With the 800,000 or so Aeroplan miles that Rupert Duchesne has on reserve - "Hoarding has sort of squirrel connotations," he notes - he could place an order via Aeroplan's online catalogue for a Vespa LX50 along with a Jura Impressa F50 Automatic 18 Bar Power Pump Coffee Centre. (It makes coffee).
This, however, would go against type. "I tend to stockpile them and wait until I can do something big and significant and have a really great, memorable experience," says the chief executive officer of the company now known as Groupe Aeroplan Inc.
Mr. Duchesne is laying down his thoughts on the human emotions that backstop loyalty, or rewards, programs such as Aeroplan. On the one hand, it can sound like Psych 101. On the other, it is the foundation upon which he has built a corporate skill set that he is now plying worldwide, hoping to transform Aeroplan into the global leader in loyalty marketing and loyalty management.
The essential shared behaviour is this: "I think the natural instinct is to hoard and collect and to get something for nothing."
(No need to excavate the word "nothing." Mr. Duchesne quickly qualifies his statement to acknowledge that this is a not a something-for-nothing equation. "In none of these programs are you really getting something for nothing," he says, "because you have to change your behaviour to accumulate at a particular partner. You might have to pay a small fee on a redemption or whatever. But essentially you're getting something pretty good for nothing other than changed behaviour.")
Capitalizing on this changed behaviour is Mr. Duchesne's world-beating loyalty marketing proposition. "It's a unique skill and it's transferable to almost any other market," he says. "We're there first. We're the only loyalty company in the world that is a pure company that is publicly quoted. In other words, the only business we're in is loyalty."
Mr. Duchesne, who oversaw the merger of Air Canada and Canadian Airlines International, has been Aeroplan's deft architect: Redesigning Air Canada's frequent-flier program into a coalition offering rewards beyond flights; carving the loyalty program out of the airline.
On the surface a strategist, he is, at heart, a marketer. Unlike advertising, where idiom, sense of humour and cultural considerations make it difficult to transfer a message from one country or region to another, he is convinced that loyalty marketing is boundary-less. He has a long list of potential places to conquer, Hong Kong to New Zealand to Chile. "We are a Canadian winner," he says. "There are not that many Canadian businesses these days that are actually acquiring overseas and building overseas as opposed to being gobbled up and spat out."
80% satisfaction
It seems odd to think of "loyalty" as a business. It may seem odder to examine the unconventional metrics that underlie it. Here is one that may, upon explanation, resonate with some of Aeroplan's four million members. While a company in the business of selling, say, broadloom will aim for the elusive goal of 100-per-cent customer satisfaction, Aeroplan does not. "There's a very interesting balance of frustration versus hoarding behaviour that as a loyalty company you need to monitor and keep at a particular point," says Mr. Duchesne, speaking to the moment when members seek to redeem their miles. "There's no hard and fast rule on this but it appears it's somewhere around 80 per cent."
By this he means 80 per cent satisfaction; 20 per cent frustration. "I know that if we went higher than that ... people would actually spend the currency faster. They would tend to - and I don't mean to sound pejorative - they would fritter it away, and they would never get the big reward that we know influences their long-term brand loyalty and their behaviour."
This would be bad.
Fundamental to making Aeroplan a profitable proposition is what is known in the industry as "breakage," or unredeemed air miles. On average, the company receives approximately 1.20 cents for every mile sold by participants throughout the Aeroplan coalition, which includes Esso, Home Hardware and, of course, Air Canada, calculated largely on a volume-based model. Aeroplan's redemption cost - the amount it has to pay for that Vespa LX50 - averages 0.98 cents per mile sold, for an average gross margin of 0.22 cents per mile.
