Originally presented as a PAYMNENTSfn Fireside Chat, listen as Rhiannon Davies (Loyalzoo) and Clay Hefner (Spreedly) discuss how payments can support loyalty programs for SMBs and subscription-based services.

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Rough Transcript (edited for readability):

Peter Mollins:

Well hello everyone. This is Peter Mollins with Spreedly, really great to have you all here. Very excited to have another great topic in our continuing series of PAYMENTSfn Fireside Chats. So like I mentioned, I'm Peter Mollins I'll be your host today. So I'll be asking questions of our two guests. And before we get started though, what I want to make sure is that there is ample opportunity for interactivity. So if you'd like to submit a question, then please click on the Q and A option at the bottom of your screen. And you can also submit questions by going to the Ask PFN channel in the PAYMENTSfn Slack workspace.

Peter Mollins:

If you aren't yet in this Slack workspace, no problem you can just respond back to the email registration you got and we can get you the link to get over there. Always lively discussions and hundreds of payments professionals on that Slack channel, that Slack workspace so great place to be. And we'll do our best to get to as many questions as possible during the webinar today. And if you're not able to stay for the whole webinar, it's no problem. We're going to be sending out a viewing link after the event so you can watch it at your leisure.

Peter Mollins:

So now let me get to introduce today's panelists and introduce a little bit more about the topic that we're going to talk through around loyalty. So first off is Rhiannon Davies, who is the chief growth officer at Loyalzoo. Hello, Rhiannon.

Rhiannon Davies:

Hello.

Peter Mollins:

Rhiannon started with Loyalzoo in early 2016 and it was following a career of working in many small businesses and higher education. And she's seen firsthand the struggle that merchants have adapting to technology and generally because it seems just too complicated. She has a passion for finding trends that small business owners experience in store and to better understand how technology needs to adapt to those requirements. Rhiannon is a native of Brisbane in Australia and she now calls London home despite the, I'm sure, sometimes shocking differences in climate that you've experienced, but not today is what it looks like. Welcome to Rhiannon.

Peter Mollins:

And also joining me is Clay Hefner, he's a product manager with Spreedly. He focuses on optimizing and expanding Spreedly's ability to volt and transact with different payment methods. Clay comes to Spreedly with a broad background in product management, marketing and software. And in particular of relevance for today's discussion, Clay worked at the McClatchy News Organization as a lead product owner prior to Spreedly and he helped to drive their digital transformation to digital subscriptions and payments. So while Clay's not dreaming about network tokenization or alternative payment methods, he enjoys woodworking deejaying, and just generally being outdoors. So Clay welcome.

Clay Hefner:

Thanks for having us Peter.

Peter Mollins:

Terrific. So we're going to talk about loyalty today and put that into the context of payments and just a great customer experience. And one of the things that really prompted us to do this conversation was back in May, we had the PAYMENTSfn annual event and that was about 1,450 payments professionals registered for it so great numbers. Rhiannon you were one of the speakers at that event and you spoke a little bit about loyalty, the context of loyalty and the future of loyalty programs and how that delivers a great experience. But maybe what we could do is, if you don't mind, can you just describe what loyalty is. It's one of these things where everybody knows, they think they know what it is, but what exactly is a loyalty program?

Rhiannon Davies:

Yeah you're totally right. There is so many different ideas about what a loyalty program is and possibly some misconceptions as well. We're also seeing a lot of trends that are changing within this industry. But traditionally for us, what we would describe as a loyalty program is either like a points and rewards-based loyalty program or a subscription like a recurring payments-base loyalty program. So really something that generates a customer to obviously remain loyal and hopefully repeat purchase at that business.

Peter Mollins:

Okay great. Now Clay you're coming to Spreedly from that different background, as I mentioned from McClatchy and specifically for media companies, do you have a sense for like why loyalty matters for that kind of business or in that particular vertical of media companies?

Clay Hefner:

Yeah, yeah. With loyalty when it comes to the media, it's all about making sure the customer continues to engage with content. So if you think about it through the context of the newspaper, that's really how you're deriving your value as a customer, is like engaging with content on a daily basis. So there's an incentive for a company to make sure that continues. And I think the example of a points and reward program can encourage customers to do that. Either by just encouraging the organic reading that they're already doing or by pushing them and giving them incentives like read more, perhaps like re-engage with content after they take a break. So that's really what drives a lot of media-based company loyalty programs.

Peter Mollins:

Okay great. Now, so you're mentioning one part of an equation and Rhiannon kind of kicked off a little bit of the equation around loyalty. It seems that when you're talking about loyalty programs, you're trying to find the equilibrium or the balance between what is the right offer to help people stay engaged and get excited and the right time or frequency. How do merchants actually find that balance Rhiannon? Is that something that, how do they know when too much is too much and they're over rewarding loyalty?

Rhiannon Davies:

Yeah sure. Really at the end of the day it does come down to a mathematical approach. So that's kind of what we guide our merchants into using. So when they're typically setting up their points based loyalty program or even their subscription based loyalty program, it's about looking at what their customers are currently spending and really just trying to get small wins. If you were to try and achieve getting an extra 10% of every single customer, that's quite a small achievement for that individual customer. But if you get that from all of your customer base, that's going to generate some pretty good revenue. So one way of helping out clients set up their loyalty program it's really about mathematically setting what was your customer's average spend? Trying to set reward targets that are roundabout 10% extra because again, that's a small win but big reward for that business.

Rhiannon Davies:

So that's kind of the very mathematical basic approach. But very much what Clay was saying is that there is this moment between yes, you can have a customer that is engaged and excited by those rewards or points based program. But because we're also talking about the digital side of things, we can actually define and drill down when that consumer is potentially slipping away or having that gap in between purchases. So you'll have this element of also auto promotions where if that customer is kind of trending downwards, we'll send them an order promotion in between. So it's this dance between a really great engaging rewards program that's mathematically set well and also driving those promotions when that customer isn't particularly spending.

Peter Mollins:

So it sounds like finding an equilibrium is a matter of testing in a lot of ways. You're probably never at fully settled, you're just constantly testing in order to see what works and iterating on that. Is that right?

Rhiannon Davies:

Yeah.

Clay Hefner:

Yeah. And there's often like testing on multiple dimensions too. You can test certainly on the reward itself, do you put the right incentive in place? But there's also the channel with which you're sending that message. So as an example, if I send a reward message to try and entice somebody to come back to engage with the rewards program, to drive more content usage, let's say I use an email like email marketing blast. I could have the best incentive ever. I could give them a free house but if no one opens up the email, it's not going to work. So I think there's also a balance to multiple dimensions that we have to consider when you're looking at your loyalty program. One is the incentive working? But also is the message that you're delivering making it to the customer themselves? If that doesn't work, you're dead in the water.

Peter Mollins:

Mm-hmm (affirmative).

Rhiannon Davies:

Yeah, sure.

Peter Mollins:

Yeah. And Rhiannon do you see that idea of the vehicle being important? I imagine many of your customers are using different vehicles to get in front of their customers, not just email?

Rhiannon Davies:

100%. So this is what's quite interesting is because you are right Clay that some people and probably most people, kind of dread an email, but there is potentially this small percentage of people who do engage with email. And that's what we started to recognize is that initially when we started, we drove one communication channel and that was making customers install an app on their phone. And as time kind of progressed, we realized that customers engaged on all different types of levels. And that's how we've grown quite drastically because we allow that customer to choose their channel, which therefore makes them more engaged because it's not like, "Oh, there's another email." If it's in an SMS and they love that type of communication channel, they're definitely going to be engaged.

Peter Mollins:

Mm-hmm (affirmative), yeah that makes a lot of sense. I guess it's not unlike providing a range of choice within certain bounds of course, not an excess of choice, but a range of choice is going to provide a better customer experience provided you. don't go crazy with it. [crosstalk 00:09:44]

Rhiannon Davies:

You can do whatever you want. Yeah, that's correct.

Peter Mollins:

That's right. Well in fact it's not that long ago when you would open up your wallet or you would go to your key chain and it would be overwhelmed with a thousand different bagel shops and coffee shop, cardboard, clipping coupons. Or in your key chain having all sorts of scanning tools for different grocery stores, et cetera. So now we've moved to, as you were describing, this world where it's often app driven but where are we headed from here? I mean what other ways are technology going to impact loyalty in the next few years?

Rhiannon Davies:

That's really interesting because we get this question quite a lot. And I think what a lot of business owners get caught up in is that they want technology to do absolutely everything. And our kind of philosophy we are just kind of trying to educate business owners on the fact that technology can not be a replacement for everything, it's just kind of enhancing that experience. So in reality I think that technology, the more that it advances, actually I think the more simple will make everything. And kind of just leading a little bit to the left here is that I see so many times joining a loyalty program or it's really hard to understand. So just really breaking that simplicity down. And there is a lot of awareness around making things a little bit more simpler. But then also I guess we do have the automation that is really progressing as well. So I think just the understanding and awareness around loyalty programs will be simple, but there'll be made simpler by yes, measuring those customer buying behaviors and triggering those special promotions in those specific types of purchases. So [inaudible 00:11:42] and simplicity really.

Peter Mollins:

Right. And I suppose Clay, there's a parallel there with payment methods as well where you want to offer sufficient choice, the right choice for given markets, but at the same time, littering your checkout page with a thousand options, same idea, that's choice can inhibit choice.

Clay Hefner:

Right, right. And I think in particular choice is good but also reducing like Rhiannon said, reducing friction for the customer that's wanting to sign up is critical. The barrier to entry has to be so low. So when I think about payments data and how that can help merchants with loyalty programs, especially when you can start connecting the dots with data that the customer shares with you, even if they don't willingly understand or know that they're sharing it. An example is, a credit card is a pretty good unique identifier as long as you're using it equally across maybe like omni-channel company. So you have a brick and mortar store, you have eCommerce experience. If you can track that card throughout it all and make the customer aware, "Every time you use this consistent credit card with us, you're building up loyalty points and rewards." Well that makes it super easy for them to sign up. All they have to do is just tell you, "Yes." Another example is using an app which I'm just in love with.

Clay Hefner:

And I drink so much coffee having worked for Red Bull for a while. So the Starbucks app, listen, the long tail that they get off of giving me a free drink. I load that app with, all my money goes into the app. I'll make purchases happen with the app. All my rewards points accrue in the app. And I can't imagine all the data that Starbucks is just collecting about me that then they can feed into some sort of a AI business model to make a random, like you were saying, this mathematic decisions about how to affect other Clay Hefner's like myself with rewards.

Peter Mollins:

Do you see that ran in that not only, you mentioned of course at the beginning about using the data in order to refine what those loyalty offers are. Do you see that affecting merchants in other ways, that kind of data?

Rhiannon Davies:

It's kind of interesting because I see where Clay's coming from but though that's really typical for a big company and Clay has done exactly what they wanted him to do.

Clay Hefner:

Starbucks I've fallen into your trap willingly. Keep giving me the free drinks please.

Rhiannon Davies:

Exactly, fantastic. But Starbucks has such a big brand behind them. A customer of Starbucks literally probably will do anything. They will install an app, they'll add money to it, they'll top up their card. Yeah, literally do anything as Clay says. But it's quite different for a small business owner because firstly it's quite hard to get a customer to take a chance on a small business because there's no real kind of big brand behind them. So it even works the same in terms of trying to get them to sign up to a loyalty program. They might buy from you the first time but it might have just been in passing and that can be really hard to actually capture them right there on the spot.

Rhiannon Davies:

Small business owners, they kind of don't necessarily care in terms of that big data. They don't necessarily want to capture your age or your sex because it doesn't necessarily make any difference. If you just literally came in two extra times to purchase a coffee, that's what matters to them. So knowing those reward targets are setting a behavior for that customer, that's more valuable than sending a coffee offer to Clay Tuesday at 10:00 AM. That is it might be colored in blue because he's a male. Those kinds of things are not really that advantageous to a small merchant.

Peter Mollins:

Okay. So it sounds like there might be sort of a maturity continuum I guess where some businesses as they grow larger or perhaps as they focus on that, that it may differ over time and for different merchants. Now I want to dive in a little bit more Rhiannon on one of the points that you made there about small businesses. So we often think about loyalty programs and discounts definitely come to mind as a key thing. Some of those smaller businesses maybe that they might not be capable of offering discount after discount. What are some approaches that could be offered to businesses startup when they lack that ability to offer incentives like huge discounts?

Rhiannon Davies:

Yeah, for sure. I think that, again, that is a big misconception that you have to give a load of things away because we have lots of businesses where they will set reward targets. They will be incremented at the appropriate levels. So the smaller target might be getting a free cookie or something like that. Or at your top tier, you'll be getting that very, very maximum reward but you might've spent $500 in that shop. So it is about incrementing those rewards at the right moment. But I think at the same time just leading back to this whole customer and buying behaviors. So we work very closely on three different categories, because these are very valuable buying behaviors to follow. So brand new customers that can be very flippant and just kind of move on very quickly and not make a second purchase with you. You've got your top 20% of spending customers. We all know that 80, 20 rule, you make 80% of most of your revenue from your top 20% of spending customers.

Rhiannon Davies:

And then you've got your slipping away customers who have been making repeat purchases but might be trending downwards. So by targeting those specific buying behaviors, and again, just offering something that is a value but it might not necessarily have to be like very, very top reward. By nurturing those specific categories, you'll typically find that you'll get a pretty good repeat purchase from those categories.

Peter Mollins:

Okay, okay. Great.

Clay Hefner:

And I guess [feeder 00:18:18] does weigh in too. What are the things to consider with loyalty programs is there's the aspect of accruing points that leads to a redemption and maybe not all businesses can do that all the time. But I think also if you can collect certain pieces of data. Once again, you got to reiterate frictionless as possible. Something as simple as sending a message on your birthday, I'll use this example. When I signed up for Chewie's rewards program, they asked me my dog's birthday. I was like, "Why did you ask me my dog's birthday not my birthday?" They sent my dog a birthday card. Now sure that took a little bit of money, there's postage and the cards and the printing and everything. But it's not like they sent a free dog toy. They've made me really loyalty just based off the data that they already had.

Clay Hefner:

So I think there are special things that you can do. Quite frankly they could have sent me an email if they wanted to make it as cheap as possible but they still could send that message. And I think loyalty, yeah there's incentives but there's also just that incredible customer experience and that wow factor that you can deliver if you just have the right information.

Peter Mollins:

Right. Yeah great point. We have a question from the audience. So I am not an expert on the idea so I'd love to throw this out and see if either Rhiannon or Clay you have some thoughts on contextual rewards programs. And if you have thoughts on that for current state or into the future.

Rhiannon Davies:

So when we talk about contextual, we have to pose it to that person. Do we mean by yes, giving proper exact offers based on that person's purchasing environment is I'm assuming?

Peter Mollins:

I believe so. Or so it could be based on that individual or one angle that I was thinking through as reading that question would be like the physical location or other kinds of contextual elements. So perhaps they're in store or they're near store or some other signal or prompt makes a reward at this moment more relevant.

Rhiannon Davies:

Cool. I'll answer first if that's all right Clay. Two things spring to mind here. Firstly, I think, yes we've got Clay with his Starbucks. They're going to be sending very, very targeted contextual rewards. For small business owners, it's it can be very hard to drill down to that data level unless you have something like access to their point of sale system with their specific orders which can be very challenging as a loyalty company. So I think contextual rewards work very well if you can get that type of data but I think I'll probably come back to it time and time again. The VIP rule is also very, very valuable because if you are trading those top spending customers, you'll probably not only going to get extra money from them correct, but you probably maintain a word of mouth marketing. And word of mass marketing is far more valuable probably than any form of digital marketing.

Rhiannon Davies:

So it can really depend on the type of data that you have access to. And then the second thing is as I spoke about earlier, we do offer subscription-based loyalty. So that can be quite different to points based loyalty. And I have this really great example of this client who was running a liquor store and he was running it in like a college town and he was just slightly outside of his competitive circle basically. So it was like an extra two minute drive to get to him. So not necessarily that he was offering contextual rewards but a subscription based offering for him as a business. He was charging. I think it was something like $30 per month and you got 10% off every single type of alcohol that was in that store. Not sure if it's right to be promoting that, but anyways. But really driving those people to drive to, again sorry to use that word, to drive that extra couple of minutes versus all of his competitors in that specific circle.

Rhiannon Davies:

So I think there's not necessarily, you don't have to, because I think there's a lot of awareness around contextual marketing. So your customers can sometimes be like, Oh, they've been looking or watching me. So it's sometimes better to do it in a little bit more of an organic way. Yeah, Clay I don't know your thoughts on that one.

Clay Hefner:

Yeah. So I have some thoughts but I just wanted to say your point about the VIP and the influencer, that is so true. Having an influencer that speaks highly of your product really does carry the mileage across. It's not just about creating that experience for that one customer but it's about creating that experience that then goes to their 20 friends. So I just wanted to say excellent point. From my experience, so in software consulting a while back, I worked with a pretty large omni-channel retailer and we focused on something like this. I'm not sure if it fits exactly but they had their own app and they were really trying to promote in store purchase. So purchase online and then pick it up in store. So contextually, you can start to leverage that. We actually were working with them to have Bluetooth beacons that once you got close to the store within proximity, it would communicate with the Bluetooth beacon. And then it would alert the store clerks to get the purchase together.

Clay Hefner:

Hypothetically speaking they could push a notification to the app and say like, "Hey, thanks for coming into the store. Because you're a loyal customer, you're going to get 10% off anything in the store that you purchase while you're picking up your product." You could totally do that. I think you had a really good point which is you have to be careful because it does get to the point where it turns into like Big Brother. People want to be rewarded, but we're also in a space where people are becoming more aware of their privacy. So there is a fine balance of negotiating both to where you will reward them and encourage them and create that awesome customer experience while for lack of better words, not coming off as like creepy. You can be overbearing at a certain point.

Peter Mollins:

Mm-hmm (affirmative) great. And Rhiannon you were mentioning about competition and the liquor store having more competition close to most students. So just thinking through, are there other ways or other ideas that you might have around how competition can be addressed through loyalty? I guess subscription was one great example. Are there any other ways that you think of advising your customers when a new competitor starts entering into the market?

Rhiannon Davies:

Yeah. A loyalty program in general is offering something that typically your competitors won't have. I think we're all very aware as businesses that we need to have a USP or something that is different to our competitors in general. So that's I guess you number one. But nurturing again those buying cycles, it's really going to make a big difference if you can target those specific buying cycles.

Rhiannon Davies:

We all know that a new customer is quite fragile and particularly slipping away as well. If I was a new customer I might take a chance on you but I'm kind of expecting something a little bit extra. So if you can offer me something that potentially throws the control back onto me, I get an extra purchase or an extra offer that I can use in the next month that makes me as the customer feel like I'm in control. Because I think as customers sometimes we feel like even though of course we can spend where we want, for bigger companies it might be based around gas or electricity and stuff like that, we don't necessarily feel like we're in control. So if we can provide that kind of offer within those buying purchases, then we'll likely to feel like we're, I guess part of the purchase rather than being controlled by the purchase.

Peter Mollins:

Great, great, Now Rhiannon you're in the UK from Australia, Clay and I are over here in the U.S. Just thinking about different geographies, do you see variability across geographies in terms of what types of loyalty programs work in different regions?

Rhiannon Davies:

Yeah, for sure. And I have to say I've traveled a lot to the U.S as well. So I have very good understanding of everything as a whole I can say.

Peter Mollins:

And actually I think loyalty is much of your customer base. There's a lot of your customers that are in North America as well, is that right?

Rhiannon Davies:

Yeah. 90% of our clients are in the U.S so good to be speaking to you all. This is a really interesting one. I wouldn't necessarily say that things work differently for different geographies. For us, it's really actually about education because fortunately and probably why we're quite successful in the U.S is that business owners are very conscious that if they spend a little bit more time with their customer it can bring quite a big return. So for example, signing somebody up to a loyalty program, taking that couple of extra seconds and getting them signed up to this engaging rewards program will in the longterm bring good revenue. The other challenges that I find in other countries and potentially not necessarily stepping on toes here, might be a little bit around customer service. I know in the U.S whenever I go there, I love going and eating out because I get great customer service there.

Rhiannon Davies:

So there is a little bit of a difference in some other geographies. So it's more about educating business owners in other geographies on how customers actually engage with technology because there is this misconception that again, like every customer, if I tell them that they're going to install an app, they're going to go and do it. That's not the case. Customers are probably stubborn a lot of the time. And if you are small and you don't have this big brand, you almost have to, as a small business owner, force them into something that you know it was going to be really engaging, but they're probably not necessarily always going to take a chance on you. So for us it's not success, it's just educating how a couple of extra seconds can really longterm bring you some pretty big benefits from that customer.

Peter Mollins:

Terrific. Clay, towards the beginning you were discussing a little bit about payments data also influencing loyalty programs. Wondering if you had any other thoughts on how payments data can further collaborate with loyalty initiatives at customers. How a company could use that kind of data for spurring more loyalty?

Clay Hefner:

Yeah, yeah. So ultimately when you think of a subscription company, certainly as I mentioned earlier, you want the customer to engage with the content and you can reward them for that. But another factor is if they're not paying for the content, there's no way that they can engage with it. So if you're trying to prevent churn, one way that payments data can help you with that is just understanding the payments that you have on file. And is there like an opportunity... That card on file is actually going to expire and you have zero means to collect a new, a new card. Maybe that card for whatever reason can't be found with an account updater program. Then you could actually do some intervention with your rewards program. Not only to market to the customer via an email say like, "Hey, your card's expiring. You need to update."

Clay Hefner:

But once again, dangle that incentive with some points in front of them to actually go in, update their card on file and do that. Ultimately once again, it's just all about making sure that the customer doesn't churn, that they can keep having like content accessible. So another way you could use payments data to like influence the customer's journey.

Peter Mollins:

Great. Well we're getting towards the end point of our conversation. Clay or Rhiannon, any final thoughts that you want to share with the audience before we wrap up?

Rhiannon Davies:

Clay I might let you start on that one.

Clay Hefner:

Oh no. I guess if I had to summarize with like loyalty programs and loyalty in general, it's about taking that customer from just being introduced to your brand and making sure that they just have this quality experience and continue to engage. We do that through various different means. Be it points, rewarding for subscriptions, but ultimately, a lot of the things just boil down to having that engagement and making sure every time you talk to the customer, they're having that, as you mentioned, the excellent customer experience. That's what keeps them coming back and having this good loyalty program just further builds upon that. So it's one part of a holistic marketing mix if you will.

Rhiannon Davies:

I love that Clay. You summarized that really perfectly. And this is one challenge that we do have is that a loyalty program won't solve everything that is [visual 00:00:32:17]. You still do have to have a good offering in general, great customer service, all that, et cetera, et cetera. But a loyalty program is the icing on the cake. You will hopefully get that extra 10%, 15% from your customers because they might already be slightly loyal but you can make them purchase repeat and stay longterm rather than changing those habits and not necessarily being a one off purchaser.

Peter Mollins:

Great. Well perfect. So Rhiannon Davies from Loyalzoo and Clay Hefner from Spreedly. Thank you so much for participating in today's session. As the audience knows, this is going to be an ongoing series with the next episode coming up in October. So watch Slack and watch your email to find out more details about that session. And if you've enjoyed the webinar and enjoyed the prior content, definitely encourage your colleagues in the payments space to join the community, it's free and they'll gain access to exclusive content like this as well as our annual conference. So again, thank you so much to our panelists and to our attendees and we'll watch for you next month and us in episode four of the Fireside Chat series on payments. So again, thank you.

Clay Hefner:

Thanks for having us Peter, and Rhiannon it's been fun.

Rhiannon Davies:

Yeah. Thank you so much. Thanks guys.