Many Canadians take for granted the Air Miles card in their purse or wallet, not realizing it is a billion-dollar business owned by a big U.S. conglomerate – Texas-based Alliance Data Systems Corp.
Alliance's LoyaltyOne division, which is headed by Bryan Pearson and based in Toronto, runs the Air Miles operation that has 120 merchant partners and more than 10 million accounts across Canada.
You are pushing $1-billion in revenue now and have a big market share. Is there still room to grow?
When you've got seven out of 10 Canadian households with [an Air Miles] card in their wallet, going to eight or nine out of 10 households is less realistic than getting those people to use the card more frequently and in new retail categories.
The best way to get a new category opened is to add new partners.
What kind of new partners do you want to add?
Up until three or four years ago, we had great grocery partners, Shell as a gas partner, and financial services partners in American Express and Bank of Montreal, but if you walked into a mall or a power centre, there wasn't a great penetration. So specialty retail has been a big focus of ours. In the last three years, we've added Michaels, Staples, Toys "R" Us, the Children's Place, and Old Navy.
What does a loyalty program do for a retailer or other business?
The actual reward mechanism does induce behavioural change out of consumers. But more important, the information [gathered about purchases] creates real value for companies.
So card holders are essentially trading information about their purchases for points?
A loyalty program creates a value exchange between the consumer and the company. The reward currency is a thank you for spending your money on products and services. The flip side is that [companies gather] information that is mission critical in building their brand. They can better serve customers by understanding them at a completely different level.
When we first started the business 20-plus years ago, I felt like somebody who had walked into a [dark] room that was full of customers of my clients, and we turned the light on for the first time, so [our clients] could see who they really were.
Today, we take it as standard that you should understand who your customers are and what segments there are and how those spend differently. But I am surprised at companies that have this wealth of information but have created a kind of data ghetto, where it sits in the marketing or sales or customer service department and doesn't find its way into the broader organization as a foundation for strategic decision-making.
Are some consumers becoming leery of sharing so much data about themselves with merchants?
I have run two years of privacy research across North America. Consumers recognize that information is being gathered about them, and are disappointed with the level of customization or personalization that companies are delivering as a result.
So their concern is that the information is not being used?
[We asked if people would] share more information with a trusted organization if they knew the company would act on it to create a more relevant or personalized experience. Two-thirds of consumers said they would share more information.
There is a vocal group of people who are raising concerns about how information is being used. A lot of that comes back to the level of transparency that companies have around what they are gathering, and whether they have a structured agreement from the consumer.
And there certainly is a creepy line, where you do cross boundaries.
So people like offers to be tailored to their interests?
We have a program with a grocer where we use customer information to create customized offerings. It is completely individualized based on what you buy in the grocery store. How many complaints, out of millions of pieces that we send out, do we get about privacy? None.
There are a lot of individual loyalty cards out there, and Aeroplan is developing a "partner" network. Is the competitive environment tougher than it was?
We have seen a rise in standalone programs, but there are few coalition or partner programs. Certainly Aeroplan is out there, and they have done a great job in leveraging a frequent-flier program by adding partners. They have a niche that serves higher-spending Canadians in the credit card market [but] we have the highest penetration in every socio-demographic segment.
When does it make sense for a retailer to join a partner plan rather than running their own loyalty program?
Each business has its own dynamics. If, at the end of a year of spending, all [a company] can afford is to give somebody back enough to buy a couple of pencils, they should join a coalition program. In one, you are paying all the freight, and in the other, you are sharing the administrative costs.
How does Canada compare internationally when it comes to loyalty programs?
We rank right up there as one of the most competitive marketplaces. Many U.S. programs have defaulted to just straight discounting programs. If you show a card, you get a discounted price. We have stayed with a points rewards structure.
What about the rest of the world?
Coalition programs are a global phenomenon. The only market where you don't have a meaningful coalition like an Air Miles program is the U.S. That's because it is more fragmented. The retail community is much more regionalized. You don't have many large national players. In Canada, we have a lot of national chains and we have a little bit more of an ethos of co-operation around that.
You have a Brazilian subsidiary. How did you end up there?
We looked at some of the big emerging markets and thought a coalition program was a great opportunity in a place where the vast majority of the population doesn't have the means to spend dramatic amounts of money in any particular retail area. Brazil has a robust banking environment, and the population uses debit and credit. And we had a partner who had been operating an online coalition in the marketplace and wanted to [broaden it] but needed someone who could bring experience to help.
How has this business changed in ways you might not have predicted when you started 20 years ago?
What has changed dramatically is the environment that we operate in. Twenty years ago, there was no Internet, no mobile telephony, and no GPS location-based services. And the immediacy is completely different. Look at the contrast between putting something in somebody's mailbox compared to pinging them on their mobile phone.
Has the shift to smartphones created a great opportunity?
The smartphone is the first marketing device that the consumer carries with them at all times. It has got incredible utility, but the consumer has proved time and again that if you are either inappropriate or inconsiderate in how you choose to access them, they will turn you off. [The key is] to create a meaningful value exchange with the customer.
Why are loyalty programs – which go back decades to green stamps and Canadian Tire money – still so popular?
I think they tap into some psychological behavioural aspect that consumers have [where they want to] earn and work towards something. It taps into an element of their psychology, some basic instinct.
President and CEO,
Born in Santiago, Chile;
49 years old
BSc (honours) in Life Sciences and MBA from Queen's
University in Kingston.
Worked in brand marketing at Quaker Oats Co. of Canada from 1988 to 1991.
Marketing manager at Alias Research Inc. from 1991 to 1992.
Joined Alliance Data in 1992, and was named president of its Air Miles reward program in 1999.
Appointed president of LoyaltyOne division in 2006.