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Innovation in the Loyalty Space: an O2 Priority Case Study

O2 — a UK telecom provider — has chosen to provide its customers with not one but two relatively distinct rewards programs. The first is called “O2 Rewards”, and is more traditional in format. As part of this program, O2 customers receive 5-10% back on their top-ups every three months; this credit can then be redeemed either for more call time or for tangible rewards like tickets, products, or gift cards.

O2’s second rewards program, called O2 Priority, is much less traditional than the first and must be registered for separately. In fact, it is unique compared to most loyalty programs that exist today. Through this program, O2 provides its customers with exclusive access to a huge array of nearby deals (facilitated by a variety of brand partnerships). It is with this program that O2 has begun to genuinely innovate in the loyalty and rewards space.

This innovation has been met with extraordinary customer engagement and excitement; 2.6 million customers registered in the program’s first year, and at one point, 75 deals were being viewed every second. A year and a half after it was first implemented, the program became the UK’s fastest-growing loyalty program.

Even more importantly, this engagement has translated into quantifiable returns for O2. Not only had the program at one point generated 62,000 social network shares (organic marketing), but it’s likely that it allows O2 to charge more for its services. Perhaps even more notably, the program reduced customer churn, providing evidence that O2 Priority functions effectively as a loyalty program. Perhaps unsurprising given these statistics, It’s been reported that the program has produced a 9.6x return.

Program Details

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Before we dive into exactly what makes O2 Priority so effective, let’s take a closer look at its format.

The program involves various partners (brands, artists, and even television shows) offering O2 customers a variety of deals and discounts on their products or services. These offers are accessed through the O2 Priority platform (either on the Priority website or via the location-based phone app), and they typically have to be redeemed and used within a set time period. These deals span a number of categories, including food, technology, travel, beauty, and events.  Prize draws for various events and experiences are also offered.

This discount-brokering model is relatively simple, and it’s easy to find other companies who are capitalizing on it in different spaces (Groupon and LivingSocial are two such examples). However, this program still differentiates O2 from its competitors in the telecom space, and the program derives even further novelty from the fact that it’s a loyalty program (and so is being compared to other loyalty programs, rather than to the likes of Groupon).

Let’s take a closer look at O2 Priority’s basic reward architecture, since this is one of the major ways in which it diverges from other loyalty programs. The reward being offered by O2 is exclusive access to various discounts, and the action being rewarded is simply being an O2 customer. Compare this to the traditional rewards program setup, wherein customers are rewarded for with store-specific credit or merchandise when they complete very specific actions, such as engaging on social media or making a purchase.

This fundamental difference sets the stage for the Priority program to break the mould in other ways. For example, its location-based app effectively harnesses technology (something that the likes of Groupon have already done, but that O2’s loyalty program competitors have largely not).

Even further, the program is designed to seamlessly integrate into a customer’s day-to-day lifestyle, thanks to this location-based feature as well as the experiential nature of many of the program rewards (whether they come in the form of concert tickets, meals, or vacation deals). In this way, customers’ program engagement isn’t limited to their interactions with O2 products, but instead extends into other domains of their lives — and again, this is quite novel for a loyalty program. The enormous variety of rewards that the program offers makes it even more likely that a customer will use an O2 Priority reward — whether it’s a new pair of speakers or a new pair of shoes — in a domain of their life that O2 is not otherwise associated with.

As it turns out, this variety is made possible by the program’s strong brand partnerships, which were themselves facilitated by the robust tracking and management features that O2 provides to each of its partners. These impressive brand partnerships are yet another feature that not many loyalty programs have incorporated, and which therefore sets O2 Priority apart.

Notably, as we’ve already mentioned, much of O2 Priority’s innovation stems from the fact that O2 took a model from a pre-existing space (coupon and discount platforms) and applied it to the loyalty program space — and in this way, they rendered the model novel and value-generating. Indeed, many of the features that set O2 Priority apart, from its varied brand partnerships to its location-based platform to the experiential nature of its rewards, would not be considered so unique if they were being compared to LivingSocial rather than to traditional loyalty programs. This type of innovation can therefore be classified as architectural innovation in that it generates value by taking existing ideas and introducing them to a new market space.

But why is breaking the mould so effective when it comes to rewards programs? Well, it’s largely because novelty and innovation differentiate both the program and the brand from competitors, and even further, add delight to the brand experience by defying expectations. In O2’s case, this all serves to increase the value of being a customer of the brand and strengthen customers’ affective notions of O2 — both of which contribute to the program’s ability to reduce churn, as well as O2’s ability to charge more for its services. If the company had any fear of “loyalty fatigue”, they’ve all but banished it.

But what does this mean for me?

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Here’s one lesson that can be taken from this case: don’t be afraid to take a creative, slightly unconventional approach to your rewards program, or to find inspiration in unlikely places. Your program doesn’t need to adhere to all of the expectations that you or your customers have for these sorts of programs — although it certainly can — and in fact, defying expectations often pays off. When it comes to innovation, it’s also helpful to remember that the comparison that counts is the one made versus other loyalty programs — and more specifically, other loyalty programs in your brand’s competitive space.

While original and novel programs can certainly be a great way to differentiate your brand and add delight to your customer experience, we know that the task of “innovating” may sound intimidating in scale and more than a little ambiguous. But don’t worry — you don’t need to completely overhaul your program in order to pursue originality. To get you started, here are a few aspects of your rewards program to consider getting creative with:

The actions that you reward

  • Most loyalty programs use points to reward actions like purchases, social media follows, and reviews. O2 Priority turned this model on its head by instead rewarding the all-up act of being their customer, but there are also subtler ways to defy expectations. For example, Soko Glam rewards customers for sharing the company’s blog posts — and while this isn’t groundbreaking, it is unusual and gives shoppers a slightly different way to earn points. Check out this article for even further inspiration.

The types of rewards that you offer

  • In addition to offering store credit, consider offering program-exclusive and non-monetary rewards that are either experiential or tangible in nature — doing this can go a long way in adding an element of delight. This also give you more flexibility in that it makes it easier to offer rewards that differentiate your program. For example, instead of just offering store credit, New Balance’s MyNB Rewards gives members the option of redeeming their points for things like race bib registrations, a donation to Susan G. Komen, or a Strava app membership.

The ways your program integrates into your customers’ lives

  • This idea of lifestyle-integration overlaps somewhat with the above two points, but it’s also an additional dimension through which a rewards program can differentiate itself. Indeed, a program that integrates seamlessly into the rest of a customer’s day-to-day (and isn’t just a part of their on-site or in-store experience) is relatively unusual in many e-commerce spaces, and so is a standout differentiator. Lifestyle-integration has the added benefit of strengthening your customers’ affective relationship with your brand, in that it builds positive brand associations in diverse life domains. As we mentioned, O2 Priority’s location-based interface and variety of both tangible and experiential rewards make it easy for customers to integrate the program into their lives. Walgreens’ Balance Rewards program accomplishes something similar by rewarding custmers when they make healthy choices like walking, getting their blood pressure taken, or quitting smoking.
  • The takeaway? Consider rewarding your own shoppers when they complete actions that don’t take place directly on your website or social media accounts (but that are aligned with your company/brand values).

As it turns out, building a program that breaks from expectations and elicits delight can be as actionable as these bullet-points — that is to say, it’s a task that is more than achievable. And if O2’s unconventional loyalty program is any indication, then this is great news for both your rewards program and your brand.

Nikhil Naidu • October 5, 2017


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