Harley Davidson has long recognized the value of engagement and has built on the fanaticism of its riders to create a clubby atmosphere that reinforces the wind-in-the-hair lifestyle while clearly positioning their bikes as the ones to ride. Harley has been wise in forming partnerships with compatible brands like Best Western hotels to bring post-purchase value to its customers. To deepen its relationship with a large audience of bikers, Best Western created Ride Rewards, inviting members to “book your next adventure with Harley Davidson and Best Western Hotels”.

They’ve also been smart in creating special events that foster memories only a Harley Davidson owner can enjoy. Call it divine inspiration, but somehow the company arranged a blessing for thousands of Harley riders in St. Peter’s square at the Vatican over the weekend. You can read about the event here and two comments heard on a CBS News report pointed up the meaning of these events to participants. One Harley owner was asked which he thought was more memorable, the blessing or the weekend ride. Almost blushing, he deferred a direct answer. Another rider was asked what he thought about the Papal blessing and replied “maybe it will increase the value of my bike”.  It’s fun all around and Harley is one of the most brilliant in leveraging “smart partnering” to increase customer loyalty.

Research has shown that the step along the loyalty value chain that shows the greatest opportunity to increase customer value and satisfaction is reward redemption. My Father’s Day experience with a local restaurant program illustrates how organizations can easily fumble this delicate interaction, in turn jeopardizing the longer term value of their loyalty program.

I chose to dine with my family at this local sports bar on Father’s Day for many reasons, two contributing ones being a few meal specials that appealed to our group and the fact that I had $20 able to be redeemed towards our tab. After an enjoyable meal, we presented a receipt generated by the restaurant showing my name, member number and balance able to be redeemed. The waitress asked me if I had my plastic membership card as proof of identification and politely told me that I could not redeem without it.

In a world of too many cards, user names and passwords, reducing friction for redemption in a loyalty program should be a goal for any organization sponsoring a loyalty program. In our post 9-11 world, we’ve been forced to align our exact legal names on passports and driver’s licenses with frequent flyer programs in order to get credit for our flights, not to mention to get on board. I offered my driver’s license to the wait staff at the restaurant and found it treated like an irrelevant scrap of paper where I had scrawled my name. Bordering on embarrassing my teenage companions, I let the matter go by.

The restaurant is a good one, but it’s brand is nothing like Harley Davidson. They are fighting for every dining dollar in a tough market and are using their rewards program as a key competitive tool. I was asked by both the hostess and our waitress if I was a program member in the process of being seated, so the organization has trained its staff well to raise program awareness and stimulate customer engagement in simple ways.

All of that effort is only a good setup to the bigger opportunity – the reward redemption. Like a basketball team playing hard the first three quarters, but not finishing the game, organizations need to remember that their attention to program rules and operational excellence is critical to success.

Probably because I was sitting in a restaurant waiting for someone to join me for breakfast, I opened the email and, as I scrolled down, tripped across something more interesting. Sandwiched in between a “$20 off $100 purchase” offer and a “20% Back in Rewards” offer on toner was a one-liner that stated “Your rewards program is changing soon”.

If you’re a rewards geek, the indecision implied in this message can mean good or bad news. The program is being cancelled, the value is being halved, some significant changes are taking place to program rules, or as I discovered when I clicked through here, I was told nothing and being asked to return the following Monday.

To be fair, there was a teaser line that stated “Enjoy the freedom, flexibility and savings you deserve”, so I am expecting good news about Worklife Rewards when I hear from Office Depot again. Since I couldn’t resist a sneak peek, I visited the existing Worklife Rewards landing page here and it seems that the program is being relaunched July 1, offering points for spend resulting in approximately a 10% rebate. I’m sure there are other features to be announced and will report here once the whole story is made public.

The message today is about how Office Depot elected to communicate important news about its loyalty program to its members. I’d say the technique used was subtle, indirect, almost purposely obscure. To create excitement and renew customer engagement with the program, the messaging could have been more positive and direct. That’s what making loyalty a vital part of your customer experience is all about.

The reality is that loyalty programs do require significant initial investments in most cases, but fear of making the investment and committing to ongoing operational budgets can be defused by focusing on program Return on Investment and the Net Present Value of the future incremental cash flow streams. If you understand the risk / reward curve, you can understand that you’ve got to make a large enough bet to trigger the outcome you are seeking.

My point aside, perception, as we have heard, is in fact reality. That’s why so many organizations have been seeking ways to deliver solid value to customers in their loyalty programs while containing or reducing costs. As the promise of using “other people’s money” to achieve loyalty objectives has faded, “smart partnering” seems to be on the rise.

Two examples of smart partners are worth sharing.

Best Western and Harley Davidson recently announced they would renew their partnership, originated in 2006, for an additional 3 years. Best Western will serve as the Official Lodging Partner of Harley-Davidson’s 110th Anniversary in 2013 and offer a suite of benefits designed to “accommodate the unique needs motorcycle riders have when traveling”. As part of the deal, the hotel chain has established Best Western Ride Rewards Program as a subset of its broader loyalty program and even has a motorcycle blogger chronicling the joys of adventures on two-wheels.

Another good example of a loyalty partnership is the just announced linkage between Hyatt Hotels and MGM Resorts. The partnership will bring benefits to members of the loyalty programs of each organization, Hyatt’s Gold Passport and MGM M Life. You can read more about the details here, and I hope you’ll agree that this is a groundbreaking example of cross brand collaboration.

The next generation of enhanced rewards offers will not be found in “merchant funding V2″ but in the evolution of clever partnerships formed between compatible brands. In the US, this “choosing of sides” among brands may be the predecessor to the formation of multi-brand loyalty programs, effectively creating a coalition loyalty program in the country.

Just imagine the possibilities as brand pairs like Hyatt and MGM expand their circle with others and enable point exchange between brands to serve large groups of consumers in a lifestyle coalition.

Listening to a speaker I respect last week sparked a new understanding of this familiar word trilogy. The speaker made the point to say that each of the three components constituted real treasure and that the treasure of highest order was our time.

Our treasure is our time. What could this mean for Loyalty Marketing?

If you agree with me that marketers often overlook that our customers are in fact human beings, the vision for time as treasure comes into focus quickly. Each time marketers describe their customers as a “target audience”, a “portfolio”, “segment” or “cell”, they de-sensitize management (and themselves) to the reality of customers as actual human beings. With the proliferation of loyalty programs, really data driven marketing as a broad discipline, it is increasingly complex to find the value proposition that will impact the largest number of customers as well as understand how to customize that value proposition to meet the needs of specific groups of people.

Given the time starved and highly distracted nature of our digital world, the challenge is even greater to know what will motivate a person to change behavior, whether purchase behavior or a non-financial interaction behavior like logging into a web account.

The most obvious time – savers that have been offered by loyalty programs for its premium members for some time includes:

• Allow me to board your airplane before others
• Let me check out of your hotel later than others
• Offer me free shipping for my online purchase
• Get me into a shorter hold Q when I’m calling the contact center

In building a social loyalty strategy that is truly Contextual in nature, we’ve got to remember the importance of intrinsic motivations as well as the extrinsic. At the outset of 2013, we outlined a framework in our Loyalty Manifesto and in that document defined Contextual loyalty as reaching customers through the channel they prefer and in near proximity to the point of purchase or interaction with a motivating offer of value.

There are many studies that support the idea that discounts and price reductions offer only fleeting satisfaction for consumers. One of my favorites is the article “If money doesn’t make you happy, then you probably aren’t spending it right”. The article illustrates that spending money on experiences creates the greatest long term impact for people.

Frame this idea in a loyalty marketing context and you see that rewards that stimulate better customer experiences, make people feel recognized and special and deliver time savings are the highest value you can offer. Here are few ideas for you and I’ve bet you have a bunch more. Share them with us when you have a moment and don’t be afraid to tweet this post to get more conversation going.

• If you’re a wireless provider, recognize that I’ve been with your company for over 5 years, have paid a consistent amount on time each month, and reflect that in your service level in the store
• If you’re an airline, send me a promotional code based on my recent flight patterns or tier and allow me quick and easy access to in-flight wireless service
• If you’re Apple, stop asking me if I am a business account if you don’t plan on offering me a specific set of services to help me out. That failure actually wastes my time and erodes my loyalty
• If you’re an online retailer, don’t be afraid to copy the best ideas of your competitors. One-click shopping saves me time and makes my shopping experience better

An appraisal of the brand and loyalty marketing e-mails I’m receiving reveals scant few that mention my relationship with the company or that address my past buying behavior. That’s a serious omission, because research shows that if a company provides me with personally relevant information, I’m much more likely to make a purchase.

The unfulfilled promise of big data also came up during a recent DM News roundtable. While there were a few on the panel who paid lip service to combining “research, analytics, and transaction data…to produce more tailored communications”, the conversation was long on talk and short on examples.

However, there was one roundtable statement that rang true, and I think it sums up the current state of big data. It came from a straight-shooter by the name of Ilana Rabinowitz, the CMO at a company called Lion Brand Yarns, who said:

“I think that for most small and midsize companies Big Data is irrelevant. It’s like the Wild, Wild West of information. You can’t use it, you don’t have people who can analyze it, and if it’s there, you don’t know how to get to it.”

A damning but, I believe, true claim. And the concerns about big data extend into the loyalty marketing business, as well. A recent report in Retail Wire asks the pointed question: “Why Aren’t More Companies Connecting Big Data Dots for Loyalty Programs?” The online pub cited a serious lack of effort on the part of marketers, coming to the conclusion that:

“While most respondents feel the need to engage customers based on their needs and expectations, they’re not leveraging the data in a way that maximizes the potential loyalty offered by customers.”

To use a football analogy, big data feels like the first round draft pick who has tremendous potential—but who hasn’t yet proven himself on the field. The coach isn’t quite sure how and when to use him, so for now he’s relegated to the bench. He may play in the future, but when is anyone’s guess.

Is there a better way to personalize customer communications?

Since it appears a lot of marketers haven’t yet gotten a handle on how to use the voluminous amount of data they’re collecting, maybe it’s time to go old-school. I again quote DM sage Ernan Roman who made this astute observation:

Customers, both B2B and B2C, are sophisticated enough to recognize that to receive increasingly relevant offers, they must share detailed preference information.

And if you’re not able to leverage big data, the best way to compile accurate customer preference data is through surveys, both online and off. With this approach, you start a dialogue with customers asking them to share their wants, needs and expectations. This allows you to continue the dialogue by serving up relevant, personalized communications featuring the products, services and benefits that interest your customers most.

For me, this idea is an e-mail blast from the past. Several years ago, my former employer Frequency Marketing had a major client who committed the time and dollars to collect customer information via surveys—and it allowed us to send out personalized, relevant e-mails. The result was a sharp increase in incremental sales and customer share-of-wallet.

Are customer preference surveys the sexiest, most cutting edge way to personalize customer communications? Probably not. But until big data gets its act together, it may be all we’ve got.

One interesting note in the story was substantiated in the news last week.

In our post, we mentioned that ATM’s must be ready to accept EMV cards by 2017, about two years behind the deadline for liability shift at merchant point-of-sale. Even though securing merchant POS has advantages tied to fraud reduction, the major card associations are being cautious to accelerate the rollout of Chip and PIN at merchant point-of-sale so as not to push fraud to ATM’s.

During Card Forum this year, Stephanie Ericksen, Head of Authentication Product Integration, VISA INC. shared “the company is not pushing to accelerate the rollout of Chip and PIN at the point-of-sale as we suspect that remaining fraud volumes will run full speed ahead for unprepared ATM machines.

Last week, a gang of cyber criminals perpetrated a $45 Million fraud by hacking their way into prepaid card systems at several banks and extracting their take via ATM machines in 26 countries. The US portion of the scam took place courtesy of ATM’s mostly in the Northeast, giving too much publicity to the ensuing spending spree and clearly illustrating the risk that needs to be addressed via the EMV standard.

I’m not sure to what extent the current implementation plan can be accelerated, but it certainly seems that global criminals are going to make the most of the remaining time window. Electronic theft can’t be entirely washed away by Zero liability policies on cards as commonly offered by the associations. There is a residual emotional and mental impact from these events and repeated instances could send consumers into a fresh wave of negativity, something we don’t need in the US economy today.

Do you think it might be time to put our mobile wallet application development aside in favor of speeding up the protection of our current system of payments?

Yes, that phrase is a mouthful, but it’s useful, often necessary to define the loyalty marketing discipline by its most critical objectives and granular components for business people to engage in earnest conversation about how loyalty can work in their business. Leave the definition at “Loyalty” and much of the room mentally checks out, thinking they’ve heard it all before about points and miles programs. Talk about measurable financial results and most people lean forward in their chairs and start asking questions.

A few brands are pushing the limits of what loyalty can mean for their organization. Amazon’s announcement that it is offering “Coins”, a virtual currency that Kindle Fire owners can purchase and then use to buy apps and games for the device, got my attention yesterday. Like many other Amazon customers, I received an email from Amazon letting me know that “if” I was a Kindle Fire owner, I would receive 500 free Coins to get me started with the new virtual currency. Coins are valued at $.01 each and Amazon offers some at a discount, bringing the price down to 96 cents on the dollar.

You might wonder what Coins has to do with customer loyalty. In my book, Coins are an example of how a brand that has developed a wide base of passionate customers, actually fans, can float tactics that achieve specific product related results, not to mention increasing cash flow and a financial benefit from float associated with the cash collected for Coins sold but not yet redeemed.

Starbucks really broke the ice in this area when it trialed a limited edition prepaid card made entirely of steel with Gilt.com. 5,000 of the cards were made available at a price of $450 each. The lot of cards sold out nearly instantly with $400 of the purchase price allocated to a prepaid balance for future coffee purchases. My most ardent Starbucks buddies tell me that they can spend up to $60 per week at the chain, meaning that it will take about 7-8 weeks to burn off the balance for the highest value customers, about 2-3x that number for “average” users. For someone in my casual user range, it might take an entire year to burn up that balance.

Calculate a weighted average burn rate based on different user profiles any way you wish and the result is the same. Starbucks creates a huge stir among its most feverish fans and collects  around $2 Million in cash that it can sit on for an extended period of time. Roll this trial out to a larger audience and you can see the potential impact for Starbucks.

Both the Amazon Coin product and Starbucks Steel (my version of the name) card are illustrations of how brands with well executed customer loyalty strategies can extend their brand in any number of inventive ways. Both cases should make you more excited about the possibilities of customer loyalty and cause you to buy a bigger white board for campaign planning.

Apparently, whatever can be imagined by brands with a highly loyal customer bases can become reality. Instead of leaving loyalty in a box defined by points and miles, why not follow the lead of Amazon and Starbucks to leverage customer loyalty to meet goals not typically associated with loyalty programs.

It’s worth a try.

Plink is a merchant funded rewards program launched in January 2012 which links national offline merchants with online consumers through a registered card model. Plink has grown rapidly, building both a large merchant network and strong consumer following.

The founders of Plink have roots in Adperio, an interactive agency working at the time for Netflix, Discover Card and other big brands. Adperio earned its success by referring massive numbers of people on FarmVille and other online gaming sites to open trial accounts at Netflix, in the process becoming the biggest source of new customers for the online media provider.

The kernel of the idea for Plink grew from this early online success. As Peter shared, “if it was possible to stimulate significant referral business between online players and e-commerce sites, why not extend the model to link online fanatics to offline brands?”

Plink began building its merchant network in the restaurant business with Taco Bell, Dunkin’ Donuts, Red Robin, and Outback Steakhouse. Today there are more than 50,000 locations across 15 – 20 national brands in the network nationwide. As they continue to grow, Plink will focus on national merchants and does not plan to extend into local retail markets. The program gets the most traction among consumers between 20 – 30 years of age and so far, growing the customer groups has not been a challenge.

If you ask Plink to describe what it has created, they might tell you they have perfected the art of moving large groups of consumers to brands carefully matched to their interests. Or they might say that they have taken the traditional affiliate model to an entirely new level. One thing they won’t say is that they want to be someone else’s loyalty program.

To draw some industry comparisons, the system is similar to Belly, Perka, or LevelUp as it maintains its own membership base. Plink focuses on driving share shift and other financial objectives for its clients, but stops short of substituting its structure for a client loyalty program.

Merchants are happy to contribute up to 10% in rewards funding based on Plink’s pay for performance model. Merchants are able to structure their rewards to meet their needs. White table cloth restaurants might offers 8%, while gas and grocery ring in at 1-2%. Multi-line department stores Macy’s and Nordstrom go as high as 10-12%. Of the amount contributed by the retailers, about 50-75% is allocated towards customer rewards, establishing a perceived payback for most Plink members between 5-10%.

Plink offers an advantage to its partners based on the data it collects, and can demonstrate a return on investment via share shift between brands in the same category. To protect this model, Plink is willing to grant exclusivity in some retail categories.

Early on, Plink rewards centered on Facebook credits. This catered to the core audience of online gamers, but this group wanted more, saying “I don’t always want FB credits”. As Plink has evolved, it has opened up the reward choices to gift cards issued by national merchants. Over 25 – 30 brands participate with the most popular choices including Walmart, Target, Amazon, Starbucks, and Apple.

Peter acknowledged that some loyalty programs built on a registered card model have experienced slow enrollment rates as customers evaluate the risk and reward of entering credit card information online. Plink has overcome this potential obstacle by making enrollment seamless and by focusing on groups of consumers considered to be digital natives.

Looking into the future, Vogel said that sorting out the legion of digital loyalty players will not be easy task. He predicted “there will be natural attrition in the offer space” and emphasized that he “would rather invest his energy growing the list of merchant locations accepting Plink.” He hopes to add 1-2 brands each month and reach 100,000 locations by end of 2013. Recently Old Navy, 1-800 Flowers.com, and travel brands AA and Holiday Inn have joined. The recent launch of the Plink mobile app is evidence of continuing development.

Plink is building a sustainable long term model, though Peter admits other groups might form similar networks based around member groups with distinct characteristics. The main value Plink emphasizes to its retail partners is that customers who are Plink members always pay full price and still get rewarded.

As opposed to other digital loyalty players which focus on daily deals, Plink is not teaching people to shop for deals and only buy when the product is 50% off. Vogel stated that “Plink does not devalue the products of its partners and prefers to help them elevate their brands through added value offers.”

Leslie has been in the payments industry for nearly 25 years and leads Citi Retail Services’ credit program activities across more than 20 retail and oil portfolios including Sears, The Home Depot, Macy’s and Shell. A division of Citigroup, Citi Retail Services provides consumer and commercial credit card products, services, and integrated retail solutions to national and regional retailers across the U.S. The business currently services more than 80 million credit accounts and has assets of nearly $40 billion.

Citi Retail Services approaches its business with a fresh perspective and provides a surprising set of services designed to bring extraordinary value to its clients. Apart from the expected credit related services, the business offers data insight services, conducts market research, maintains online panels of consumers to understand competitive wallet share and trends, and provides mystery shopping services, all with the goal of improving customer experience.

The overall goal of this approach is to position Citi Retail Services as a trusted advisor with clients rather than simply a vendor of card issuing services. Leslie described core mission of the business as a “commitment to create top-line growth for retailers and to make PLCC an instrument to improve sales.”

Leslie is optimistic about the future of PLCC, emphasizing that consumers don’t view their store charge cards as a credit product, but as a method to enable purchases. “The customer should think the private label card is the smartest way to pay in the store”, said Leslie, adding that “the fact that the product is the lowest cost payment method for retailers makes it highly valuable for all parties”.

To make PLCC truly relevant to the customer experience, Citi Retail Services enables “hot builds” and credit approvals in real time at the point of purchase. Leslie’s philosophy is that the issuer must be available to both the retailer and the customer in the moment of purchase decision.

Because people today have fewer cards in their wallet and are more savvy about using the private label card to shield their bankcard line from higher usage, Leslie was proud to share that the average FICO scores among PLCC cardholders are the same or better than in the branded card area.

Looking into the future, Leslie acknowledged the emergence of many disruptive marketing technologies offering mobile wallets and alternative payment systems. She noted the present system works well enough for most consumers and that establishing a broad acceptance network for the start-up competitors will be a challenge. Another challenge for the disruptors she mentioned was the focus on gathering data for themselves. Citi Retail Services, on the other hand, helps its clients leverage their own data, creating trust and value in the business relationship between issuer and retailer.

When asked about Merchant Customer Exchange (MCX), Leslie was quick to say the group provides a needed voice in the industry for retailers. At the same time, she reminded me of the core mission and commitment to create top-line growth for its clients. As I listened to her describe her passion to create stronger bonds with her clients, I realized that it might be this positive outlook that will help Citi Retail Services relieve the inherent conflicts with its retailers over interchange fees and create a new model for PLCC issuance.

At the recent Loyalty Expo conference, a panel of business leaders from Citi Retail Services, OfficeMax, The Home Depot, and Macy’s, gathered to discuss the convergence of payments and loyalty and how the partnership between big retail and those that issue credit and private label credit cards is becoming more important each day.

This two part article addresses this convergence, first through coverage of the panel discussion that took place at Loyalty Expo, followed by an interview with Leslie McNamara, Executive Vice President, Partner Management, Citi RetailServices, who spoke in greater detail about her perspectives on the business.

The panel discussion began with participants acknowledging the recent wave of credit card legislative reform, a recovering economy in which consumer appetite for credit is still evolving, and increasing momentum for the retail industry as it seeks to reduce its payment processing costs.

In the aftermath of implementation of the Credit Card Act of 2009 and the Durbin Amendment, private label cards had come under particular pressure. Many voices in the cards industry were predicting that a horizon loomed for PLCC, if not signifying the end of the product life, at least thinking that it would be marginalized as a marketing tool for retailers.

Brandon Hayes Director, Financial Services, The Home Depot tackled this question straight away saying that “cards can help fulfil the consumer dream and enable purchases that otherwise would not be made”. The opportunity to position the private label store charge card as part of the customer experience and as friend rather than foe to the customer was something each panellist had on their mind.

Highlighting the value of private label credit, Leslie McNamara, EVP Partner Management, Citi Retail Services pointed out that only through PLCC can the retailer develop a true 360 view of the customer, rich with more product level details than ever being catalogued from the purchase transaction stream. Arnold Lewis, Vice President of Customer Loyalty and Rewards, Macy’s agreed adding that while PLCC can serve to reduce cost and serve other infrastructure needs, they should first be positioned to drive business results.

The discussion turned to the opportunities for retailers to integrate payments and loyalty to achieve better business results with panellists speculating at the organizations to watch as innovators and loyalty enablers.

Citi has made conscious strides to expand their card based value propositions beyond points and discounts to emphasize the experiential aspect of the loyalty programs they connect with, while Home Depot mentioned its use of customer purchase data to predetermine which items are “next to buy” and push offers to people in their stores. The Home Depot is also a leader in accepting alternate forms of payment, and is testing offers triggered when PayPal is elected as the payment method.

The discussions were among the most valuable at the conference as multiple national retailers have banded together under the Merchant Customer Exchange (MCX) banner in hopes of identifying an alternate payment system to the four largest networks in operation today.

Signs of cooperation between issuers and retailers were in evidence and our interview with Leslie McNamara of Citi Retail Services shared as Part 2  tomorrow provides great examples of how one of the largest issuers of PLCC cards in the US is addressing new opportunities for cooperation with its retail customers.