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The FODcast
In the FODcast (The Future of #DigitalCommerce) we explore the real career stories of the people who have made it to the very top of the sector and those who are working at the cutting edge of innovation and change right now. Listeners to the podcast gain insight into the journeys industry leaders have taken to be where they are today, the challenges they are facing now and their aims for the future.
The FODcast
Unlocking Customer Loyalty: Strategies for Boosting Retention and Profitability | S6, Ep6 - Sam Panzer
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Discover how to maximise customer loyalty and boost profitability with expert insights from Sam Panzer, Director of Industry Strategy at Talon.One.
In the latest episode of The FODcast, Sam shares his career journey from retail marketing to industry strategy, offering actionable advice on how brands can leverage loyalty programmes, gamification, and personalised offers to transform customer retention.
Sam explains how even modest loyalty rewards can significantly enhance retention without eroding profits, unlike traditional discounts. With convenience-driven competitors like Amazon, emotionally engaging loyalty programmes are now more vital than ever. This episode explores how brands can elevate their loyalty strategies using technological advancements, creating seamless and impactful retail experiences.
We also dive into the power of gamification as a tool for boosting customer engagement. Sam highlights techniques like gift-with-purchase incentives and product bundling—successfully used by brands like Lego—that create value while protecting profitability.
The episode wraps up with a look at data-driven loyalty strategies, discussing the importance of integrating customer data, session behaviour, and item data to tailor promotions more effectively.
Packed with valuable insights and practical tips, this episode is a must-listen for brands looking to refine their loyalty programmes and stay ahead in a competitive market.
Simply Commerce is the leading supplier of talent into digital commerce across technology, digital marketing, product, sales, and leadership.
Find our more about our approach and our services within digital commerce recruitment here: https://simply-commerce.co.uk/
Loyalty and Promotions in Commerce
Speaker 1Welcome to the latest series of the Fodcast, where we bring you the latest insights into the future of digital commerce. In season six, we continue to interview some of the most respected professionals in the industry as we broaden the topics to cover what it takes to build a business within e-commerce, navigating through business change, as well as the future of technology within digital commerce. As we continue our journey to have one of the best podcasts within commerce, we ask you to like and share within your network if you enjoy our content. Hello and welcome back to the podcast. Today, I'm pleased to welcome Sam Panzer, director of Industry Strategy for Talentone and arguably one of the most educated individuals within loyalty and promotions right now. Welcome, sam.
Speaker 2Great to have you on the show. Thanks a lot, james Pumped, to be here. Listen to a lot of really good conversations you've had with previous guests, so it must be fun.
Speaker 1Thank you, thank you. So it's probably no surprise to find out that today we'll be focusing on loyalty and promotions, which is perfectly timed, as I don't think there's a hotter topic within digital commerce right now. It's also something I find incredibly interesting, as I felt for a long time there's so much that can be done in this space. Anyway, you did have a career in retail before Talentone, sam, so do you want to start by giving a quick overview of your background?
Speaker 2Yeah, I started my career as a marketer. I wasn't really any good at it, but I spent a lot of time adjusting HTML and CSS and emails to boost open rates or click-through rates by 1% or whatever. Then worked with a tech business in the U S helping hotel operators and retailers on on digital messaging so conversational commerce and concierge messaging, usually embedded in a hotel loyalty app. And then, you know, found Talon about six years ago and have found this incentives domain of promotions and loyalty is a much bigger opportunity than me fixing email subject lines to get a one percent bump and click through or whatever. Uh, so really, really meaningful domain that I've been pumped to be working deeply in for about six years now no, six years time flies sure does.
Speaker 2Yeah, yeah, but like you said it's, it's a you know, fascinating relevant space and get to do a lot of our research and writing for the business too, of what's going on in the domain.
Speaker 1So having a lot of fun, nice, nice and, like I said a few moments ago, for me it's a really interesting space. For a long time, I felt there's a lot that can be done when it comes to loyalty and promotions. We've seen the rise in demand for customers to shop directly with brands, and I know they can do so much more with the data that they have started to collect over the last few years. So I think it probably leads quite nicely into the first topic for today, which is going to be focused on the rise of loyalty and promotions. So where should we start?
Speaker 2Yeah, let's start with promotions. Maybe I think loyalty and promotions are kind of converging paths, but they do start from different places. So promotions in particular. I mean obviously brands have been selling stuff at a discount online for as long as we've been selling stuff online, but I think historically brands are managing those promotions in a couple of different places.
Speaker 2So the most important one is the commerce platform, which usually manages your cart and your item promotions. Then you have your ERP system or maybe the PIM for promotional pricing and price reduction. So a lot of clearance pricing in the ERP Point of sale does everything in store and for pricing and offers, loyalty platform in there for points and tiers and member offers, crm and marketing automation for lifecycle and personalized offers. But really all this is the same thing. It's like the value exchange that we offer to our customers to get them to change behavior. But historically it's kind of a piecemeal approach of five different platforms each doing 20 things at a high level, and promotions are one of those, but maybe not the most advanced capability of that given piece technology.
Speaker 1Will Barron, MD, PhD. Yeah, have you seen the technology in that space evolve somewhat over the time you've been in the industry? I mean, I know you're talentone. That is specifically what your technology does, and it does a really good job at that. Hence how the business has grown over that period of time. But have you seen other competitors also come along for the journey as well?
Speaker 2Yeah, I think promotions as a standalone thing is still pretty new Like we've been in business for nine or 10 years and we were the first to do that One other kind of direct competitor in that specific nook but most of it is loyalty platforms bolting on a promotions module onto their core loyalty thing. In terms of, you know, has the space improved or gotten better? I think commerce platforms have definitely put in a lot of work to make their promotions better. If you look at, like the you know product roadmaps of Shopify and commerce tools this year, those are definitely some big improvements there. But I think that historically yeah, I don't know, it's hard to say things have gotten much better.
Speaker 2We've seen a lot of businesses move off of Oracle ATG, for example, in 2021 or 2022. Atg had pretty good promotions right, you kind of do everything on the item or the cart level, good on bundles and then a lot of businesses moved off Oracle ATG because they're sunsetting it and moved to a more modern platform that unlocks tons of possibilities but maybe didn't have every single promotion use case thought through and they have to either customize or find another way to achieve like really sophisticated bundles. But yeah, I mean, if you go back in time and look at like a look at an e-commerce website from eight years ago. Promotions are probably structured the exact same way, so very little improvement in the promotions promotions domain, sadly and brands are still wasting, you know, heaps of money on crappy discounts.
Speaker 1Yeah, well, that's the problem, isn't it? Because if your brand that promotes a lot of the products I mean, ultimately all it's doing is eating into your bottom line. And yes, there's the argument that you're going to get rid of some stock that maybe you might not have got rid of before, at the end of season sale or whatever it might be. But there's a lot of brands that just do blanket discounts at certain times of the year or certain times of the month, and as a customer, you just familiarize yourself with these cycles and when they're happening, and the savvy customers will just stop buying products from that brand if they're not on sale. I know that's what I do with a handful of brands. I'm sure I'm not alone. So, ultimately, all they're doing is damaging their margin, and I'm sure this is something that you have many a conversation with prospects, right.
Speaker 2Yeah, for sure, for sure. I think we've seen the market open up to the strategy of this. There's strategic attention on this. If you look at earnings calls from publicly traded companies in the last two years, you do see that the CEO and the CFO are talking about hey, how's our pricing power? Do we have to promote more than we'd like if we've been able to get rid of discounts and improve our margins? It's like a kind of a fixture on earnings calls the last two years when consumers have been, yeah, pretty shaky. So I think there's more focus on it.
Speaker 2But at the same time, brands are still kind of in this. You know we we talk about it's like a very heavy metal description for but the discount death spiral that a lot of brands get themselves into, which is what you're what you're describing, where you know, at some point we started discounting to to grow demand, to grow top line Um. But our customers get hooked on it and and our team gets hooked on it too that marketers reach for discounts whenever we're trying to change something or drive sales, or it's a slow month, we have some excess inventory, we're trying to get people to sign up for our loyalty program. It's kind of smash the discount button in response to whatever the business's need is. So it's like this very addictive cycle where, okay, this drives top line, so we're going to keep hitting this button and brands are often kind of missing the ability to construct more intelligent incentives and to not just give 20 or 30% back In the scale. This is pretty staggering. I talked about spending a lot of time optimizing things for really minimal return earlier in my career.
Speaker 2On average, brands are discounting 18% of their revenue away. So if you have 100 million in listed prices, 18% of that is discounted away. So if you think about that, 18% is an investment. Of that price reduction, what's your return on that investment? And improving that investment is just massive. So it's just a huge piece of the pie, right? So if we can improve that 18%, go from 18 to 17, right, that's 1% of your overall revenue going to bottom line. If your profit is like 8% or whatever your net income, that 1% becomes really really significant for the business.
Speaker 2And then on the level of the individual promotion too, if you are kind of hooked in this cycle of discounting, increasing demand enough to maintain the profit contribution is really really difficult, right? So if you I'm going to do one more hypothetical. If you imagine you're selling an item for $100 and it's 40% margin, so you're getting $40 of profit from selling one of those items. If you do 20% discount, so you decrease price by 20 bucks, you might think that okay, if we sell 20% more stuff we've offset the cost of the discount. But when you factor in margin that's obviously not the case.
Speaker 2So that 40% margin example, if you do a 20% discount you actually need to double your sales volume to maintain the profit contribution if you hadn't run the discount in the first place. So it's a long-winded saying of basically most discounts are not increasing demand enough for the brand to be on a stronger profit footing compared to if they hadn't run the discount in the first place. So brands just lose tons of margin here. Bcg has estimated that 30% of price promotions have a negative ROI. We'd guess that's a good deal higher, but there's just tons of waste. And again, it's 18% of your revenue, right?
Speaker 1So if there's any waste against 18% of your revenue. That's pretty chunky. I mean, 18% is a big, big figure and, like you said, it's not just 18%, it's how that impacts the margin later down the line as well. And we know that retail in particular is an industry which very much benefits from a strong launching promotions setup and there's also an industry where the margins are often getting hammered. So actually, that 1% or 2% can make a very, very big difference to every business. What have you seen in the industry you mentioned? Just bringing it down to 17% can make a big difference. Is that something that's possible? I mean, is it possible to bring the average down to 16%, 15%, 14%, because then you're talking a real substantial difference which ultimately kind of pays for itself in a very short period of time.
Speaker 2Yep, yeah, yeah. I think we pretty repeatedly see that we can bring that number down for the exact same result, or we can keep the spend the same and just get more for it. I mean, if you go on any e-commerce site and just look around at what prices are being reduced, what annoying, you know pop-up notifications, are they offering you a 10% discount for signing up for a mailing list. You know, if you think about all those things as investments like surely there's some fat to trim, right, like there, there are some waste calories somewhere here that we can, we can knock out Um, a lot of it comes down to the brands are that have to use a very transactional mechanism, like a 20% discount, when maybe a bundle or a next time offer or early access for our next season, you know, next season drop or VIP support, like any other way to exchange value to drive the behavior you want, might be, you know, might drive the exact same result and just be much, much, much more efficient.
Speaker 2Um, haven't talked much about loyalty yet, but that's, that's a really big reason loyalty programs are so freaking powerful. It's just that the, the, the cost of a loyalty reward usually you're getting, you know, two to five percent. If it's pretty generous at five percent of your purchase value back. Uh for for like store value for a future redemption. To imagine spending $100, you're getting $2 in future value back in the form of points or something.
Speaker 22% compared to a 20% or 30% discount is obviously really substantial. So if we can use the loyalty program as the main way that we're exchanging value with customers and not just having to rely on simple discounts, that's also really really powerful. Obviously that's a very cold-hearted view of loyalty. There's lots more that loyalty can do, but just lowering your overall financial liability from discounts and committing to a lower value stored mechanism with customers is really compelling for a CFO. I know some loyalty friends will ripen me for taking such a transactional view of loyalty, so I'll talk about the emotional stuff in a bit. But still a lot of value to be saved there.
Speaker 1Yeah, and I guess there is that emotional piece and that's probably something that I haven't thought about too much. That's going to be interesting. But on a sheer transactional basis, if you incentivize somebody to want to return to your store in what's let's be honest an age where we can literally pick up our smartphone and buy the majority of products from multiple sources, then if you can incentivize them well enough to firstly buy from your store but then return to your store, then they're going to. In fact, I had a conversation with somebody the other day and we were talking about EPOS systems and how that could affect brand loyalty, and my argument was well, if the brand or the business has built relationship with its customers to the point where they want to be loyal to that brand for the reason being perhaps they get a good loyalty scheme, or perhaps they have such a good experience in store that they they don't want to go to amazon, they want to go to that store then they would probably come back to that store to buy that product when the tills are open, for example.
Speaker 1Um, whereas there's a lot, of a lot of businesses now, I don't think they have that loyalty with their customers. So if you can't buy a product there, and then, or the website's not working or whatever, you will just pick up your phone, probably go on amazon or similar and order it to your house the next day. So for me, loyalty is the area where there is so much that can be done, because for a long, long time we have been signing in, we've been maybe getting some customer points, but sometimes you don't know what those customer points even mean, or you, you accrue so many of them and then it's like, oh, you've got one pound fifty off your next order. Great joe, I'll probably spend a thousand pounds of you and they give me one pound fifty. It doesn't mean anything, um, so it's. It's an interesting and a really interesting area for me yeah, it is.
Speaker 2I think we, uh, and yeah, I mean you're you're also touching out that most loyalty programs are are just really, really boring. You know, we, we did some, uh, some research last year and 90% of DTC brands, so I think that particular list was looking at the NRS top 100 in the US, but pretty consistent that a vast majority of brands have some kind of loyalty program. And then if you look at the functionality, it's two thirds offer tiers, 75% offer points. So basically, most programs are offering a combination of points and tiers and it's one or 2% of your purchase value back in the form of points or tiers which just isn't really cut through. There's some good research from EY the other week too, which was you know how often are members a part of two loyalty programs from direct competitors too, and you know most customers are even members of competing loyalty programs.
Speaker 2Airlines like I'm a member of. You know four or five different airline loyalty programs, um, so it's also really difficult to actually like, yeah, just just to, to make your loyalty program cut through, um, and you're certainly not going to do that in 2024 with uh with a simple point and tier uh, uh mechanism. There has to be something else more compelling and the the experience has to be, you know, pretty meaningful for the customer, uh, to actually to get them to change behavior in any way. Um, and, like you're saying, if you're, if your products suck, the price is wrong and your customers aren't happy a loyalty program isn't gonna, isn't gonna, solve any of that right. So, uh, it's not a not a magic, magic cure-all for other problems in the business yeah, well, that's it.
Speaker 1I'm the same. I'm in my wallet, I've got my club card, I've got my nectar card, got every single card possible for the supermarket chains. I'm not, I'm not loyal to one particular one. I'll just go where it's convenient at that time. So I feel like that's another industry that can do more, although I would probably argue as a consumer, that's one of the industries that has done the most over the last five years. Uh, with, with loyalty, obviously now offering discounts on certain products and all kind of stuff, but out of interest. When do you feel as though, um, the the mood started to change around loyalty and promotions? Because we've touched upon the fact that it's been? It's been there for a long time, albeit maybe kind of a blanket approach from a lot of companies. When did it start to change? Where companies start to say, okay, we can do a bit more here. Joe.
Revolutionising Promotions and Loyalty Programs
Speaker 2Carlasare, yeah, I think that the main, when the loyalty train started really to run away, it's when loyalty vendors started to open up and be more feasible around 10 years ago. You know, if you look at, like the, the 90s or whatever, like the, it was just really really really expensive to to create a loyalty program and something that only the, the biggest brands, could do. Now you've got, you know, a hundred different simple loyalty apps on on shopify marketplace and in lots of ways to kind of cobble together a simple loyalty program. So I think, like the, the simple advantage you had by having a loyalty program evaporated probably 10 years ago. Um and and uh, you know, once you kind of had that commodification or sea of sameness. Then it became more important to either, you know, kill this thing Cause it's not doing anything for us, or or to actually use it as a strategic differentiator.
Speaker 2You know, covid, the turbulence the last couple of years has definitely changed all this as well. You saw a lot of brands that were able to use their loyalty programs to, you know, to help navigate through the pandemic, a bit like airlines kind of selling points for future, you know, future redemption, just as a way to get some revenue in the door when flights were all grounded. But I don't know. I mean, I think the last three years, two or three years of just when the consumer has been soft right, the consumer has been scared or there's been big swings in the market, that's when brands have really had to think a lot harder about how are we actually going to, you know, coax our customers out of hiding and and and give them some value for shopping with us and instead of a cheaper competitor, instead of avoiding the purchase altogether. So it's kind of like, when the market's been dampened, the little bit you can do to to move, to move a couple of purchase decisions on the margin, has just been, you know, a really, really, really important part of what brands are, what brands are doing, and then, like this, this overarching thing of promotions and loyalty coming together, that's, that's quite new.
Speaker 2I think loyalty programs have always given offers to members, but it's usually been pretty poorly done and managed. Like you know, you're, you're printing your, your vouchers for members and your commerce platform, your POS, and then distributing them via your CRM. But the loyalty platform isn't actually the source of truth in any of that. It's just like it's all kind of again this like very siloed approach. So you know that's kind of. Our mission in the market is like bring all these different domains of customer incentives together, which has been really well-timed in the market when brands are thinking about, okay, we need to stop discounting, we aren't acquiring as many customers as we were, so we need to retain the customers that we do have and that we just need to make sure that this overall investment of loyalty points and discounts, that that's a really rational high ROI investment.
Speaker 1I mean, it's certainly reflective of the conversation that we're having at the market at the minute and, uh, yeah, I would say more than 50 percent of the uh of those conversations, um, when they're talking about investment and and, um, maybe where there's going to be uh work either now or coming soon, it's looking at that launching promotion space and so what I would say in eight, acting in those conversations. We're here in talent dotone as well, so it's really clear that you guys are a market leader in that space and I believe that's kind of reflective of some of the chats that you're having as well and some of the wins that you've picked up recently. So, uh, I think, uh long may it continue. It's certainly an area where, if you're looking to make a, a small ish, um, uh, change, um, that you can really track, roi and and grow the business over the next 12, 24, 36 months, and it's somewhere you want to be looking at, if you're not already.
Speaker 2Yeah, for sure I think it's. Also if you look at the overall trend and big projects especially, I think that Talon 1 is a great example of a targeted tech change on your current stack too. We obviously love working with like really modern commerce platforms, like commerce tools, but a lot of our customers are on kind of a legacy custom SAP base or something like that and you know like the Forrester commerce platform landscape this year. You know when they talked about like the targeted tech changes are of more focus. I think that's definitely been a big tailwind for us and something that we see is, because it's 18%, can we do a little bit better than what we're running in our very custom in-house commerce platform built on top of a monolith? There's a lot of value to be had there without committing to really really significant transformation just to unlock some promotions value.
Speaker 1Yes, it's good. So how many brands, roughly do you believe as a percentage, have a modern loyalty and promotions offering?
Speaker 2billion or something like that.
Speaker 2Most of those are in you know in-house Oracle, sap, salesforce, kind of like the monoliths which again, like, do promotions and for the most part, do promotions really well.
Speaker 2It's just focused on very transactional discounts on the cart and on the item level, right, so just like a very, very narrow window on what incentives are. And then the rest is either, you know kind of newer generation commerce platforms, commerce tools and scale, and you know Shopify plus increasingly. So I don't know, I think we see ourselves mostly as a how much of that market can we address? And generally, in terms of like, who's doing this really well, I don't know. I mean it's single digit percentage points or less of like brands that are really thinking creatively about incentives um, I don't know very early days, uh and and uh, yeah, a very, very low percentage of brands that are especially doing anything with personalized offers and personalized incentives. The vast majority is still just hey, let's just do a couple bundles and clearance pricing and the stuff that we, we, we bought too much of uh last quarter or something so, ultimately, there's still a huge opportunity ahead, then, for the majority of brands, right?
Impact of Gamification on Loyalty
Speaker 1so? Yeah for sure, for sure, nice, nice something before we move on. Something I felt would be interesting to talk about is is gamification, something that we spoke about beforehand, and and also, um, I had, uh, simon from absolute labs on the show, great recently, and he spoke a lot about gamification as well. Um, believe they're a big talent, one partner. What's your thoughts on gamification, sam?
Speaker 2yeah, I think I mean the. The main reason that I'm drawn to gamification is what it does for redemption. So if you look at the redemption rate of an offer, that's just, like you know, a personalized CRM offer via sent via sent via email, versus the chance to to win a prize, you know, sent in the same way to the same audience. Um, what happens is that when there's some feeling that the customer has won or has earned the reward, redemption rates go, rates go crazy. So you're pretty lucky if you get like 1% or 2% redemption rate on a personalized offer. With gamification we will regularly see that in the double digits. It's just like there's some psychological bias here where if you have earned something, if you've done three actions to earn a reward, you perceive so much more ownership of that reward that redemption really goes crazy. And in loyalty especially, you want redemption, like if you're giving somebody value, you want to see them use it because it means that they're seeing value in it and they think it's meaningful. Right, I think there's often, yeah, like you want people to use the stuff that you're offering them and you you want to offer less and you want people to use, use what you do, offer more, and gamification is just amazing for that.
Speaker 2So we have a bunch of gamification features to kind of store, uh, lots of around like challenges and loyalty of do these specific things. Like sephora, um, uh uses talmon for some really cool kind of challenge use cases, where if you come in store and do like a shade matching technology thing and fill out a beauty routine preference quiz and do a buy online pickup in store, you're getting punches against each of these individual actions and then a specific reward for all those. So that's like that's that's gamification of kind of just making the like being transparent, what we want you to do and then giving you a reward for it, um, which is both, you know, again, the redemption thing goes crazy. And second, it's a really cool opportunity to be super transparent with the customer, like here's what we want you to do, like if you do it, we'll reward you for it, and to string together a couple activities is really cool. So, yeah, it's just massive.
Speaker 2I think the obviously, if you look at like you know, gamification, uh, the, the, the dark, the dark arts of gamification and what like timu and uh timu especially does in terms of like gamifying the experience and making it, you know it feels more like you're playing a casino app than uh, than buying stuff on timu so you can definitely go too far, yeah yeah, it is, but but overall, just like kind of showing like, what do we want you to do?
Speaker 2and let's make it a little bit, a little bit more fun, uh, to do those, do those things. Um, uh, yeah, in promotions and loyalty it's mostly around, yeah, redemption and the sense of, of, of, of earning or owning the rewards that you've, you've gotten through those gamified experiences.
Speaker 1Yeah, I mean, it mean it makes sense, and I can, I'm almost trying to visualize some of the gamification experiences that I've been involved in, probably without even even knowing about it either, which is, uh, I guess, another quite cool thing that you can do as a, as a brand. When you, when you, when you take that kind of gamification approach to market and you engage with, with prospects, how is it perceived in a, in a, in a positive way as well? Do they really get behind it as well, or do you find there's a bit of pushback?
Speaker 2no, no, definitely no pushback. Some brands think it's sort of beneath them, uh, which, which I get like. I think that there are definitely brands we're having like a playable. A playable game doesn't really fit the brand, the brand voice. Um, I think the. I think it's just early in terms of understanding of what gamification is and what it can do is still we're still early days on that.
Speaker 2I think that there's obviously a huge difference between gamification and like playable games of, like actually game mechanisms in your digital products. Gamification is more of just this broader thinking of like showing progress towards a desirable reward, which everybody does. I mean, I think, if you, you know, I love like for profile completion stuff, where they have like a progress tracker or something like, that's gamification of just showing like how you're, how you're progressing towards completing the thing that they're asking you to do Lots of really funny stuff too, like. If you pay attention to that, you'll often notice that they start you at 20% or something like even if you haven't done anything, because there's all this kind of psychological bias that we're more likely to finish something once we've started it. So a lot of digital experience will make you feel like you're already on your way towards something.
Speaker 2It's a big reason why, like you know, sign up points are a thing in loyalty too. It's like, well, I've already got, you know, 2000 of the 5,000 points I need to get to silver. That makes me think I'm on my way to silver and increases the likelihood I take actions to keep going. I think early days. But overall, if you were asking your customers to do something, then you need to show them what it is and how they're tracking towards it, right. So, like showing that in real time, showing progress, explaining what it means when you complete the thing that we're asking you to do. Um, all that is is just yeah, kind of just really crucial, and just being transparent about yeah, where are you working toward, what are you working towards, and and and, uh, what comes next?
Speaker 1I've not even thought about before. But american express does that really well. You sign up and it's like spend a very minimal amount in the first three months and you get like 25 000 points or whatever it might be, and I guess, yeah, that's a, that's a fair chunk is to getting through to then get your plane tickets or whatever your incentive on your, on your amex is. So, yeah, I've never even thought about it until you just, uh, just detailed it then. So, yeah, a lot of brands are doing it about without us even realizing as consumers.
Speaker 1So yeah, for sure yeah um, there's clearly lots that that can be done. There's there's probably there's lots that's happening right now. Um, and it's I mean it's clear that there is a huge benefit to doing a lot of this. I think it's probably good that we touch upon the impact of having a loyalty and promotion scheme but not doing it correctly. I mean, we have spoken, we've touched upon this right at the start of that conversation, but I guess there are some big drawbacks if you are a company that is doing loyalty and promotions and not doing them properly. So I guess, in your opinion, what are some of the the the biggest challenges brands might face if they don't do it correctly?
Speaker 2Yeah, yeah, I think the I mean you can break apart the downsides to top line that you're you're you're basically not actually changing behavior and driving incremental purchase. Bottom line, that you're subsidizing, you know, subsidizing things that were going to take place anyways and eating into your to your profit unnecessarily. Then you can think about the customer lifetime value that you're conditioning the customer to only buy with a deal, so you're never going to get them to full price because they're always going to wait for an offer. And related to that is like the brand brand damage that you can do along the way. You know there are so many otherwise really good retailers that have turned themselves unnecessarily into off-price discounters right, where people will be buying that stuff at full price. They might sell a little bit less, but they don't need to have 20% on the website all the damn time. So you know, top line, bottom line, lifetime value, brand image, like the threats of messing this up are really significant. And then, specifically on the loyalty side, if you're again not changing behavior and you're giving 2% value back to your top customers, your most loyal customers, and not actually like changing their behavior and making them more loyal customers and not actually like changing their behavior and making them more loyal. That's also just eating into like really sacred margin for the business of just giving value back and getting nothing nothing in return with your customers. That should be like the healthiest, most profitable contribution to the business.
Speaker 2Yeah, all this is pretty. It's all pretty like pretty, pretty, pretty big kind of core stuff, right, like I think. I think discounting is a dirty word. Um, it's very difficult for us to get a CMO on the phone, uh, even though, uh, uh, you know 18% of your, your revenue is being spent on this marketing expense. We think about it as like a marketing expense and try and try and get brands to think about it that way too. Um, but obviously it's not like the shiniest nook of the marketing world. So there's still a good amount of strategic neglect, though, like we were saying earlier, that's gotten better with CEOs and CFOs and analysts talking about that all the time on earnings calls.
Speaker 1Do you find now that the stakeholder with the most buy-in to someone like yourself is going to be the CFO? As to the CMO, yeah, good question.
Speaker 2I think CFOs obviously like very removed from us operationally but very happy when we are contributing to restoring the brand's pricing power. So I think we, we do, we do touch into like core, core financial um stuff. I think I think that we're still bought by tech audiences primarily, um, because they they see that okay if we, if we buy this platform, like we won't have to maintain all this um custom code and code and spend all this roadmap time of just launching new types of bundles or something. So I think our buying journey tends to start with tech and then we're used by business users or by marketers yeah, I don't know. I mean, I think CFO, it's like we are contributing to them but we're not talking to them. I think CFO, it's like we are contributing to them but we're not talking to them. We're talking to product leadership first, and then marketing leadership as we move forward, and then ongoing like we have our business reviews and kind of ongoing relationship with, like a VP of marketing is usually like who we're rolling up to on the commercial side.
Speaker 1Gotcha, gotcha, joe, I've not been able to get this image out of my head. And at the start of the call you said it's almost like they hit a button and it's like hit the discount. And ever since you said that, I've just had this image of everyone in the meeting room with a big red button like, yeah, discount time. Yep, exactly, it's crazy, there's there's we.
Speaker 2We use this framework with our, our clients too. That's like, okay, when you design, like what, what is? What is a promotion? Uh, there's a e-commerce consultant, chloe Thomas, who has this like golden rule of promotions that a promotion exists to get a customer to do what you want them to do as cheaply as possible, which is like I see that in my eyelids when I go to sleep at night. You know it's behavior change done efficiently.
Speaker 2And to do that, like you need a customer objective Like what does the customer get out of it, what does the brand want out of it? And then what's the mechanism to link those things together? So if the brand is trying to, you know, to grow basket size, then the promotional mechanism could be simple, like bundles of complete the look or something like that, and the customer objective is okay, I get a deal on a complete look and I get a curated recommendation of what I should be buying together, right, that's like a simple, well-designed incentive. What always happens is like we want to grow basket size. What's the mechanism? We do 20% discount, what's the customer get out of it deal, and it's like that's. That's kind of the whole cascade is like what does the customer get. They get a deal. What's the mechanism? It's a discount which is that's? That's like a broken, wasteful, brand destroying way to think about. Think about the topic that we're we. We we help our customers stop doing. I can see it's painful.
Speaker 2Yeah, exactly, exactly but, there's so much I mean, there's so much more you never think about. Like gift, gift with purchase. Like, like people love, gift with purchase incentives and like, if, if you can get a manufacturer to fund, like I mean, beauty is obviously amazing at this, um, but other other other industries too, of like lego, for example, is amazing. It. Gift with purchase. Like they launched, uh, this beautiful 450 pound uh bar ador, lord of the rings uh set early this year. And there's a members only gift with purchase of one of the nozzle ringwraith guys on their on the Felbeast, their dragon things they ride around. And that was a members only additional piece that you get for buying this set, right?
Speaker 2So what does that do? That gets people to sign up for your program to get this exclusive gift and it moves more of the item because it makes the item even more attractive and it doesn't discount anything, right? There's no like transactional. You're not eating into the value of this 450 pounds Lego set, it just making it even better so that you're more likely to buy it and that more likely to sign up for the loyalty program. So, like, gifting is brilliant, bundles are brilliant. All these other mechanisms other than just, yeah, don't smash the discount button is like the short advice.
Speaker 1So Lego is a brand that just it never fails to amaze me. It's uh, even as a 35 year old man, I still look at the brand and I think, sure, well, that is actually something that's really really cool, even in the last. The last couple of weeks I had their new nike collab and I was like I wanted to go and buy a nike lego trainer like, why no, they're so fun.
Speaker 2I don't want to do it, but they just tap into so many different audiences.
Speaker 1I wanted to go and buy a Nike Lego trainer, like, why no, they're so fun, why do I want to do it? But they just tap into so many different audiences and they do it so well and, as you said, they rarely chuck big discounts on any of their products, so they just absolutely nailed it.
Speaker 2Yeah, they don't need to because the products are awesome, right Like, and it's so soothing to sit and build something when we're all spending our whole lives on our laptops. So, yeah, very like amazing how resilient and timely that that has been for their for their adult, adult fans as well, Obviously. Like brilliant marketing that they do on like star Wars day, when they change the logo to be in like a star Wars font and stuff too. Like they, they just just such small things right.
Speaker 1Yeah, Such small things, and they just tap into so many different audiences. They said Lord of the Rings, Star Wars, Nike. I mean they probably have a collab to suit every single type of individual in the world.
Speaker 2Exactly, and it's just also cool.
Speaker 1Even as a non-Lord of the Rings fan, I think their products with Lego are awesome. So, yeah, it's really clever. But look, we spoke a lot about what can be done and it certainly sounds like there is a huge amount that can be done for brands, which probably isn't too hard to do. It's just a case of getting it done. We spoke about some of the impacts, about not doing it right, and I think it's fair to say that they're quite extreme. Right, it's going to eat into your bottom line, top line, et cetera. So it's something you want to be doing correctly. It's, uh, it's going to eat into your bottom line, the top line, etc. So it's something you want to be doing correctly. I think it's probably good to just touch upon if. If you are a brand and you, you're looking at uh, investing in um, launching promotions, whether it be talent one or something else how can you prepare for a successful implementation? Now, we don't go into too much detail here, but but what should they be doing to get ready for this?
Strategic Promotions and Loyalty Evolution
Speaker 2yeah, yeah, I. I think that one area we really recommend starting with is this idea of a data wishlist of okay, if you're currently running promotions on an item or a cart level on the commerce platform and they're mostly available to everybody, what other data would you want to work with to construct those offers and decide who's getting what and why? So it could just be additional item data, like a collection of the items. Part of it certainly should be customer data of segmentation and who the customer is and what they want long-term. And then, finally, you should also be able to action promotions based on in-session behavior. So if somebody is hemming and hawing about a purchase, or if you have, like some intent data from a, from a session AI or made with intent or something like that, you know you should be able to action that with promotions too. So think about, like, what are all the things that we would want to use to consider when and why to run to run a promotion? So that's, that's a really big first one. And then the second is like let's just, let's open the aperture of what sorts of rewards you want to. You know you want to offer.
Speaker 2So most brands today will. We will be doing a percent off, a currency off, maybe, like bundle pricing and a gift with purchase. What are the other mechanisms that we can can give out instead? So, if it's early access or free gift wrapping or, um, uh, yeah, better gift purchase options like, what are the other rewards?
Speaker 2Think about that, that value exchange of, like you know, for whenever possible, we should not be hitting the discount button, so discount should should usually be a last resort. What are the five or ten things we can try before resorting to a discount so that we're moving stock and rewarding customers without just a simple transactional buy this, get that exchange? So data wishlist and reward wishlist are two really good places to start. Yeah, implementation wise, then it's like, okay, once you have that in mind, that becomes a lot easier to understand. What are the integration points you'll need to get that data off of that wish list and what other like effect types will you have to prepare to to parse from your, your promotion service, your loyalty service, talent one, whatever that is to actually like? Yeah, deliver those experiences, yeah.
Speaker 1So, when you engage your customers, how many of them come to you with those wishlists already prepared? How many have actually sat down and thought through okay, this is what we can do instead of smashing the discount button.
Speaker 2Yeah, it's a good question. I think this is where we see our role as a tech vendor to help our customers mature their understanding of the domain. Realistically, most of our conversations start because there's just something really obvious that they can't do in a commerce platform or something keeps breaking, or they're at the scale where spending a couple hours on every campaign building it in a spreadsheet upload workflow is painful. It's lots of fraud and risk, of course, in offers too. So overall, across the industry, it's about 100 billion is in offers too. So you know, like overall, like across the industry, it's about a hundred billion is lost to soft fraud.
Speaker 2So just like stacking offers together in an unintended way. So usually, like, the conversation starts with something tactical and then, longer term, it's like okay, here's like the mature, ideal way to think about this domain of incentives and let's make sure that we build as much of that in as possible early, just so that you're set up to iterate and experiment and do cool things beyond just solving the acute pains that started the conversation the stakeholders that are relevant and looking at okay, cool, this is, this is where we start, this is, this is the route we can go down.
Speaker 1And then I mean ultimately take it from there and engage someone like yourself, verify that list, see what, see what shit goes, and, and, uh, I guess, all being well, kick off the implementation. Yeah, exactly.
Speaker 2But the least. The less mature you are to start, obviously the more low hanging fruit you'll have. Like, if you are just doing you know, really simple category wide offers, obviously shifting to item bundles will create a ton of value. So, yeah, I mean I think like, yeah, there's obviously a lot more juice to be squeezed if you're just starting to think about this topic more strategically. It's also a topic that's really really comfortable to build business cases on of like. Okay, if we are able to decrease our overall discount spend by 1% by introducing these 12 additional reward mechanisms, just do some scenario math of what might that look like, what might that bring to the business. I spent a lot of time like building those kinds of business cases and regularly find it to be you know, one of like maybe sometimes it feels like it's the last great frontier of optimization left in marketing. So lots of value to be created there.
Speaker 1Yeah, definitely, Definitely. So where do you see the future going then? I mean it's clear we can do a lot more now than we could 10 years ago. What will we be able to do in the next 10 years?
Speaker 2yeah, I think. I think we're, we're starting to see the best brands abstract out uh, uh from like commerce platform, promotions and in-store price reductions to this broader category of of incentives, right where we're overall, like what's the behavior we're trying to drive and what's the reward that we use to drive that, and taking a more unified view of like, uh, of that incentives category. It's one of those, those classic things in in, in retail and in tech, that we think about this in specific silos because that's the, the tech evolution of that, that domain. So that you know, our commerce platform does our e-commerce promotions. Our CRM is doing our personalized, personalized offers. Our latest platform is doing points and tiers. That's just a total reflection of like, the, the, the legacy, organizational and technical technological reality.
Speaker 2So I think, long-term, like we do see that like this, this thinking of incentives is is where where the best brands are today and more, more, more brands will get in the future of holistically thinking about this is a really big investment we're making and we think really carefully to to make sure that this investment has a, has a, has a positive ROI, um, and a big part of that is loyalty and promotions uh, coming closer together Cause, uh, you know loyalty programs. A big part of that is the value exchange and giving members something good as a result of their, their loyal behavior. That's the number one kind of macro trend we're seeing in the space.
Speaker 1Okay, Okay, I've just been thinking. Actually, as more companies adopt this approach of removing the blanket ban discount and aim to increase their loyalty as a consumer, we're probably going to be impacted because we're going to have to pay full price for products, right?
Speaker 2Unfortunately that's. Yeah, you could probably say that's like our secret mission is to get everybody to pay full price for good products.
Speaker 2So, yeah, I mean I think I don't know. I mean I think, like whenever you have a growth moment with a brand, like whenever you try a new category or increase your spend, like, you should be rewarded for that and we'll continue to be rewarded for it. I think what what will go away is is the ability for for us to really simply do things like buy five different sizes of an item, return four, buy it at a discount, collect loyalty points on this crappy negative margin purchase, like. I just think that the yeah, that brands are going to keep doing more and more work to basically exit these really ruthlessly smart customers. My wife is brilliant at this too.
Speaker 2She's never market to my wife is my other big piece of advice, she will outsmart you on every promotion that you run and all the things that you offer her. Um, and I think brands just need to kind of rationalize and think about how do we market to the to sam's wife, because she'll uh, yeah, she'll be, she'll be your bottom line into the, into the, into the dust maybe you could turn, turn that into a business idea somehow, you know, get her, get her, get her out consulting with with exactly.
Speaker 1They need to run something past her. She has a certain period of time to to get out and try and beat that that.
Speaker 2Uh, that promotion, right right, right, yeah, it goes. Yeah, I mean probably somewhere exactly. Hire her as your promotions qa person, uh, and see, see how much she can squeeze out of you.
Speaker 1That's it. That's it. So what do you think of prime day then? It's obviously one of the biggest sales events globally.
Speaker 2Yeah, I think I mean.
Speaker 2So the general category of member days is awesome for a couple of reasons.
Speaker 2If you look at the timing of Prime Day and Walmart Plus week as well, like they're usually placed at a strategic time in the calendar, like it's oftentimes like right before back to school shopping starts to kind of start to warm up Q4 purchase, or just like a trough in the summer when people wouldn't otherwise be buying.
Speaker 2I love member days because it's a way to offer, like a lightning strike moment of value to your customers without the long-term promise of points or tiers or something. It's just like. It's just a big splash day of like you're going to get some great value back and you're not going to get it for another year. So, like you know, uh, just come to us. And it also just grows awareness of brands really before these, these key, uh, key commercial periods, um, they do lots of like every year. They're they're using new promotional mechanisms. To the last two years they've done a lot with um invite only offers, where you have to express interest in an offer and then you'll get a marketing message saying, hey, you've been, you've been selected to redeem this offer.
Speaker 2Uh, which is pretty awesome too and going going back to that topic of like gamification or something right that I've earned the right to get that deal, so much more likely to redeem it than if it had just been stuck on the on the product detail page. Um, it's a huge fan of member days, I think they're.
Speaker 1They're just really really clever in terms of expanding the calendar and and uh and surfacing brand visibility before really really key moments nice, yeah, I mean, it certainly does well, right, I mean the, the figures that are released after, after prime day every year, they just, they blow my mind. Billions, billions is spent, um, yeah, and it, and it doesn't seem as though sales are too heavily impacted in the run-up to those days either. So, uh, yeah, yeah, like you said, it really hits the nail on the head for a lot of reasons. Um, cool, well, look, before we wrap this up, let's just have a little bit of fun. So, as an expert in this space, I'm just interested to know um, is there something that you believe we could see happen in the next five years?
Speaker 2um, but maybe seems a little bit far fetched at the minute yeah, I don't know if it's far-fetched, I mean I think I think I don't know.
Speaker 2I mean I I am a big believer that like, like the current way that we buy things from within, within Roblox, like I think that's kind of the main thing is like we use, we buy stuff online because of the way that computers and smartphones developed and not because it's like a comfortable, natural way to to consider and purchase things.
Speaker 2So I see all that continuing to to blow up and change. I mean I was, I was doing some research the other day on on a pricing in the luxury sector because it just works a bit different, and I ended up like looking at a, uh, louis vuitton like 3 000 euro bag and I I was truly one click away from accidentally buying it at three grand just because, like, the checkout process was so slick it was, you know, right from it did start with a search as more traditional but, um, but I know, I think that that like, yeah, the current kind of um, multi-step approach to buying is is going to continue to to blow up. I don't think that that'll be on Apple Vision, goggles and stuff, but there will be more and more ways for brands to be moving stuff to consumers.
Speaker 1Maybe Vision goggles in the future, or not?
Speaker 2I don't know, I don't know. I've tried them once and haven't been convinced yet. But who am I to say yeah?
Speaker 1I mean, I'm yet to try them, I've had mixed things, but equally it's one of those pieces of technology that could just blow up over a period of time. Look at the smartphone right. I mean you go back 20 years. We had a phone that big, the screen that small and buttons that big, and now we've got it all on a screen that does absolutely anything. You can start a business on your phone these days. So who knows?
Speaker 2right, yeah, yeah, exactly. So I don't know.
Speaker 1I think that buying journeys are are definitely in the process of, you know, decomposing into into something really interesting, nice, well, time will tell, we'll see. We can revisit this in a few years and see exactly how it looks. But uh, but look, thank you. Um, really enjoyed that conversation, sam, thank you yeah, my pleasure, james, thanks.
Speaker 2Thanks a lot for me no worries at all.
Speaker 1I really hope you all enjoyed the episode. For me, definitely interesting, and it's amazing to see exactly what can be done with launching promotion schemes, which don't seem too challenging right now and can have a really substantial impact on the bottom line. So thanks again for listening and I look forward to seeing you soon. Goodbye.
