Speaker 1: I want to start by doing some snap market research, okay? A little bit of research to get us going. I'd like you to put your hands up, please, if you have some form of loyalty card in your wallet or on your phone. It could be a coffee card, a Flybuys card, a OneCard. Okay, so most of you is the answer. And look, that's common, okay? Most New Zealanders are part of some loyalty programme or have some loyalty card. Second question's a bit tougher. And be honest, okay? How many of you would say that that loyalty card or loyalty programme influences your behaviour in some way, even just a small bit? Okay. Well, I'm going to take a stab at about sort of half of those who put their hands up before. And in fact, that too is about common, okay? Flybuys has about 2.4 million active cardholders. About half of those would say it's a major consideration in where they shop. Now, third question's the toughest one. Be really honest this time. How many of you would say that that loyalty card or loyalty programme actually makes you more loyal to the brand? Okay, so very few, okay? And that's kind of interesting, isn't it? So we're all part of loyalty programmes. We think it influences our behaviour in some way, yet very few of us would say it makes us loyal to a brand, which kind of begs a couple of questions, I guess. The first one being, why would we bother, as companies having loyalty programmes, if they don't seem to generate the thing they promise, which is driving loyalty? And I'm going to try and answer that question over the course of this presentation. Now, I've got to say that having worked in the loyalty industry for the last 20 years, even I struggle with this word loyalty, okay? Because it is a very emotive word. We are loyal to many things. Yep, we're loyal to our friends, our family, our countries, our sports team, our ideas. But if you put consumers in a room, very few will use the word loyalty. They'll say, I always shop here, or I shop here, or I prefer this brand, whatever it might be. Yet very few will use the loyalty word. So I always like to start by defining what we mean by loyalty in this commercial context. And the truth is that us in the commercial world, when we talk about loyalty, are actually talking about something that looks like loyalty, which is that customers keep shopping, they keep spending money. Which is a pretty good thing, because it keeps the tills ringing, keeps everyone happy. But it's not really loyalty, it's repeat purchase. And we shouldn't fool ourselves by calling repeat purchase customers loyal customers. They're just coming back and buying more from us. And I guess our market research showed that, right? We're part of loyalty programmes, we have loyalty cards, but not necessarily loyal to those brands. Now having said all that, I'm sure we can all think of brands or shops or retailers who we do have some loyalty to. Shops that we like shopping at, that we have some affinity to. I'll give you my example as an example of that. This is a donut. In fact, it's several donuts. These are, in my humble opinion, the very best donuts money can buy. They aren't cheap donuts, in fact, they're very expensive donuts. They're actually made by Nikko Cafe, right next to us here in the city gallery. Anyone tried a Nikko donut? You had a great life experience, okay? Now I am very loyal, both behaviourally and emotionally, to Nikko Cafe. I buy coffee there most days, I often have lunch or breakfast there, and I often buy their donuts. This is me before I started eating their donuts. This is me at the peak of my donut-eating fetish. Right now I'm excluded from buying donuts, both by my doctor and by my wife, and indeed by Nikko Cafe, who found that I was taking all the donuts early in the morning. So I am very loyal to Nikko and their donuts. And what's interesting is that Nikko has no loyalty programme, not even a basic coffee card, you know, buy 10 and get a free one. No loyalty programme at all. And yet I am very loyal to them, often buy coffee, often buy their donuts. So why am I loyal to Nikko? Well, in the most basic sense, it's because they have a relationship with me. They know my name, they say hi when I come in, they know how I like my coffee, they know I like their donuts. For a while there, Nikko took donuts off the menu. I wasn't responsible, they'd just taken them off the menu. And then they came back on, they tweeted, they said, we have freshly made donuts back in the cafe today, and they said, and we have one behind the counter for Lance, filled with vanilla cream. Vanilla cream donuts are my favourite. They had me at hello, OK. So what does this humble donut teach us? Well, it teaches us everything there is to know about loyalty. First off, you've got to have a great product, OK, but putting that aside, the first thing you've got to have is a great relationship between a customer and a brand. Studies all around the world will tell us that customers have a strong relationship with a brand, they'll shop more often, they'll spend more, they're more forgiving when things go wrong, they'll recommend, and so on. How do you create a strong customer relationship between a consumer and a brand? You've got to deeply understand the customer's needs and consistently deliver to those needs, OK. The second thing that the Nikko donut teaches us is that recognition is really important. I like to be recognised by Nikko when I come in. I liked being recognised by their tweet. Psychologists tell us that one of the most powerful drivers of human behaviour is recognition. That's why we're told to recognise our kids, our employees, and indeed our customers. So recognition is a very strong thing. And the third thing that the Nikko donut teaches us is that in a retail world that is by and large filled with dull, boring, underwhelming customer experiences, great customer experiences stand out. They are treasured, they are talked about, they drive loyalty. All those things from a donut. Having said that Nikko has no loyalty programme, it comes back to our first question. Why, therefore, do companies spend so much money on loyalty programmes? Because, clearly, they do. So let me give you the three reasons why I think the loyalty programme industry continues and why so many people are part of loyalty programmes. Because the truth is that you can't incentivise loyalty. Loyalty comes from an emotion that we have with a brand. And yet, we do have these programmes everywhere. I think the first reason why loyalty programmes are so common is that they do actually do a good job of encouraging repeat purchase. We like to be rewarded for our shopping, okay? We like to get free stuff. And, in fact, loyalty programmes are very good at that. They are very good at recognising repeat purchase. Most of these programmes are free to join. Why wouldn't I get something out of it as a value exchange for my business? So they're very good at repeat purchase. The second thing is they do create a point of difference. Most things in retail can be matched. I can match price, I can match service, I can match location. It is harder to match a really good loyalty differentiator. I can buy the same TV at Harvey Norman or Noel Leeming for pretty much the same price. Noel Leeming gives me a five wise points, why wouldn't I buy the TV there? So, very good at repeat purchase, very good at differentiation. But the third reason why they're important is the most important reason. And that is they provide a mechanism to help retailers understand their customers, generate insights about their customers, and utilise those insights. Now, those of us in the loyalty programme game get a bit nervous about this, right? Because it dreams up all sorts of big brother connotations. But the truth is, that's what the very best loyalty programmes are about, helping businesses understand their customers, using those customers to actually have the NECO experience. Very hard for a brand with many stores to have that one-to-one relationship. Loyalty programmes help facilitate that piece. Now, as I say, those of us both in the consumer land and the commercial land get very nervous about this exchange of data. And of course, issues of data privacy, data security, data use, are becoming more and more of issues to all of us. And we see that every day right in the media now. And the fact is that more and more data is being collected about us in all sorts of environments, the online environment in particular. I read a great quote the other day that said something like, in the past we were private by default and public by effort. Now we're almost public by default and private by effort. And it is true. More and more data is being collected about our behaviours everywhere. I think what's important to people, though, and important to me, is less that data's being collected. I kind of get that. Whether I like it or not, I get it. What I am concerned about is data security, data privacy and data use. And it's the data use thing, I think, in particular that those in the commercial world have to really focus on. And it's interesting, if you research customers, more and more what they're saying is not that they don't like data being collected. They kind of get that. What they don't like is a poor value exchange. I'm giving you this information and you're using it really poorly. You're sending me offers that are irrelevant to me. The major reason people opt out of emails is the fact they get irrelevant emails. If I'm going to share this data with you through a loyalty programme or other mechanism, I want you to use that data in a way that shows you do understand me, that you want a relationship with me, that you're giving me things that actually have value to me. So to me, those are the three reasons why loyalty programmes have continued to be very common mechanics in retail land. Repeat purchase, differentiation, use of customer insights to get a strong customer relationship. One thing I get asked a lot about in my role, therefore, is, okay, that's all cool, I get that. But will they continue to be relevant, given the way that the consumer world is changing? That's a good question, because clearly things are changing. Now, my answer to all that actually is that loyalty programmes are going to become more common, not less common. And the reason for that is that as consumers, we are becoming less loyal. We are becoming more promiscuous as consumers. And there's a whole lot of reasons for that, one of them being globalisation of the internet and so on. In the past, there were almost barriers to switching, weren't there? In almost any category you can think of, it was quite hard, actually, to switch around. Now it's really easy. Doesn't matter what category you're in, the barriers to switching have almost disappeared. And we are becoming naturally more promiscuous. We actually want that choice, we want that power, we have so much more information as consumers that we use to actually be much more, not just promiscuous, but discerning in the choices that we make. So, in fact, the issue of loyalty is becoming more important to retailers, to brands, then less important. What is going to change and change markedly in loyalty programmes is the way they're delivered. The delivery mechanics are going to change fundamentally over the next two or three years. And there's many trends around the world that are now being picked up in this industry. I'm going to talk to five which I think are particularly game-changing for both consumers and for the brands who operate these programmes. The first is clearly mobility. Loyalty is going mobile. Now, the world is going mobile, I get that, but loyalty programmes in particular are going to dramatically change through mobility. If there's one thing I hear more often than anything else, especially from younger demographics, it's that if the loyalty card was on my phone, I'd use it more. Okay? And the truth is that is what's going to happen. Over the next two to three years, we will see loyalty programmes migrate from plastic cards to being on the phone, to a range of apps and mobile wallets and so on. And this is going to be really game-changing for two reasons. One, because we're now carrying our mobile phones as preference to our wallets. It's becoming the most important thing to make sure we have with us when we go shopping. And it does create a more personal one-to-one channel for retailers to communicate with brands. So we'll see the mobile phone become a device that doesn't just make it easy to connect at retail, but easier to communicate between a brand and a consumer. So loyalty programmes are going mobile. That will actually increase the utility, increase their use both from a consumer and a retailer perspective. Aligned with that, loyalty is going real-time. And again, the world is going real-time, I guess, in one sense. But more and more, we will see loyalty programmes connecting with consumers as they shop rather than just after they've finished shopping. And the reason for that is consumers demand it. We've become less—our attention spans have become less. We actually want things now in real-time. We don't want to wait for the future. We want to be rewarded, recognised right now, right when I'm shopping. I want to know when I enter the store that I'm going to get things that are relevant to me as a consumer. I don't want to wait three months, six months. I don't want to be driven by your campaign. I want to be driven by things that mean something to me. I talk about loyalty going from the back of the store to the front of the store. Our own Flybuys customers demand this. One of the things you can do now is you can redeem for a reward right now and pick it up on the way home. And that's what they want. They want instant recognition, instant redemption, a real-time experience. The third thing we're going to see is something that my head of technology talks a lot about, which is loyalty programmes going from closed to open, which really means that for a long time there have been these ecosystems that are very closed. You've got to use the loyalty programme card. You've got to interact with the loyalty programme website. You've got to do it by the loyalty programme's rules. That's going to change quite a bit. It's going to become a more open ecosystem where you can interact with the loyalty programme as you want to. It may be via social media, via Facebook. It could be through a range of online environments. I want to check my balance when I go online to do my banking. I want to redeem through Twitter. I want to interact through ways that mean something to me because consumers are more and more becoming actually about things that mean something to me. The whole one-size-fits-all nature of marketing generally is changing rapidly, and loyalty programmes are going to be part of that as well. Fourth trend which we're seeing a lot of, although less in New Zealand but more so around the world and will come here as well, is the gamification of loyalty programmes. Again, this comes back to low boredom thresholds. People don't want to just collect points or discounts or whatever it is towards a reward in the future. They want entertainment now. They want to enjoy the process. They want fun along the way. So we're going to see loyalty programmes have more and more of this gamification element, more and more of this fun on the journey to the ultimate reward. And we've started to see that creep into more and more of the loyalty programme mechanics, especially through social media, as a way to actually have more entertainment along the way. And we are going to see much more personalisation of loyalty programmes. The whole one-size-fits-all thing, as I said, is disappearing. More and more we will see people say, I want to be rewarded in ways that mean something to me. I want to design my own loyalty programme. I don't want your rewards. I want my rewards. This is how I want to interact with you, not the way that you tell me to interact with you. And there's a couple of things driving this. Clearly, one is personalisation, is the insights that retailers are getting about customers. And again, part of it is consumer demand. I want it to be about what's important to me as a consumer, not what you tell me is important, Mr Retailer, Mr Brand, Mr Loyalty Programme. So we are going to see this personalisation piece coming in. Having said all that, those are all delivery mechanics. They're all ways about the loyalty programme being delivered in slightly different ways. It doesn't actually change the fundamentals of what drives loyalty. And it's interesting because whether you go back to the early loyalty programmes of the 1920s, 1930s, or the big supermarket programmes, or the online programmes that are coming now, those fundamentals haven't changed. The way they're delivered will change and will continue to evolve. But you won't get away from the fact that loyalty is about these things on the slide. It is about the great brand. It is about the understanding of needs, the great customer experiences and relationships, the need to recognise and reward customers. I'm a bit of a Beatles fan, and one of their songs is that money can't buy you love. And the truth is that loyalty programmes can't buy you loyalty either. But they can be a pretty important mechanic to help get exactly these kind of things happening between a retailer and a brand, try and get back to that relationship that we used to have with stores on a one-to-one level when, in fact, we did buy from the local butcher all the time or the local cafe. So those things will still become important. And, of course, if all else fails, making good doughnuts remains pretty important too because getting that right product and making sure people love your product are still the fundamentals that drive loyalty. So do loyalty programmes have a place in the marketing world? Yes, they do. Will they be there in the future? Yes, they will. And, in fact, they are going to become not just more prominent, but more personalised and more of a connection between the consumer and the brand. Thanks very much. APPLAUSE