How to benefit from the three pillars of marketplace disruption

In Loyalty & CRM by Oliver Arscott

Aimia, disruption, mobile loyalty, millennials, open data

Interview: following the posting of the Aimia researched Retail Showroomers whitepaper on this blog earlier in the week, I caught up with VP of Knowledge Development Rick Ferguson to discuss his views on the drivers behind disruption. Follow this link to register for your complimentary pass to learn more from Aimia at Loyalty World 2012.

Hi Rick great to speak with you. For those unaware of who Aimia are, could you give us a brief history of the business?

Sure thing so Aimia's growth actually runs parallel to the growth of the loyalty marketing industry as a whole, so it's an interesting story. Theoretically you can trace Aimia's roots right back to the 1930s, however the modern history really begins with the launch of the Air Canada frequent flyer programme, Aeroplan, in Canada. That was obviously a very successful programme, and our CEO Rupert Duchesne was part of the team that spun Aeroplan off into a separate company in the early 2000s.

After that they embarked on a programme of acquisition and growth. Group Aeroplan had their IPO, became a publicly traded company in Canada, and then purchased a group called Loyalty Management UK which owns the Nectar programme. Obviously this helped position us as a global leader in loyalty. Just a few years ago we acquired a company called Carlson Marketing, based in the US but with offices across the world, which really furthered the pattern of international growth. We then started launching some new coalitions, taking our expertise with Nectar in the UK to launch Nectar Italia, owning and operating Air Miles in the Middle East, licensing the Nectar brand for coalition in Chile, so truly a global leader in loyalty management.

Just last year we decided that the name Group Aeroplan no longer fitted the company's aspirations and image, it was strong in Canada but resonated less well elsewhere. So we embarked on a rebrand and arrived at the name Aimia, which we liked for a number of reasons. It's reminiscent of the word amie in French which resonates strongly in Montreal where our headquarters is, it speaks of finding patterns and of precision. We think it articulates who we are now really well.

Over the time that you've been with Aimia you must have seen a real sea-change in customer behaviour.

Absolutely. What's interesting is that we used to measure creative destruction in years, it used to take years for new technologies and business models to come along and replace old ones. Now that seems to happen in a matter of months. The pace with which we see creative destruction and new technologies and models come in a disrupt existing models and patterns of behaviour is striking in comparison to how things were just a few years ago. It used to be that you could be up on the latest technologies and models and know a little about consumer behaviour and let that carry you through for 3 to 5 years. But now, everything you is meaningless just 6 months later. You can summarise the change in terms of disruption. There's technological disruption, brought on in no small part by the advent of mobile and smartphone. If you think of the iPhone only being about 5 years old and how much it has transformed business, customer behaviour and loyalty, it really is remarkable.

Our latest research has been on the phenomenon of retail showrooming, which has resulted in a particularly interesting white paper. It's been quite alarming to retailers to see how much these devices have changed consumer behaviour that really threatens their business models. There has been some debate around how prevalent or impactful the showrooming trend is, however there really is no doubt that it is happening and having some measure of impact. Consumers now have complete pricing transparency, that they have the ability to determine quality and the level of customer service by consensus rather than just as an individual decision, and all of this is driven by the smartphone. It's really going to require retailers to rethink their business models and loyalty marketers to rethink how they are going to approach these people. Our research shows that showroomers are potentially valuable customers if they are reached and connected with in the right way. They do tend to be technically savvy with high levels of participation in loyalty programmes, they are interested in building relationships with their favourite brands. There are therefore a lot of opportunities for retailers to embrace showroomers rather than rail against them, and we think that loyalty management can help them get there.

So the use of this disruptive technology is being driven by disruptive changes in consumer demographics. That's why we've focused a lot of our research on the millennial generation, or generation Y. The relationship that this generation has with technology is unlike anything we've seen before. In the developed markets in which we operate, particularly in the UK, USA and Canada, this generation is the largest generational cohort we've seen since the baby boomers. They're already starting to exercise their influence on the economies of this markets, particularly their cultural influence is profoundly felt. The way they enable technology to build brand relationships is particularly striking and different from previous generations. Obviously it is the millennials who are the key drivers behind the showrooming behaviour that we have observed. The rush to digital, mobile and mobile payments are also going to be driven by this generation. They have very high expectations as to value and what they get out of loyalty programs in particular, they are excited by non-traditional models like corporate gamification and other elements we haven't yet seen used in loyalty programmes that effectively. So there are lots of ways that we can engage this generation in an exciting way.

The third change I would describe is disruptive legislation in government and market-forces, particularly in the area of data privacy. That's why we have spent so much time talking about our tact values and the need for companies to proclaim a set of data values that they stand behind which provide consumer-friendly usage of personal information. There's also a need to be transparent and deliver real value, as well as giving consumers real control over their data. This is something that all businesses and marketers need to get behind and develop values by which they will use consumer information. If it is used inappropriately or without permission as we've seen in many cases, governments are not shy about stepping in and legislating. So by standing in front of this argument and letting consumers and legislators know where you stand you can be a part of that debate. We're certainly trying to do that, and would encourage everyone else in this industry to do that as well.

So I would describe those as the three key changes that we've seen over the last few years, and certainly those changes are only going to accelerate going into the future.

The privacy point is particularly interesting at this time. Do you think that businesses are going to be keen to open up their data or do you think that ultimately it's going to be driven by legislation?

I think that some businesses will benefit from having this conversation, and some won't. Obviously there are some very large Big Data companies that have built their profits on using consumer information in a way that isn't necessarily consumer friendly. I won't need to name any names, I'm sure your readers will be able to think of some. There are some companies whose entire business model is based around collecting consumer information without their knowledge and selling it without their permission. There are huge companies with databases filled with millions of personal records. This is the sort of thing that draws the scrutiny of legislators. We talk about Big Data and the danger to consumer privacy, this is the sort of company we're talking about.

You can contrast this with a company like Aimia or other businesses in the loyalty management space who have being doing this stuff for years. We have a really strong headstart in understanding how to collect consumer information in a really consumer friendly way, as well as how to let consumers know clearly what information has been collected, why it has been collected and how it's going to benefit them. If you look at the research, when you compare the Big Data companies and perceptions of consumer privacy with those of loyalty and reward programmes, consumers generally see rewards as a safe haven in terms of how this information is being used. Consumers understand this because of the transparency of the value exchange.

By taking a positive action like signing up for a reward programme consumers understand that businesses are going to start paying more attention to them and their shopping behaviour, and that they get something back for it whether it be points, miles or vouchers. We've done a lot of research in the UK post-recession, which has shown that consumers are turning to loyalty programmes in order to help stretch their household budgets further. Consumers understand what they get in return for their data, whereas they don't necessarily see the value when a Facebook or a Google makes use of it. Our responsibility is going to be to continue to be forthcoming about how we're using data and the value consumers are getting out of it.

It seems that the trends towards generation Y driven loyalty is going to result in businesses needing to embrace total customer centricity. Do you see businesses needing to completely transform their existing structures and beliefs?

I think it's essential. We can use showrooming as a great example. The reason why it is such a source of existential dread with retailers is simply because it forces them to rethink their businesses model from the ground up. What gets lost in this activity is that showroomers are fundamentally buyers. This whole concept of showrooming is that they have a relationship with a retailer, they like the customer service, but they're self interested and no one can fault them for paying a lower price if they can find it. That's just the way that consumers work. The fact is that they are purchasers. They aren't folks who are going into a store and dreaming about buying a television but not pulling the trigger, they're buying one it just might not be with the retailer because of the price.

So the difference here is the forced transparency. Consumers are identifying the information, they've got the tools to do it, they can make decisions based on price much more quickly and so the retailer can no longer focus on price alone, particularly when it comes to selling the big ticket options. If you can't offer the best price then you have to focus on things that are going to build relationships. Part of this is the customer experience. You're going to have to have better trained staff, you're going to have to have more knowledgeable staff, you're going to have to pay them more, you're going to have to work more closely with your manufacture partners to get the best deals to consumers be that exclusive merchandise or sharing marketing funds.

That's how the model is going to have to change. It can no longer be ‘we have the lowest price and that's all you need to know'. Now it has to be ‘we understand you better, we've chosen our customer experience and merchandise based on what we know about consumers that come into our stores'. Data and data insight are right at the heart of this, which is why I think a company like Aimia have such an edge when it comes to helping retailers do this because we understand how to use consumer insight effectively to drive everything from pricing to experience. Far from it being a source of real danger for retailers I think this is an exciting time for them to redefine their business along customer-centric lines.

In your showrooming study there is an interesting section on the blending of digital and physical space. Do you think physical stores are going to transformed to be more like the Apple Store and less like Best Buy?

I think that it is absolutely going to happen. Obviously the big electronic retailers are at the frontline of this because of the importance of best price in this space. Certainly all retailers are going to be transformed in some fashion. At the core of it will be the need for retailers to become truly multi-channel. Some retailers are already there, whilst others have a long way to go yet. There is going to have to be a completely seamless experience for customers, regardless whether they order online or in store or through mobile or web. You have to be able to deliver the same information to customers whether in person or online. Customers have to be able to order online and pick up in store or order in store and have it delivered. The idea of making the actual retail space a theatre is a really strong one. You maybe don't need to display so much merchandise as you used to, but it's important to use it as the centrepiece from which to drive engagement. We all know that the real relationships are built on the frontline, whether it's interacting with a customer service rep or getting good customer service via the website. Where data and data analytics comes in is in the ability to create differentiated experience based on customer value or potential. So the onus is very much on the retailer to deliver an excellent multi-channel experience. Where we can help is in helping them use data to make those decisions more effectively and have an impact that is of a greater value than they would have had otherwise.

Obviously you are very much a key part of our Loyalty World event. What excites you about the show?

I've been involved with Loyalty World in the UK for about 8 years now, both with my previous company and now with Aimia. It's been exciting to see it grow. It's gotten bigger every year, the quality of the speakers seems to carry on getting better, the enthusiasm of the audience has gotten bigger and better. The UK is a really mature market for loyalty as I'm sure you know. There's a lot going on there whether it's Nectar or any of the other big programmes in the UK, plus you've got exciting things going on in Europe for your European attendees. The show is all about the conversation, the ability to meet people who are doing exciting things and share ideas and best practices. It's such a fantastic form to do that. I look forward to it every year, certainly looking forward to it this year and I'm sure we'll learn as much if not more than anyone else there.

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