David Raab Article Archive

Packaged software to run loyalty programs has been slow to appear. The main barrier has been the need for extensive customization, both to handle different offers and to integrate with customer service systems. Standard software with this much flexibility is hard to create. Still, some products do exist.

Reward (The Lacek Group, 612-359-3700) is exactly what you might expect of a loyalty system: something to help airlines, hotels, retailers and telephone companies administer rewards for specified behavior. The system allows users to set up different kinds of awards, to import transactions, to assess what each member has earned, to produce statements of benefits, to track award redemption, and to provide online responses to customer inquiries. Reward grew out of its developers’ work an airline loyalty program and is marketed within the travel industry by American Airlines’ Sabre Decision Technologies. Current users include a half-dozen airlines plus another half-dozen firms in the hotel, retail, communications and car rental industries.

Reward runs on a PC server using the FoxPro database and development environment. Proprietary compression mechanisms that allow it to handle data for millions of customers. The system receives feeds of member information, transactions, and activities such as award redemptions. Awards can be issued based on total activity, on reaching specified thresholds, on transactions that meet specified criteria such as a date range or fare type, or on registration for specific promotions. The credits received for a transaction can depend on the customer’s status–such as giving a 25% bonus for “Priority Club” members–and one transaction may qualify for multiple awards. The Lacek Group has found that while significant customization is needed to adapt Reward for a new industry, users can then set up nearly all of their promotions without additional programming.

The system carefully tracks administration of rewards, making sure that no awards are redeemed after the underlying points have expired. It provides customer service personnel with the ability to check balances, to look up the rules associated with a promotion, and to automatically determine whether a particular transaction qualifies for a particular award. This work can be done directly within Reward itself or by passing an extract file from Reward to an external customer service database. The system can also be set up so that external systems access Reward functions directly.

Reward can generate statements as well as mailing lists for other customer communications. Queries can be fairly complex, but the system does not offer the multi-segment selection hierarchies or complex campaign management of a conventional marketing database. It also lacks advanced reporting or analysis tools.

Cost of the system can range from $150,000 to $500,000 plus $3,000 to $5,000 per month for support, depending on the degree of customization and integration with existing systems. Reward was introduced in 1994.

While Reward does the classic, high-tech loyalty marketing pioneered by the travel industry, the decidedly low-tech grocery industry has its own brand of loyalty programs. These tend to be quite simple–often no more than a rebate coupon based on cumulative purchases–and don’t interact with a reservation system. This makes grocery loyalty systems much easier to build. At least two products are available.

MarketExpert (RMS Inc., 203-656-3411) is actually a full-blown marketing database system. The product stores transaction details and customer IDs as captured by store point-of-sale systems. Transactions are summarized by customer into user-defined “behavior groups”–for example, diet products–which can be used to identify target market segments. The system provides a very sophisticated capability to generate sets of targeted, personalized coupons, which can be delivered by mail, kiosk or point-of-sale systems. Extensive promotion analysis reports compare incremental sales and profitability of among promoted, nonpromoted, control, and other groups. The system provides modest query and reporting abilities.

Loyalty functions include award calculations and random selection for sweepstakes. The system can import files of customer names and offers some duplicate identification abilities. It can provide customers with information on their accrued points through links to point-of-sale systems or telephone voice response units.

MarketExpert runs on Unix servers and terminals. It uses flat data files with proprietary indexes and presummarized data for fast response. Pricing is based on the number of stores and involves both installation charges plus an annual license. A 50-store chain would pay about $100,000 for the first year and $50,000 for each following year. The system was introduced in 1991 and has about 35 installations.

Customer Relationship Marketing Database (S2 Systems Inc., 972-458-3800) was designed especially for grocery loyalty programs. The software imports transactions from point-of-sale systems, summarizes them by customer and other categories, and produces lists of customers who have earned rewards by meeting targeted purchase levels. Most analysis is done through predefined reports against the summarized data, although users can also store the raw transaction detail.

CRM promotions reward customers for cumulative purchases. One promotion covers a specified period of time and group of stores and can include several target purchase levels. The system can generate a reward coupon each time a customer reaches a new level. Promotions can also enter customers into a sweepstakes when they meet purchase targets and calculate charitable contributions based on purchases within a given set of stores and dates. The current release of the system does not allow promotions based on purchases of specific items and cannot split customers into test and control groups.

The system has no query tool or user-defined reporting. Users can generate lists of customers by highlighting segments in standard reports or through third-party query tools. Standard promotion analysis reports show the number of customers who redeemed coupons and track total purchases in the promoted stores, but do not compare behavior of customers who redeemed coupons with those who did not.

CRM runs on a standard relational database, a Windows desktop system and any Unix or Microsoft Windows NT server. Prices are based on the number of stores. A 50-store installation would be about $96,000 for the first year and $29,000 in later years.

The system was introduced in 1996 and has about a half-dozen installations.

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David M. Raab is a Principal at Raab Associates Inc., a consultancy specializing in marketing technology and analytics. He can be reached at draab@raabassociates.com.