Integrated Marketing
Communications

Journal of

2007

2

Subscription Information

3

Staff

4

Advisory Board

5

Sponsors

6

From the Publisher

7

From the Editor

8

Marketers’ Roundtable

10

Medill’s Integrated Marketing Communications Program

11

Emerging Applications and Challenges of Addressable
Television Advertising

Claudio Marcus and Tara Walpert

18

Are Points and Point Programs Pointed at the Right Patrons?

Michael Moyer and Dana Hayman

24

Culture and Connection

Melissa Dawn Johnson

28

Strategies for Differentiating the Professional Services Firm
Brand

Jeff Scurry and Holly Wehmeyer

35

Making Brand Happen: Branding in the B2B Marketplace

Ariel Goldfarb

41

Navigating the Marketing Measurement Maze

Vikram Mahidhar and Christine Cutten

47

The View from Inside: People Power through Internal
Marketing

Pamela Davis and Marc Eisele

55

Call for Articles

56

Staff Bios

Are Points and Point Programs
Pointed at the Right Patrons?

Sorting through the issues and opportunities associated with loyalty
marketing

Michael Moyer and Dana Hayman

J

udging by the pervasiveness of loyalty programs
in the marketplace, marketers have undeniably
embraced loyalty marketing. We all recognize

that a loyal customer base is necessary for build-

ing a sustainable brand or business in any industry.
Amongst all the loyalty programs out there, points-
based (or miles-based) rewards programs have
become particularly prevalent. Marketers have been

Journal of Integrated Marketing Communications 2007

18

conditioned to think “points program” when they
hear “loyalty program.”

But loyalty marketers’ initial visions of points

programs and accompanying wallet cards, though
nobly-intentioned, are likely premature. Points and
cards are not strategies, they are tactics. Organiza-
tions that focus on tactics too early in the design
process will face tough odds in producing a strategi-
cally grounded, economically successful loyalty
initiative.

The purpose of this article is to help current and

prospective loyalty program champions and archi-
tects design or enhance loyalty marketing initiatives
for any brand. The article provides practical concepts
and approaches to help marketers through the
process of defining and assessing a brand’s loyalty
marketing opportunity. Included are key considera-
tions for defining loyalty, determining who the real
loyalty program target should be, setting meaningful
loyalty goals, and determining whether a loyalty pro-
gram is indeed appropriate for a particular brand or
product. Ultimately, loyalty marketers will be more
prepared to organize, sell and defend sound loyalty-
building plans to executives and secure the resources
required to support them.

A perspective on points-based loyalty programs

Some customers represent better choices for a

firm’s loyalty investments than others. Some have
high opportunity value, some have high propensity
to respond to marketing tactics and some have high
return on investment (ROI) potential. Therefore,
offering all customers the same discounts, incentives
or rewards, points-based or otherwise, through a
mass-targeted loyalty program may not be the most
efficient way to build loyalty.

Abstract

Any employee, from the CEO to the mail clerk in
any firm, would probably agree that developing and
maintaining “loyal” customers is, or should be, a top
priority for the company. As a result, it seems most
marketers are convinced they need a loyalty program
of some sort. But have marketers considered what
loyalty really means to their organization? Do they
know what the traps and hurdles are in building
loyalty for their firm? Have they clearly determined
the specific customers loyalty programs should
target? If not, they may be destined to hit some
formidable snags in the process of developing or
enhancing a loyalty program that their chief
marketing officer (CMO) and chief financial officer
(CFO) will endorse. This article will address: a
perspective on points-based loyalty programs, chal-
lenges in defining loyalty and designing a loyalty
program, ideas for defining loyalty and building the
right loyalty program for a firm, and keys to success,
assuming a loyalty program is the right approach.

Before designing a loyalty program for the mass-

es, first determine which customers represent the
best loyalty opportunity by prioritizing customers
based on meaningful criteria. For example, begin by
asking questions such as: “Which customers repre-
sent the most potential value?” and “ Which cus-
tomers would realize the greatest benefit from a
loyalty program?”

Prioritizing a loyalty program target will be

easier in concept than in practice, as access to the
necessary data may prove challenging. Therefore,
loyalty marketers need to rely on an element of
creativity in analysis, as demonstrated in the exam-
ples in this article. The key is to optimize marketing
resources by recognizing which customers to design
the program for and the potential value they
represent.

Challenges: Defining loyalty and designing a
loyalty program

Understanding the challenges early in the design

process will help prepare a firm to more effectively
overcome them. Three challenges stand out among a
much longer list:

Challenge #1

The marketplace is becoming saturated with loy-

alty programs. With all the little bar-coded cards
marketers ask consumers to keep handy, consumers’
key chains are looking more and more like mini
piñatas. The implications include:

Irritated customers. At a minimum, loyalty pro-

grams will have to deliver enough incremental
consumer benefit to compensate for any hassle
of participating, including carrying around
another card or keeping track of another set of
points or loyalty currency.

Marketers have an increasingly difficult time trying

to differentiate their loyalty program and create truly
meaningful competitive advantages. It requires a
large investment in time and effort determin-
ing how to differentiate loyalty programs.

Challenge #2

At first, the concept of “building loyalty” proba-

bly seems simple, but building consensus will be
much more difficult than one might expect.

The marketing team, the CMO and the CFO

need to be aligned regarding, at minimum, the fol-
lowing fundamentals:

1. What loyalty really means to the organization.

2. What the priority loyalty-related goals are.
3. What building loyalty will entail.
4. How success will be measured.

These discussions will likely reveal very disparate

views. Questions to ask include:

What is the best way to turn a low-value customer

into a high-value customer? Should a firm sell
current customers more of the same product
by increasing category need or stealing com-
petitive purchases? Or should it sell customers
a more expensive version of the same product
(up-selling)? Should a firm sell an additional
product in its portfolio (cross-selling)?

Will it be more effective to first stimulate customer

behavior or attitude? Agency account executives
might argue that strengthening attitudes
toward a brand (through advertising) is the
best way to ultimately influence purchase
behavior. On the other hand, point-of-pur-
chase and direct marketers might argue that
using offers to stimulate an initial or additional
purchase will promote habitual behavior and
ultimately lead to heightened consumer loyal-
ty to the brand. Ask, do attitudes drive pur-
chase behavior, or vice versa?

Philosophical differences aside, matters are com-

plicated by the fact that marketing organizations
operate in unique environments because of differ-
ences in customer bases, data sets and so on.

Thus, there are no tried and true standards that

all marketers can rely on in
defining loyalty and setting
measurable loyalty objectives.
Loyalty marketers will need to
customize both loyalty defini-
tions and measurable objec-
tives to fit the unique needs of
the company.

Challenge #3

The ideal data probably does not exist in a firm’s

database and it is not practical to try to either collect
or buy it.

In theory, “share of requirements” or “share of

wallet” may be the single best behavioral measure of
a customer’s loyalty to a brand. For any one cus-
tomer or set of customers, this measure reflects the
percentage of purchases of one brand among all
options in that same category.

By knowing what share of requirements a firm’s

brand captured for each customer in the database,

Before designing a loyalty
program for the masses, first
determine which customers
represent the best loyalty
opportunity by prioritizing
customers based on meaningful
criteria.

Points Programs

Journal of Integrated Marketing Communications 2007

19

Moyer and Hayman

Journal of Integrated Marketing Communications 2007

20

objectives range from acquiring a desired number of
new customers to efficiency-related objectives such
as minimizing the marketing cost per new customer.

Retention. Focus on keeping current high-value

customers who buy the firm’s brand for longer than
otherwise expected before they switch to a com-
petitor or drop out of the category altogether. These
best customers represent the lion’s share of a brand’s
revenue and profits. The goals of retention initiatives
are generally to retain these customers and sustain
their current purchase behavior. Applicable tactics
include providing recognition, appreciation and
rewards.

Win-back/reactivation. Focus on getting formerly

high-value, lapsed customers to start buying the
firm’s brand again. Some of these customers left the
brand for reasons beyond a marketer’s control, such
as moving, transitioning to a new life stage or shift-
ing category needs. Primary research can be used to
determine a) why customers have left the brand,
b) whether it is possible to win them back, and
c) the size of the truly re-winnable customer base.
Reactivation objectives can range from reactivating
a desired number of lapsed customers to efficiency-
related objectives such as minimizing the marketing
cost per reactivated customer.

Loyalty. Focus on customers who are highly

involved with the category, but currently allocate
only a small share of their purchases to the firm’s
brand. In theory, these customers comprise the per-
fect loyalty marketing opportunity, and loyalty initia-
tives should be designed explicitly for them. These
customers represent the lucrative upside potential
value for the firm’s brand. Also, they are at least
somewhat engaged with or experienced in purchas-
ing the brand. The marketing goal is generally to
increase brand share of these customers’ category
purchases as efficiently as possible. Typical loyalty
program tactics include offers and incentives such as
points, miles or discounts to stimulate the desired
changes in purchase behavior.

Low priority customers and prospects. Focus on mini-

mizing marketing investments to these consumers, as
they do not purchase much in the category, have
migrated out of the brand’s footprint or might have
had such a negative experience with the brand that
it is unlikely that they will eventually re-engage.

Priority considerations in defining loyalty

The concepts and definitions presented above

may need to be modified or customized in order to

marketers would be able to pinpoint loyalty efforts
to only those relatively low-loyal customers who
represent the most growth opportunity for the
brand. Customer-level category usage data contain-
ing customers’ purchase activity associated with both
the firm’s brand and competitors’ brands is the
“Holy Grail.” The rub is this data simply does not
exist for the vast majority of customers in the data-
base.

It would be marketing nirvana to know brand

attitudes, demographics and competitive-brand pur-
chase behavior associated with every customer. With
unlimited access to all this data, it would be possible
to craft any loyalty definitions, goals, customer tar-
gets and program evaluation plans desired.
Unfortunately, the only way to collect data consid-
ered ideal to these ends would likely require primary
research on literally every customer and prospect.
This is simply impractical and expensive. Thus, mar-
keters need to work with either the available data
(most commonly contact information and transac-
tional data) or data that can be easily or economical-
ly acquired from a third party (namely demographic
data).

Ideas for defining loyalty and building the right
program

Defining loyalty in the context of alternative
fundamental marketing objectives

Building loyalty for a brand is just one of many

fundamental marketing opportunities to consider in
determining how to grow a brand’s revenue, profit
and return on marketing investment. Schulz and
Hayman (1999) suggest that defining loyalty in the
context of additional marketing objectives will pro-
vide the perspective needed to make sound invest-
ment allocation choices across alternative potential
marketing initiatives. Most marketers would benefit
from aligning literally every customer and prospect
on their database with one of the five fundamental
marketing objectives below.

Acquisition. Focus on converting potentially

high-value prospects to customers. High-value
prospects purchase a lot of product in a category but
not the company’s brand. In addition to potential
value, a prospect’s propensity to respond is an impor-
tant targeting consideration. Look-alike (cloning)
and response modeling techniques can help channel
acquisition investments to the prospects most likely
to provide the best returns. Common acquisition

21

Journal of Integrated Marketing Communications 2007

Points Programs

has an even more complex perception of what loyal-
ty means and must think bigger. The CMO must
consider not only the pizza brand, but also the
chicken brand (KFC) and the Mexican food brand
(Taco Bell).

So in defining loyalty and loyalty initiatives for

Yum, one should be meticulously specific about
what loyalty really means and
what a potentialloyalty
program is ultimately trying
to accomplish. The product
manager may set up a “Pizza
Points” program that drives
incremental purchases of piz-
zas, but these purchases may
come at the expense of Yum’s
chicken and taco businesses. Is
this in the best interest of the parent firm? This is a
consideration for the CMO, who views loyalty not
in the context of a single product, but in the context
of the entire portfolio of brands.

Keys to success, assuming a loyalty program is
right for you

Keep it real

Focus on practical versus theoretical ideas of

what loyalty means to the organization and what
loyalty-building will entail. Leverage the most
efficient analysis that gives an actionable solution.

For example, a hotel chain lacked data on com-

petitive purchase behavior and therefore decided to
use existing transactional data to produce a practical
framework that differentiated between loyalty and
retention opportunities. The approach entailed put-
ting aside theoretical loyalty concepts that relied on
share of requirements and attitudinal data. The chain
defined its best retention opportunity as customers
who had very high year-over-year purchase activity
and its best loyalty opportunity as customers who
had heavy stay activity one year and lighter activity
in the next.

The result was a clear picture of distinct cus-

tomer segments for which specific program goals
and tactics could be designed and aligned. Retention
efforts (offers and rewards) and loyalty-building
efforts (offers and incentives) were deployed accord-
ingly. From there, the marketing team built models
to predict total category wallet size (i.e., including
competitive purchase activity) for every customer in

make them truly practical for a brand. To this end,
the following factors deserve heaviest consideration.

Data availability. Data availability is perhaps the

single biggest constraint in defining loyalty, identify-
ing customer targets, creating measurable objectives
and implementing loyalty initiatives in the firm.
Marketers often do not know which current low-
value customers represent the biggest opportunity
for a brand because they are not able to determine
which customers are highly active in the category
but purchase a competitor’s products. Moreover, atti-
tudinal information for most, if not all, customers
simply does not exist. There is no surefire way to
keep track of each customer’s brand attitude and
how it is changing over time. Investments in collect-
ing additional data might be required.

Purchase dynamics/purchase cycles in the category.

The notion of defining and building loyalty makes a
lot more sense in categories with short purchase
cycles (e.g., consumer package goods, haircuts, fast
food, etc.) versus long ones (e.g., durables, automo-
biles and personal computers).

To illustrate, think of the hypothetical pizza

product manager at Pizza Hut and consider how
simple it is to conceive behavioral and attitudinal
measures of loyalty associated with pizza. As a behav-
ioral example, out of a customer’s last ten pizza pur-
chases, how many pizzas were from Pizza Hut? Or
as an attitudinal example, how many pizzas does the
customer expect to buy from Pizza Hut out of the
next ten pizza purchases?

But apply this train of thought to derive mean-

ingful measures of loyalty in the washing machine
category and the definitions seem far less agreeable.
A washing machine product manager probably will
not even be employed in this position long enough
to ever know if today’s loyalty initiative works or
not. To say the least, defining and measuring loyalty
in durable goods will require more creativity than
normal, and might only be achievable if considered
in a very broad, long-term context.

Perspective. The marketer’s level in the organiza-

tion is a driving influence on pending loyalty solu-
tions. While the pizza product manager at Pizza Hut
is presumably thinking about capturing share of piz-
zas, the brand manager is more likely thinking about
ways Pizza Hut can capture a greater share of their
customers’ fast food spending.

However, the CMO of Yum Brands, while also

interested in capturing share of fast food spending,

Data availability is perhaps the
single biggest constraint in
defining loyalty, identifying
customer targets, creating
measurable objectives and
implementing loyalty initiatives
in the firm.

22

Journal of Integrated Marketing Communications 2007

Moyer and Hayman

unclear, undertake analysis efforts that will guide
decisions before squandering loyalty program invest-
ments on the wrong customers or unproven oppor-
tunities.

Collect actionable data

While data collection is an out-of-pocket

expense that is not easy to connect to short-term
returns, gathering additional customer information
can ultimately pay off in spades over the long term.
Without the right data, it will be impossible to target
the right customers and measure results. Performing
primary research or response analysis on a small sub-
set of the customer base, while expensive to admin-
ister on a per-customer basis, can provide valuable
direction for broad-scale data collection and acquisi-
tion initiatives.

Hypothetically, response analysis among a cus-

tomer sample could illustrate that a loyalty program
produces an incremental $50 per customer among
low-income households versus an incremental $10
per customer among high-income households.
Assuming it costs $1 per household to append
income data to all customer records, investing in this
single data element could lead to subsequent target-
ing and investment allocation enhancements, result-
ing in enormous program efficiencies that not only
pay for the original analysis and data investment, but
also drive the overall profitability of the program.

Marketers should be creative in determining and

collecting the data most important to their market-
ing initiatives. One baby food company, for example,
provides expectant and new mothers with a keep-
sake (an engraved baby spoon) for customers willing
to provide the name and birth date of their child.
This creates a mutually beneficial value exchange
between a brand and its customers. Customers real-
ize obvious value (a personalized keepsake) in
exchange for the effort required to supply just two
data elements back to the brand. Presumably, the
exchange builds consumers’ affinity for the brand.
Simultaneously, it provides the marketer with
actionable data useful in targeting and timing age-
relevant communications and promotions for years
to follow.

Anticipate and embrace change
In order to continuously improve over time, loyalty
definitions and objectives should become more
specific as data improve. Loyalty targets and target-
specific offers should also evolve as more is learned

the database. Over time, the company’s definition of
loyalty capitalized on this new, customer-level (albeit
model-generated) data, and that definition will con-
tinue to evolve in the future.

Set specific goals

The fundamental goal of most loyalty initiatives

ultimately involves building incremental customer
value. However, marketers should be as specific as
possible about how they intend to achieve and
measure results. Simple data analysis and scenario
planning can help break end goals down into more
specific ones.

Consider an automotive service marketer that

wants to get more revenue and profit out of its cus-
tomer base. One way to achieve this is by increasing
shop visitation. The company could cross-sell oil
changes and tune-ups to current brake and exhaust
customers to shorten shop visitation cycles.
Alternatively, the firm could up-sell customers from
low-value to high-value brake services and products.
Marketers should understand their options and assess
the relative importance of each so the team can
design and deploy tactics as effectively as possible.

In addition to building customer value, most

loyalty marketers must deliver on efficiency objec-

tives. Have a conversation with
the CFO about the relative
importance of building pur-
chase activity or volume versus
maximizing returns on loyalty
investments. Specify loyalty

program goals in way that best reflects the desired
balance between volume and efficiency.

Invest in the right places

Market to the customer targets most likely to

deliver on loyalty objectives. If marketing efficiency
is the critical objective, then invest in analysis to help
pinpoint customers who will help maximize returns
on the investment. Create response models that can
help determine the customers most likely to
respond to marketing communications and offers. If
delivering on a volume objective (incremental value
per customer or incremental customers enrolled in
the loyalty program) is more important than deliver-
ing on efficiency, then invest in potential value
models to identify customers representing relatively
high growth opportunity for the brand.

In short, know which customers to target when

designing a loyalty program. If the best target is

The fundamental goal of most
loyalty initiatives ultimately
involves building incremental
customer value.

Points Programs

Journal of Integrated Marketing Communications 2007

23

Conclusion

There are endless theoretical ways to define

loyalty and approach loyalty-building initiatives. The
options can be paralyzing. However, by understand-
ing the key challenges associated with loyalty and
how loyalty efforts fit into the context of overarch-
ing marketing plans, loyalty marketers can hone in
on a loyalty solution that will resonate with the
CMO and CFO, and most importantly, customers.
As a rule of thumb, marketing organizations should
build a loyalty program for customers who can gen-
erate the most substantial combined increases in
ROI and perceived brand value. Customer loyalty,
no matter how you define it, is too important.



REFERENCES

Schultz, D. E. and D. W. Hayman. “The Two Sides of
Loyalty.” Interactive Marketing - The International Journal of
The Institute of Direct Marketing. 1.1: 31-43, 1999.

Michael Moyer is president and chief operating officer of
US Acquisitions, LLC, a private investment firm in
Highland Park, Ill. He has over 15 years experience in
marketing, sales and business start-ups. Mike has also held
other senior-level marketing positions at GVW Holding,
HyperFeed Technologies (HYPR), RealNetworks
(RNWK) and Bissell. In 2002, he started marketing tech-
nology firm, Vicarious Communication, Inc. Mike holds
an MBA from the University of Chicago and a master’s
degree in integrated marketing communications from
Northwestern University.

Dana Hayman is senior vice president of strategic consult-
ing at Epsilon, Inc. His innovative approaches to relation-
ship and database marketing have been featured
internationally in publications such as Strategy &
Leadership, Ad Age and The International Journal of the
Institute of Direct Marketing. Dana holds a bachelor of sci-
ence in marketing from the University of Maine and a
master’s degree in marketing research from the University
of Georgia.

about what works among specific consumer types or
sub-segments.

Get help from the experts
Whole businesses have been built around providing
loyalty program-specific counsel and supporting
services. Leverage expert experience to enhance
loyalty programs, particularly in the following areas.

Understanding options pertaining to loyalty programs

and tactics. At the program level, the primary alterna-
tive to the mass-targeted loyalty program involves
customizing marketing initiatives for specific targets
where unique objectives, investment levels and tac-
tics make more sense. In addition to different types
of programs, there are varying types of rewards: hard
versus soft; expected versus unexpected; and struc-
tured versus unstructured. Enrollment structures
provide additional options as programs can be invi-
tation-only, earned, or automatic/all-inclusive.
Programs can also support a single brand, multiple
brands in the same firm, or multiple brands between
cooperative or partnering marketing organizations.

Differentiating loyalty programs and tactics. Successful

programs will differentiate in all of the above areas
and more. For example, in the airline industry miles
have become the standard currency of choice, and
reward structures in these programs are so similar it
is difficult to decipher one from the other. However,
at least one airline has differentiated its program by
enticing frequent fliers to accumulate just a few seg-
ments instead of having to collect thousands of miles
before qualifying for a reward. This represents one
way to differentiate among a large list of choices.

Creating evaluation plans. Leverage any existing

pilot tests, test versus control methodologies, experi-
mental designs or reporting infrastructure. Obtain
deep analysis skills to, at the very least, track return
on investment.

Pre-determining an exit strategy. Loyalty programs

involving outstanding or not-yet-redeemed points
or miles can represent millions of dollars of liability
for the marketing organization. To help control and
manage liabilities, loyalty programs should be
designed with an end in mind. Many airlines set
expiration dates for miles earned allowing them to
cancel outstanding debt for non-participants.
Limitations like this should be clear and up front so
as not to damage the customer relationship when it
is time to shut down or change the program.