Tuesday, October 23, 2007

Full Circle or: "A priori" and "a posteriori"

"What came before...what comes after"

Good Morning: Okay, here's my "Full Circle Inference" I mentioned I'd blog about last Friday:

Does anybody find the connection between "GreenPoints" and the Pay By Touch Logo a little bit interesting? They're both green points. I find that to be quite the coincidence. But as with all coincidences, I always question, "Why"? What is the meaning behind the coincidences? At the end of the day, when the smoke clears, the answer seemingly always "points" to what I refer to as the "Full Circle" inference. Another name for it is "a priori" "a posteriori" if you want me to go latin on you.

The terms "a priori" and "a posteriori" are used in philosophy to distinguish between deductive and inductive reasoning, respectively. As coincidence would have it, loyalty marketing appeals to both the deductive and inductive reasoning powers of consumers. That fact is the driving force behind the popularity of loyalty programs and why 45% of Visa's Interchange Rate is comprised of covering the cost of rewards programs.

As I mentioned, the phrases "a priori" and "a posteriori" are Latin in origin, and literally mean "from what comes before" and "from what comes later", respectively.

It has been also called "logical positism." which grew from the discussions of Moritz Schlick's Vienna Circle and Hans Reichenbach's Berlin Circle in the 1920s and 1930s. Which is why I call it the Full Circle inference.

S&H GreenStamps started the loyalty industry 110 years ago, and today, using software programming, which coincidentally (not) is made up of 1's and 0's, they have created potentially the best loyalty program in the industry.

After acquiring S&H for 100 million, Pay By Touch can create the 1-to-1 marketing "end all" 111 years later. Now I'm no numerologist (don't even really know what one does) but my instincts tell me that this is going to be big.

Let's look at the generics of what "loyalty marketing" is:

Loyalty marketing: From Wikipedia, the free encyclopedia

Branding, Product Marketing and Loyalty marketing all form part of the customer proposition – the subjective assessment by the customer of whether to purchase a brand or not based on the integrated combination of the value they receive from each of these marketing disciplines.

Loyalty marketing is an approach to marketing, based on strategic management, in which a company focuses on growing and retaining existing customers through incentives. The discipline of customer loyalty marketing has been around for many years, but expansions from it merely being a model for conducting business to becoming a vehicle for marketing and advertising have made it omnipresent in consumer marketing organizations since the mid- to late-1990s.

Some of the newer loyalty marketing industry insiders, such as Chris X. Moloney and Fred Reichheld, have claimed a strong link between customer loyalty marketing and customer referral. In recent years, a new marketing discipline called "customer advocacy marketing" has been combined with or replaced "customer loyalty marketing." To the general public, many airline miles programs, hotel frequent guest programs and credit card incentive programs are the most visible customer loyalty marketing programs.

History of loyalty marketing

On May 1, 1981 American Airlines launched the first full-scale loyalty marketing program of the modern era with the AAdvantage miles program. This revolutionary program was the first to reward "frequent fliers" with reward miles that could be accumulated and later redeemed for free travel. Many airlines and travel providers saw the incredible value in providing customers with an incentive to use a company exclusively and be rewarded for their loyalty. Within a few years, dozens of travel industry companies launched similar programs. The AAdvantage program now boasts over 50 million active members.

American Airlines' AAdvantage program can trace its roots to S&H Greenstamps which were a popular retail reward coupon issued very commonly from the 1930s through the 1980s. Typically, as a consumer shopped at various grocery and dry good stores, they would receive a set number of Green Stamps that could be pasted into booklets and redeemed for prizes.

"A Priori"

What came before was, "GreenStamps,"
the world's first rewards program, operated by the Sperry and Hutchinson company (S&H), founded in 1896 by Thomas Sperry and Shelly Hutchinson. Here's an interesting backgrounder I was unaware of:

During the 1960s, the rewards catalog printed by the company was the largest publication (I thought it was Sears) in the United States and the company issued three times as many stamps as the U.S. Postal Service.

Once again, coincidentally, customers would receive stamps at the checkout counter of Pay By Touch's biggest niche markets, namely: supermarkets and gas stations.

"A Posteriori"

What came after, or "a posteriori" was "GreenPoints" which is now Pay By Touch. When greenpoints are combined with Pay By Touch's proprietary SmartShop program, it is poised to become the most rewarding loyalty experience, available, period. After all, who cares if you get "rewarded" with $1.00 off Corn King Bacon if your an Oscar Meyer bacon kinda guy? Because SmartShop gives discounts on Oscar Meyer Bacon to the Oscar Meyer Bacon eating family, the numbers are amazing. Instead of a .0065 coupon redemption rate, the SmartShop redemption rate is above 40%! There's no denying the statistical significance of those numbers.

A lot of people questioned the acquisition of S&H, including, initially, myself. But after further thought, and absolutely no insights, as per usual, from Pay By Touch, I now firmly believe that the acquisition of S&H Solutions will empower Pay By Touch to create the best loyalty marketing program in the history of the industry.

That is the main impetus behind this post...to alter the perception of the S&H acquisition. I'll attempt to do that by providing some insights as to how it is destined to become a powerful play. By the way, It might not have been a bad idea for Pay By Touch themselves to have done that for, if not the analysts, at least the shareholders of the company. It's one thing to keep the competition guessing, but an entirely different thing to keep your shareholders guessing. But then again, that's something that is easily fixed, so I'll move forward...

According to Ron Pedersen, CEO for S&H Solutions, "Together we aim to transform the personalized marketing industry by offering unprecedented opportunities for relevance marketing and customization."

The acquisitions of 7th Street Software, Capture Resource and S&H combined create a whole new entity, one that has a future primed to be a star. They got it right. This, from their website:
Pay By Touch Personalized Marketing offers retailers and manufacturers proprietary, next generation services that work to maximize the shopper lifetime value, increasing customer satisfaction and providing a true competitive advantage. The future of individualized retail marketing, our cost-effective solutions increase shopper frequency, basket size and retention.

Once again, ironically, coincidentally, whateverdentally, S&H's two largest markets were supermarkets and gas stations. SmartShop has the grocery market figured out. Pay By Touch is beginning installs at Shell Gas Stations in Chicago. A cross promotion between Jewel/Osco, Cub Foods and Shell Gas Stations is blatantly recommended once the installs at Shell are complete. But what of other gas stations?

I believe they are an ideal target market for a new and improved Greenpoints Rewards program. But don't reward Visa purchases,
as Visa is not only our competition in payments, but also in rewards. Obviously those are our two core businesses.

Make no mistake, Visa is the enemy. Once again, coincidentally, (and fortunately) Visa is also the enemy of Gas Station operators, since Visa sucks up 66% of their profits so they can "reward" the more affluent. The full circle is that Pay By Touch can come from help, and this new "Petrol Rewards" program will be one which can be tied to check and debit transactions. The timing is perfect. What came before: Visa (a priori) and what comes after: Pay By Touch (a posteriori)

The perception that Interchange is exorbitantly high, combined with the fact that 45% of interchange revenues go to rewards programs, is resulting in the desire of gas station owners to shift their payments to checks, debit or cash.
This shift in perception, will provide momentum towards shifting the payments they accept. In essence, the new PBT program would also be "rewarding" to the Gas Station owners as well, as it will give them back their profits.

So it seems like a perfect time to create a synergistic platform customized towards that sector. I have a pretty good idea on how to go about that.

Coincidentally, I have an "employment clause" in my contract with Pay By Touch and I think it might be that time to exercise it.

Talk about full circles...