Switching Loyalty

Loyalty is shifting among packaged goods.

While some brands have halted or revamped their own high-profile loyalty programs, auction-based promotions and collaborative efforts such as Upromise are gaining favor.

Pepsi-Cola Co. and Miller Brewing Co. both scrapped two-year-old programs this year, PepsiStuff and Get the Goods. Kellogg revamped its two-year-old Eet and Ern, tapping Yahoo for an online auction model to replace its points-for-perks swap. Meanwhile, Procter & Gamble confronted consumer complaints with the over-redeemed Pampers Perks (see “The Consumer Advocate,” pg. 46).

Those actions all raise the question: What, exactly, does it take for a small-ticket, high-volume product to make an ongoing loyalty program work?

Purchase, NY-based Pepsi dropped PepsiStuff to put its fourth-quarter PROMO budget behind a new $160 million National Football League sponsorship that began in April (May PROMO). Miller, Milwaukee, opted for a simpler Miller Time Off summer sweeps to replace its auction-style Get the Goods. The Pepsi and Miller programs served as seasonal promotions, with sweeps overlays, online fulfillment, and in-store support.

Such short-term promotional thinking can doom loyalty marketing. “Once the novelty wears off, marketers have to run other promotions, and end up over-rewarding their regular users,” says Patrick LaPointe, director at loyalty marketing consultancy Frequency Marketing, Inc., Cincinnati.

While the Getting is Good

Both Miller and Pepsi changed tacks this year to pique consumer interest.

“We had great success with Get the Goods,” says Miller spokesperson Ron Acosta. “It’s important that we mix it up a bit and constantly come out with new promotions to engage our consumers again. It’s about reinventing promotions.”

One source close to Miller says a new Miller Lite team (led by company vet Rob Olejniczak) prompted the shift.

Miller Lite and sister Miller Genuine Draft share Time Off, which lets winners pick a week-long trip for four to Las Vegas, Key West, FL, or Malibu, CA (June PROMO). Instant-win gamepieces distributed in-pack and on-premise award 10 grand-prize trips and smaller prizes of barbecue grills and portable bars. The Promotion Network, Dallas, handles, with heavy P-O-P and ad support.

“It’s exactly what retailers and consumers say they want in a promotion,” says brand promotions manager Buz Cady.

The concept, which is cheaper to run and simpler to explain than Get the Goods, tested well with consumers in 23 cities last spring.

“Distributors asked for a summer promotion that would be easier to execute, and that feedback was consistent with our consumer research,” says Acosta. “Consumers are looking for fast and easy ways to interact with our brands, and we believe this year’s promotions will deliver even better results.” Distributors liked the idea and the P-O-P, and “the promotion has been better received by retailers” than Get the Goods, he adds.

Get the Goods registered 300,000 members who collected “Beer Bucks” on-pack and bid for one-of-a-kind prizes such as dinner with Rusty Wallace and a ride on the NASCAR driver’s jet. But sales continued to fall: Lite’s take dropped to 16 million barrels in 2001, from 16.1 million in 2000, while MGD volume slipped by 100,000 barrels to 5.4 million, according to industry newsletter Beer Marketer’s Insights, Nanuet, NY.

And, Get the Goods was costly: Miller and its agency, St. Louis-based Zipatoni, fielded new prizes each week. “We served up a lot of things from Miller’s [sponsorship] arsenal, but there’s a cost to setting those prizes up,” says Zipatoni chief operating officer Mitch Meyers. A charity component that channeled bidders’ cash to nonprofits helped persuade states to sign off on the program, she adds.

Miller is still using the opt-in database it culled from Get the Goods to talk with Miller Lite fans by “passion groups” such as sports and music. Last year, the company required anyone redeeming Beer Bucks to give name, address, e-mail, phone number, and birth date, then asked for (but didn’t require) beer preferences. In 2000, it only collected that information from auction participants, thus capturing only 30,000 of 350,000 visitors to the program’s site, reports Frequency Marketing’s newsletter, Colloquy.

Rival Anheuser-Busch tested a loyalty program called Bud Gear in 1997, but California shut it down in short order, charging that it encouraged consumers to overindulge just to collect more proofs of purchase. It was restaged as Bud Rewards in 1998, running in the Southeast and Puerto Rico. A-B shuttered the catalog program that same year.

Getting Stuffed

Pepsi’s new NFL deal “changed up a lot of marketing plans,” says spokesperson Dave DeCecco. “We’ll certainly consider doing PepsiStuff again in 2003.”

For now, though, fourth-quarter promos will shift to supermarkets and mass merchandisers rather than the c-stores that PepsiStuff favored. The online program ran in fall 2000 and 2001, targeting single-serve customers — mostly teens and young men. (Stuff first launched in the mid-1990s as a summer push, with sweeps and a catalog distributed in-store.) Yahoo joined the effort last year.

New venues mean a new target audience — and a message to stock up rather than repeat the purchase. Supermarkets account for 65 percent of PepsiCo sales, c-stores only 12 percent. Pepsi’s volume sales fell 2.8 percent in 2001 to 1.4 billion cases, per Beverage Marketing Corp., New York City.

Meanwhile, sister brand Frito-Lay chugs ahead with its three-year-old ePloids.com program, which lets kids collect “ploids” on-pack to bid on auction goodies or “buy” items from an online catalog. (Ploids first appeared on-pack as part of Frito-Lay’s multi-pack Planet Lunch campaign, which launched in 1998.)

Two promotional overlays each year boost activity; for 2002, that’s the spring Star Wars Episode II tie-in, and a SpyKids 2 link for back-to-school. Brand-specific overlays fit individual calendars. Frito has as many as 500,000 registered ePloids users. Omnicom’s Atmosphere, New York City, took over the program in February after parent PepsiCo consolidated all marketing with Omnicom. (WBK, Cincinnati, had handled.)

“We’re still working on the payout level,” says Frito-Lay vp-retail marketing Lora DeVuono. “We want to grow loyalty, but need to do it efficiently.”

Bartering with partners including Hasbro, Lego, and Disney lowers Frito-Lay’s cash output, improving its return. “We’re always looking to exchange value, however our partners define it,” says DeVuono.

Frito-Lay uses its site for other promos: When launching the 3Ds brand in 1998, a Malcolm in the Middle sweeps sent kids to eploids.com to register. The site provides “a consistent foundation, so we’re not reinventing a program every time,” says DeVuono.

It’s tough to correlate sales with a single program, so Frito-Lay measures ePloids’ results by tracking site activity, final bids for items, and consumer feedback.

Auction Attraction

Kellogg relaunched its online/on-pack Eet and Ern on 170 million packages in March and plans to run through 2003. In its first few weeks, the program signed up 170,000 users who redeemed 50,000 codes for instant prizes. Eet and Ern’s first promo overlay, a PlayStation 2 Game Giveaway, helped drive site traffic for the relaunch.

The program may be helping stem Battle Creek, MI-based Kellogg’s sales decline: Dollar sales rose 2.3 percent for the 52 weeks ended April 21, the first increase in three years, per Information Resources, Inc., Chicago. Kellogg’s ready-to-eat cereal sales topped $2.2 billion; unit sales of 718 million boxes fell one percent from 2001, per IRI. That’s better than the $6.8 billion category, which fell nearly three percent in unit sales and almost one percent in dollar sales.

The new Eet and Ern uses 10-digit codes (replacing 15 digits) and gives downloadable premiums (for fewer points) as well as sweepstakes, contests, special offers, e-cards, and games. Teaming with Yahoo, which runs Eet and Ern through the Yahooligans kids portal, lets Kellogg reach more kids and makes the program “a more comprehensive interactive experience” for members, says Kevin Smith, vp-USA marketing services in a statement announcing the relaunch. (Kellogg declined to be interviewed for this story.)

Eet and Ern originally launched in April 2000 on 300 million boxes across 18 brands. Kids collected on-pack points in their online accounts, then redeemed via e-tailers. But it was cumbersome for members to type in the long codes, point values were low, and the three- to six-week turnaround for mailed premiums was too slow for Internet fans (even though that’s standard time for on-pack mail-in offers). Some consumers felt there should be more points per package so they could earn premiums with fewer purchases — at roughly the same rate as the old proofs-for-premium model. And rewards had to match the high-quality premiums that cereal brands traditionally offer in- or on-pack. Ironically, Kellogg itself raised that bar two years ago (May 2000 PROMO).

Replacing previous niche partners fogdog.com and schoolpop.com with Yahoo “is a big jump for credibility,” and probably lets Kellogg share more of the cost, posits LaPointe. “The question remains: Can they offer a value proposition that impacts people’s behavior, or does this just help Kellogg develop an initial database to track household consumption of members?”

Separately, Kellogg’s continues its two-year-old American Dream program, delivering certificates for 100 American Airlines Advantage Miles on-pack for 43 brands. Kellogg recently changed the redemption requirement from five certificates to 10.

It’s not packaged goods, but Burger King and eBay rolled nationally last month with BK Rewards, an auction program testing since February in Erie, PA, and Albany, NY (April PROMO). Members collect points on food packaging, then use them to bid online for a wide range of goodies — many of which have been bartered with local businesses. Rewards come in three levels, from CDs and hats that change weekly to vacations and walk-on roles in films, with nine top prizes per quarter. BK’s Internet agency, Valentine McCormick Ligibel, Kansas City, KS, handles.

The program registered 967 members in its first weekend in test, says Chris Clouser, the chain’s chief global marketing officer. Registrants give their name, address, and e-mail so franchisees can deliver local offers to their best customers.

Elsewhere, Coca-Cola Canada runs Coke Auction through summer, putting “Coke credits” behind labels of single-serve Coke, Diet Coke, Barq’s, Cool iced tea, and Mello Yello. Bidders at cokeauction.ca choose from 25 to 30 daily items (including CDs and movie passes), Buy Now items (like video rentals and restaurant discounts), weekly Wow items (ranging from exotic trips to recording studio time), or Blitz items (posted sporadically for short periods). Toronto firm Edeal Services Corp. handles.

About Face

Coke Canada planned the effort only as a summer promo. That contradicts true loyalty marketing strategy, says LaPointe. “Classic loyalty programs work best when a brand wants to capture [personally] identified transactions to sell more related products [to those individuals],” he says.

However, packaged goods are so inexpensive that it’s hard to boost volume enough to cover the cost of loyalty programs. “You can’t make the points valuable enough to change shopper behavior to make the program profitable.”

Proponents say auctions suit small-ticket brands. “We’d go broke [using an airline model] with low-ticket items like burgers,” says BK senior vp-marketing Rick Dow, who worked on Northwest Airlines WorldPerks program before joining the chain. “Rewards have no intrinsic value [like frequent-flier miles do]. Bidders set the value.”

Bartering for prizes, as Burger King and Frito-Lay do, also controls costs.

Marketers likely will tackle loyalty in earnest over the next five years. Mounting pressure for efficient spending will make CPGs “smarter about doing programs with continuity built into them, and not just promotional tools,” predicts LaPointe.

True loyalty marketing differs from promotional thinking. “The endgame is how much share of customer you gain over time, not how much meat you moved this week,” he says. “Packaged goods companies have more short-term pressure than long-term patience.”

A brand must track user behavior over three or four purchase cycles, then home in on top users. “You have to overspend on a core value proposition that gets consumers participating so you can track their behavior. Then the information gleaned helps reallocate money to those key consumers,” says LaPointe.

Or CPGs can tap existing currency, like airline miles. “Be a player in someone else’s program, so your brand becomes the accelerator to a currency they already collect,” LaPointe advises.

One budding opportunity is Upromise, which launched in April 2001. Members earn money that gets stored in a college savings fund when they buy products and services from participating companies, including Kellogg, Procter & Gamble, ExxonMobil, Kimberly-Clark, AT&T, and Coca-Cola (July 2001 PROMO).

Brands don’t talk directly to Upromise’s one million-plus members, and only receive aggregate data on purchase behavior, geography, or demographics. “I’m sure they’d like to have names and addresses, but they’ll never get it,” says David Rochon, senior vp-grocery for Brookline, MA-based Upromise. “We facilitate the relationship that allows manufacturers to deliver more to consumers to incent them. Manufacturers get a different kind of loyalty than [they do from] programs that deliver temporary rewards.”

Upromise delivers weekly reports to brands on the number of member transactions that included their products. Retail partners (which include Toys “R” Us, McDonald’s, and nearly every leading grocery chain) get data on their own sales in exchange for tracking participating UPCs via loyalty cards. (Stores without loyalty programs use Catalina Marketing Corp.’s systems to track Upromise sales.)

Packaged goods makers pay Upromise a $100,000 integration fee to get started, then an administration fee of one percent of sales; they then provide a three- to five-percent contribution to members (via custodial accounts managed by Citibank). Retailers “get a halo of credit,” motivating them to support Upromise brands on-shelf, says Rochon. While grocers don’t get exclusivity, many feel compelled to participate to keep up with competitors. Broad acceptance is fundamental to the Upromise model.

LaPointe calls Upromise a “well-structured, viable program,” but says it’s tough to change consumer behavior with years-delayed gratification.

Rochon says members like earning money for purchases they’d make anyway. “Focus groups told us that, if they earn $5,000, it’s a home run. Members can save four of five times that,” he says. Rochon’s own membership “changes some of the products my wife and I buy, but it doesn’t change our lives.”

Over the next three years, packaged goods will see significant opportunities in nascent retail programs outside the supermarket. Top retailers from Nieman Marcus to Musicland are concentrating a wide range of offers to their top customers; packaged goods should now begin to test offers through such programs, which will be widespread by 2005, LaPointe says.

Inside the supermarket, CPGs can pool products to lift the profit margin on the total shopping basket. The trick is aligning brands by consumer preference, not just plucking brands with the same target audience from the corporate portfolio.

“Don’t get blinded by your own corporate name,” advises LaPointe. “Be realistic about brands that really pull, and don’t weigh [a program] down with dog brands.”

Catering to consumer tastes won’t go out of style.