yet another stand alone loyalty program.

Craig Underwood, Lauren Creedon, Ian Drummond & James Ray

Note to Starbucks CEO: Don’t use technology (or loyalty programs) to demotivate your employees

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Summary: While the Starbucks App is cool and makes buying coffee and food quick and easy without dealing with cash, credit or debit cards, the company appears to have developed the app without fully considering the impact on their employees. The app doesn’t offer users the option to tip baristas when making a purchase.  Other mobile payment apps like LevelUp and even taxi cab credit card machines make tipping quick and easy for users.  The Starbucks Rewards program also concerns us as it rewards customers for paying for one item at a time, even when purchasing multiple items, which could lead to increased employee and customer frustration.

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Is the U.S. coalition loyalty’s Afghanistan? Overcoming the challenges of the U.S. market.

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Afghanistan map with question mark.

Net: Coalition loyalty programs are among the most successful and fastest growing businesses created over the past 25 years, with flourishing coalition programs currently operating in many countries around the world. The one glaring exception – the U.S. market. Why? It certainly isn’t for lack of trying. Over $1 billion has been lost by companies and investors attempting to launch coalition loyalty programs in the U.S.


We believe the reasons no one has launched a successful U.S. coalition program are embedded in the five unique challenges of the U.S. market:


  1. Overcrowded loyalty space – the average U.S. household has joined 18.5 loyalty programs, but remains active in 8.
  2. Lack of nationwide or clearly defined regional businesses in major consumer spending categories – difficult to identify coalition partners with consistent presence across markets.
  3. Few unique rewards – lots of commodity-based, “me too” rewards.
  4. Rewards are expensive – economic value back has become only distinguishing feature; competitors continue to increase percent back to compete, raising overall costs.
  5. Lack of cooperation among U.S. companies – American companies have not historically “played well in the sandbox together” and few examples of long term coalition partnerships for anything exist in the U.S.

So what’s the solution – “cut and run”?  Not necessarily.  We believe there is a path to daylight to develop a coalition loyalty program in the challenging U.S. market. Doing so will require a breakthrough program model that not only incorporates the requisite 6 A’s of Coalition Loyalty Success, but contains the following  elements:


A. Truly breakthrough, motivating assets to cut through the current “clutter” of loyalty programs.
B. Better designed rewards inventory with a selection of rewards that appeal to consumers on both an emotional and rational basis.
C. Critical program elements and unique assets that cannot be duplicated by competitors.

D. A regional approach that makes sense in order to create a strong coalition of leading partners.

E. A technology platform that leverages the new user friendly opportunities for member engagement enabled by 21st century social, mobile and interactive digital media, and finally, most importantly

F. Bold, visionary, risk taking leaders who are willing to “play to win” instead of “playing not to lose” and will benefit most from being the first to champion the tremendous potential of  participating in a coalition loyalty program.
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The 4 R’s

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When two former Bain consultants and one recently minted Harvard MBA started AIR MILES Canada, we knew a lot about the economics of customer loyalty and how to quickly understand and model the profit drivers of almost any business. We also knew almost nothing about database marketing other than a few buzzwords one of us picked up from a girlfriend who had launched several magazines.

One thing we felt we did know for certain was that if we could build a broad based coalition of leading Canadian companies who committed to market the program to their customers, we would have the opportunity to create and utilize one of the world’s best marketing databases. All of our friends got that as well; and every one of them thought we would “make a ton of money selling the database.” What they didn’t get was our founding principal of not selling the “list” to businesses outside of the Sponsor coalition (i.e. the companies who paid for the points). We believed we could create the future of database marketing (although we didn’t have a clue as to how we were going to do that), but only if we developed a relationship with our Collectors built on trust.

Before long, we began to talk about the 4 R’s of Relationship Marketing and sketching this diagram on napkins and tablecloths around Toronto, Montreal and Calgary:

The 4 R's

We described our thinking about building relationships like this:

  1. If we recognized that when people showed their AIR MILES card at a retail Sponsor we were rewarding them for both their loyalty to the Sponsor’s business and the fact that they were sharing information with our company (by purchasing the good or service and identifying themselves as an AIR MILES Collector, they were telling us when and where they made the purchase, if they were responding to a targeted offer or coalition promotion, etc.), and…
  2. If we respected the information Collectors shared with us – including demographic and shopping intention information millions shared with us through surveys in return for bonus miles – and didn’t sell or give that information to anyone outside of the AIR MILES coalition (and not even other Sponsors if so requested), and…
  3. If we used the information to present relevant offers to Collectors based on their shopping habits, needs and interests (if a Collector was turned down for an AIR MILES Mastercard, we wouldn’t send them additional bonus offers to apply for one; if we knew there were only guys living in a household, we wouldn’t send them offers for a woman’s magazines; no car, no Goodyear offers, etc.), then…
  4. We would create higher open, read and respond rates to both our basic offers as well as our targeted specific offers and bonuses, which would – in turn – give us the opportunity to continue to reward both loyalty and the sharing of information.

If you think about this simple model, it doesn’t just apply to relationship marketing, but also to basic human relationships as well. If you begin to develop a relationship with someone and share something personal and confidential with them, that relationship will be short lived if they share it with others or otherwise don’t respect your confidence.  We tend to develop relationships with people we have at least something in common with – some point of relevance – be it kids, snowboarding or web 2.0. If these 2 elements are present, the potential for a relationship exits; without them, one probably won’t develop.

The 4R’sl, along with a lot of other parts of the AIR MILES model, appears to have worked fairly well as the program now has over 70% (that’s 9 million) Canadian households as members. More pointedly, while I was CEO, we had open rates for our (snail mail) direct marketing programs of over 70%. Although AIR MILES doesn’t share specific data on email response rates, my understanding is the company still enjoys high open and click through rates for their email marketing programs.

Which brings me to Facebook, Amazon and Eons. Like Jeremiah and many others, I was amused to be served up a banner ad on Facebook last spring for “Thirty Plus and Single” when on the same page I clearly listed my status as “married.”

Facebook was clearly not getting the relevance part and I don’t need to go into all of the respect angles violated by Beacon. Business Week had a good article on the social networking sites’ challenges with developing advertising.

Like many, I use a separate email account for marketing emails. Last week, as I was cleaning them out, I found 2 other examples of online businesses not getting the 4 R’s from Eons and Amazon.

John Della Volpe, the founder of SocialSphere, always thought one of the challenges facing Eons was that many people over 50 aren’t really excited about standing up and telling everyone, or joining a social network for those over the hill. Do people really like to say, “Hey, I’m old?” Partially because I’m in the business, partially because I know Jeff through our work with Year Up, and partially because I was eligible (even before they lowered the age threshold) I joined Eons. But I never really got the value proposition. At least AARP’s mailings tell you right up front about discounts and other offers they bring. Not terribly hip, but getting a deal on anything will always be relevant to me.

So imagine how jazzed I was to open an email only to be greeted with an offer to “get pictures of your grandkids” or something like that. Surely, they have some way of knowing I am probably a couple of decades away from being a granddad. Not relevant and not the kind of email someone like me would open again.

Then Amazon, who has many features I dearly love and admire (Amazon prime may be the world’s best loyalty program – more on that in a future post) sends me an email with a recommendation to buy a case for the flip video I recently purchased.

So what’s wrong with that? Take a look at the user ratings – 2 STARS! This one stood out to me because I had already checked out the product and knew it was a dud. Amazon served up the “people who bought this product also looked at these” content when I was purchasing the flip. After seeing the 2 stars and reading a couple of reviews (e.g. “This pouch is really cheaply made, hard to use, and not worth the money at all”), I didn’t bite.

Back to our core principle – building a relationship requires a foundation of trust. As John Lederer, the longtime leader of Loblaws supermarkets often said, “the consumer has given us their trust to select products for them to be available in our stores.” Although Amazon sells many products through third party retailers and clearly lets you know they are not being sold by amazon.com, it’s one thing to sell products you have little control over and another thing completely to send an email to a highly active customer recommending a product other customers have given a 2-star rating. I have come to trust that Amazon will offer great products and extraordinary service. I have been less enamored with their recommendations and – given this latest example – am even less likely to look at their recommendations or open their emails.

The more time I spend in this space, the more I realize that on-line community builders and advertisers can learn a lot from those of us that also spent time in the traditional direct mail and loyalty space. In true web 2.0 fashion, combining the best of both models will create the most effective strategies.

The 6 A’s of Coalition Loyalty Success & The Virtuous Cycle of Profitability

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The 6 A’s of Coalition Loyalty Success & the Virtuous Cycle of Profitability

Net: Over a billion dollars have been lost by companies and investors trying to create a profitable coalition loyalty program in the U.S. over the past 30 years. In recent discussions with Sir Keith Mills, who created the original AIR MILES shopping reward program and the first consumer focused coalition loyalty program in the UK, my former company The Loyalty Group in Canada, Nectar in the UK  and successful programs in The Netherlands, Spain and the UAE, we agreed there are six requisite elements of successful programs.  Rewards must be aspirational, attainable, and accessible to target consumers.  They must be sufficiently affordable to investors, program operators and the business partners who pay for the reward to enable a clear and attractive return on their investment.  The program must be designed and executed to collect actionable information on participating member’s behavior to both prove that the program is delivering an attractive ROI and to identify underperforming segments and new opportunities to use the program’s assets to increase the businesses’ profitability. Finally, participants must be aware of the program’s benefits.  They must be clearly and effectively marketed at launch and on an ongoing basis to create awareness and understanding of program value to potential and existing members and the businesses paying for the rewards.   If these “6 A” elements are present in the program’s design and effectively launched and enhanced through rollout and operation, the loyalty business generates an attractive virtuous cycle of profitability driven by the value created for all stakeholders.

The 6 A’s of Coalition Loyalty Success

6 A's Chart

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Dear Ace Tickets: Is the customer always right or are you never wrong? Pick one.

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photo-of-grandstand-1-blocked-seats1

Net: Ace Tickets refunded skateboarding tickets we overpaid for through our own ignorance, yet refused to refund “pole view” tickets at Fenway Park they assured us were unobstructed.  Sur La Table re-funded a four year old purchase without a receipt on a product they no longer carry. Both have solid customer ID technology, one used it to build loyalty, the other to damage it. Which one are you?

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Hotels.com uses Web 2.0, great service and rewards to score a Collaboration Evangelist trifecta

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Net: Hotels.com provides great consumer value, excellent web and phone customer service and has one of the most rewarding loyalty programs I have seen.  The company shows how applying the philosophy and applications of Web 2.0, good customer service and a well designed and implemented rewards program can create customer loyalty.  Why book anywhere else?

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