Rory Sutherland & Dan Bennett on Behavioural Science, Loyalty & How People Really Decide (#777)

Speaker A: What happens to loyalty when the customer never visits your loyalty program? Today, customers are using AI to discover brands, evaluate options and make purchase decisions, changing the traditional path to engagement. Fayden is leading the discussion on what this shift means for loyalty leaders, where brands risk becoming invisible and how organizations can prepare for a future where AI sits between the customer and the brand. Reserve your spot@loyaltyinsiders.com that's loyalty insiders.com. Hello and um, welcome to let's Talk Loyalty and Loyalty tv a show for loyalty marketing professionals. I'm Paula Thomas, the founder and CEO of Let's Talk Loyalty and Loyalty TV where we feature insightful conversations with loyalty professionals from the world's leading brands. Today's episode is hosted by Charlie Hills, Chief Strategy Officer of Mando, a uh, UK based agency that uses smart data to create brilliant partnerships with and rewards that really work. Enjoy.

Speaker B: Hello and um, welcome to this episode of let's Talk Loyalty. As Paula mentioned, I'm Charlie Hills, the Chief Strategy Officer for Mando Connect. In this episode, I'm absolutely delighted to interview Rory Sutherland and Dan Bennett respectively, the President Emeritus and Senior Partner lead of Behavioral Science for Ogilvy Consulting. Rory has a fascination with the vagaries of human decision making and he sees the world of advertising, marketing and loyalty as a sort of Galapagos islands for behavioral science. An accidental TikTok star as well as a celebrated speaker and writer, Roy has found his blend of wit and behavioral insight resonates with audiences far beyond the boardroom. It's this same passion that inspired him to found Ogilvy's behavioral science practice and to write his book, the Surprising Power of Ideas that Don't Quite make sense. His 12 week CPD uh, accredited mad masters course helps marketers make sense of accelerated disruption and uses a tried and tested mix of creativity, innovation and behavioral science to their competitive advantage. Dan is the global lead of Behavioral Science Ogilvy Consulting, pioneering the creative application of behavioral science to solve complex challenges. He's managed over a thousand behavior change projects with a portfolio spanning 100 major brands. He also curates Nudge Stock, the world's largest behavioural science festival. In this episode, Roy and Dan share their insights on loyalty behavioural science and cover hot topics from favourite programs and case studies to generosity to subscriptions to partnerships and more. We'll also be learning about their favourite books and highlights and key learnings from the many sectors and programmes they've both worked on. I really hope you enjoy our conversation today. So hello both of you. I'm really excited to have you on the podcast today? Welcome to let's Talk Loyalty.

Speaker C: Oh, joy. It's a joy to be here. It's a personal kind of secret weapon and love of mine. Um, I find the whole, uh, notion of trying to make capitalism properly relational, which is what consumers ultimately want rather than transactional, uh, you know, at its deepest, it's just an area that totally fascinates me.

Speaker B: Well, that's the best response to hello and welcome to the podcast that I've ever had with a guest, Dan. Follow that. Are you delighted to be here as well?

Speaker D: I was just going to say what Rory said, but he got there.

Speaker B: Brilliant. Well, thank you so much for coming. This is going to be such a cracking episode. Before we get into the nuts and bolts of it, though, we want to start off because we're building a library recommendation effectively for all our guests across. Let's Talk Loyalty. So I'm going to open with Paul as favourite question, and I'll ask you this first. Rory, what's your favourite book about? Life, leadership or loyalty?

Speaker C: Funnily enough, I always recommend this book because you can read it in about five minutes. It was first published in 1916. It was, I later discovered, one of David Ogleby's favorite books. It seems very hokey, but it's actually profound. And it's by Robert up DeGraff and it's called Obvious Adams.

Speaker B: Oh, interesting. What's it about? I mean, obviously Obvious Adams, but it's

Speaker C: about an advertising person who solves business problems so simply by noticing things. Things which are seemingly obvious in retrospect once you point them out, but which are, uh, completely hidden from people. Because I think what we've done in business is our, uh, need to maintain the pretense of what you might call rational, uh, sequential thought. Closes off lots of possible avenues to us. So we had a client the other day who are agonizing about how to do something which, by the way, belongs to, uh, loyalty is part of this commercial innovation. P and G call it commercial innovation. Any form of innovation which doesn't change the product itself, but which simply changes the relationship between the consumer. Amazon prime would be an example of, uh, commercial innovation, but then so would share. A Coke with doesn't actually change a Coke, it changes your relationship with Coke. And what was so fascinating is they were having absolute agonies about it because they were trying to theorize it first and have ideas second. And I said, why don't you just do it backwards? Why don't you just have a load of ideas and then post Rationalize them. M. Because that's how it really works. We just have to pretend that it doesn't.

Speaker B: Oh, that's a lovely, lovely way of thinking about it. And God, wouldn't that be nice. I feel like sometimes we can spend months in the post rationalization stage before we're allowed to be creative in loyalty because our programs last so long.

Speaker C: I. I think a lot of pre rationalization just serves to feed the egos of senior people who want to believe that they're actually controlling things. And so they have to believe that all good things emanate from the top. But if you look at science, most progress actually happens. Bottom up.

Speaker B: Nice. Bottom up. Innovation. That's a lovely idea and a really great kind of recommendation for a book as well. What about you, Dan? Have you got an equally good read for our audience?

Speaker D: Oh, I do. I've got Rory Sutherland's Alchemy.

Speaker B: I'm so pleased you did that. I was hoping you were going to.

Speaker D: He always makes me. I've actually got John Keats's book on.

Speaker C: Yeah, fantastic.

Speaker D: And I think after. After kind of. We've. We've just completed our 1000th project in the Babel science practice.

Speaker B: Congratulations.

Speaker D: View of um. Of different sectors and different levels of thinking and organization and. And a lot of people are very good at convergent thinking, but not a lot of people are very good at divergent thinking. And this book is the uh. Is the ultimate guide to kind of how to think creatively.

Speaker C: It's a fabulous book. Like Obvious Adams. It's also very short. You can read it in an afternoon. Uh, and I totally recommend that as well. It's fabulous.

Speaker B: Brilliant. Those are two really good recommendations. Thank you very much. And quite kind of alternative to what we'd normally get. I'm delighted neither of you went kind of. Here's a textbook on loyalty. So thank you for sharing.

Speaker D: Those are great as well. Next. Which is also a great book.

Speaker C: It's so funny because I was just about to say that that is the book that changed my life. I think.

Speaker B: Say it out loud, Dan, because we have some people who are just this,

Speaker C: uh, Al Reece and Jack. It was getting the wrong way around Al Reese and Jack positioning the battle for your mind. And uh, that was the original title. And what's so interesting is you realize that everybody in business instinctively is comparing themselves with their competitors. And a byproduct of that is you become more and more similar to them. So the competition becomes harsher and harsher and. And then a race to the bottom and the Need. Now we can argue whether it's differentiation or merely distinctiveness. And to be absolutely honest, in psychology, the difference doesn't matter that much. You can make your product meaningfully different, or you can simply make your, your personality as a brand meaningfully different. And either way, it kind of works the same way.

Speaker B: Nice. That's very topical for a project we're working on actually in the day job at the moment. I'm going to reuse that, which is, I'm sure, what a lot of people listening to this episode are going to be doing. Oh, I can use that. Oh, I can use that. Which brings me on my next question. I always like to ask about your favorite loyalty program as well. So we'll start with you, Dan, this time. What's your favorite loyalty program and why?

Speaker D: I, I think that the Avios program is one of them and is now a client of ours. We can talk about some, some work later.

Speaker B: But.

Speaker D: But it was, it was a favorite before that happened as well. And, um, because of the genius move I think of, it works on so many different levels. It works on a points mechanics level. It's really became a part of culture and plays a role in people's status and identity. Like for me, it's half my personality. Like it can really.

Speaker B: I would disagree with that, Dan. I think there's more to you than Avios, but you never know.

Speaker D: Another half at least. But this really clever role I think it played, which is it rewarded individuals for business travel. So it basically allowed you to get some points for giving up your personal and discretionary energy, if you like, on business travel. And I think that really makes the whole industry work really well. As kind of Rory says, lots of people could kind of have a bit discretion about what business travel they do and don't do. But because there's a mechanism here outside of your employer that can reward you for doing business travel, I think it's a genius. It's a genius bit of, um, kind of value transaction. So that's my favorite because it works on so many different levels.

Speaker B: Awesome. What about you, Rory, which is your favorite?

Speaker C: I'm a late convert and, uh, they only really become worthwhile when you're older and you have enough points. I'm a big fan of the Marriott Bonvoy program because one of the things, things I think both Avios and Marriott need to plug more is points plus cash. And so I don't like burning 90,000 points in one go. It just feels a bit too much like loss. But what I often use the points to do is to take the price of the hotel below the guilt threshold.

Speaker B: Nice.

Speaker C: So for example, you know, I had an early, I've got an early start in about 10 days time and I really wanted to stay in a hotel in London the night before. And I go, it's 200 quid of my own money. I'm not really sure about that. That chuck in a few points, it's now 120 quid. I'm fine with that.

Speaker B: Yeah.

Speaker C: Okay. Now, other ones, however, let's define this really broadly. One of the greatest loyalty programs of all time came from Ogilvy and it was the unknown person who suggested American Express simply put member since um, on the card because that has an American Express. People have told me this, that has been worth billions to them in terms of retention. And simply the fact that a provider, supplier acknowledges um, the age of a relationship is extraordinarily meaningful. In other words, what it says is we know that you've been a customer of ours or a card member of ours for a significant length of time. And the implicit, never explicit. There's nothing explicit about member since at all. There's no transactional component. But the implicit thing that the longer you're with us, the more we value you. Yeah, um, one very interesting thing with the Avios program was it always suffered from the problem historically that your tier points went back to zero every year and so you kind of felt, well, American, sorry, B.A. don't you know, every year, ah, they look at me and they go, he's got 15 tier points. He can just be a random backpacker. He's not a serious, you know, um, George Clooney style professional flyer. And the lifetime tier points on Avios, on uh, the BA, uh club have a similar effect which is I know that they know that I've been quite valuable to them in the past. And therefore implicit in that is the idea that they're going to make a bit more value and they're going to invest a little bit more in my future.

Speaker B: Yeah, no, I think tenure is such a hot topic actually. And it's really interesting because most people talk about it as 10 year milestone rewards, you know, like, oh, what are you going to give me at 1 year, 3 years, 5 years. But is your view then that this kind of not psychological kind of play but this recognition component is more important for rewarding tenure.

Speaker C: So I mean that's a wonderful phrase because we often bracket them together, don't we? Loyalty and recognition. And the danger is we all fall into the trap of Being purely transactional. And the difference between a relationship. Okay, this is going to be possibly be a bit disturbing. The problem a lot of businesses have is the customer and the marketer want to be in a relationship. But the finance, they want a marriage, but the finance director thinks they're running an escort agency.

Speaker B: I'm familiar with this one. Actually, we encounter this quite a lot at work.

Speaker C: So financial metrics simply look at the here and now. They don't look at a, um, uh, what you might call a longitudinal view of customer value. They look at a snapshot view of transactional value. And uh, that leads to an awful lot of uh, effectively dissonance I think, between what the customer expects from a business and what a business is trying to do. And I think the magic is in resolving that. Ah, contradiction. And loyalty programs or mechanics or whatever it may be, are just one mechanism of doing that. In a relationship. You have a degree of non explicit give and take. You know, nobody actually takes their spouse and evaluates them daily on a, uh, you know, key performance indicators. Because you value the relationship as a whole.

Speaker B: Yeah.

Speaker C: And what we're in danger of doing is, which I think we're doing in lots and lots of other ways as well, is becoming too granular about what we measure, that not every transaction has to make money in and of itself. You know, there are great, there are great business activities which are simply an investment in the relationship. And I had a very funny thing. I was on a zoom call during lockdown, and it was called by Richard Thaler, who had won the Nobel Prize for economics, to answer a student question. It was a former student of his who was now running a farmer's market stall in Austin, Texas. And he invited on the call. Daniel Kahneman was on the call. I was one of the few people on the call without a Nobel Prize. And the question this person asked is, what do I do with the last cucumber or the last pumpkin or whatever of the day, which never sells? And a lot of the economists said you reduce the price. Because that's what economists always say. And I said, well you could. What I do is, I said, once you've got one pumpkin left, go and hide it in the van. And then when one of your best customers comes along, bring it out of the van and say, I've been saving this for you. You can have it as a present. Because I said the value of investing in the relationship, provided it's a regular customer, not a tourist, outweighs the cost of an individual pumpkin.

Speaker B: Nice.

Speaker C: And I don't want to flatter myself, but Daniel Kahneman thought mine was the best answer.

Speaker B: That's fantastic. I can see why. Versus discounting the pumpkin at the end of the day. And that long term value is really what we're all here in loyalty to try and do.

Speaker C: I think the reason we underweight it is not, it's not impossible to measure, but it's slow to measure. An investment in acquisition delivers itself justification immediately. An investment in your call center, investment in the relationship is harder, is harder and slower to quantify. And since most people are in business just to justify their own existence, uh, that causes, ah, every single business I think is imbalanced between effectively, um, relational capitalism and transactional capitalism.

Speaker B: Yeah, we are seeing such an increased focus on short term uh, metrics actually across the piece. As I know you guys are at the behavioral science practice as well. I think that's one of the areas where people are so excited about behavioral science and its opportunity to almost give that little bit of magic and that way of kind of creating those moments that, that really matter. Um, I know that's kind of what we're here to talk about as well. And it's application in loyalty conscious. Not all of our audience might know what we're even talking about when we um, when we talk about behavioral science. So Rory, are you able to give us the skinny? What is behavioral science?

Speaker C: Uh, it's understanding the difference between how people think they think and how they really feel. Okay, that's it in the sentence. And we think, we think all sorts of post rationalized things about why we do things and what we'll do under certain circumstances. But our behavior is very heavily driven by parts of the brain which are kind of opaque to introspection. And it's understanding, if you like, that sort of invisible hardware in the brain, uh, for fun and profit, which is the purpose of behavioral science.

Speaker B: That's a great way of talking about

Speaker D: the past hundred years psychologists have been going at understanding the brain and kind of understanding this kind of massive unconscious part of the brain that we've evolved all of these different mental shortcuts that we operate the world with really decoding them. I think they've identified over 150 different um, principles and heuristics inside of our brains that are, ah, not all active all of the time with all people. Um, but certainly as good psychologists do, allows us to ask lots of great questions to kind of open things up and a bit more like John Cleese's creativity book, where creativity really is about asking more questions to kind of open up that solution space. I think the way we use behavioral science is quite surprising. A lot of people think you come into a room in, uh, a creative brainstorm and shut things down and like a policeman saying this is right and this is wrong. But actually what behavioral science allows us to do is go, did you know there are more levers to pull inside of a brain than you think? And you can try ones out. And a lot of our work is really understanding which ones work in which context best for which products with different types of people.

Speaker C: Really, psychology is the fifth of the five Ps, really. You've got product price, et cetera, um, promotion. But actually really getting deep into the real reasons why people buy and making things easy to buy and difficult to leave. Uh, you know, uh, is as much about psychology as it is about, you know, there's. By the way, there's huge psychology to price, by the way. Um, as I said, you know, um, points plus cash. Uh, I'm not really using it to reduce the price. I'm using it to reduce the emotional pain of the transaction.

Speaker B: Yeah, it's a great way of thinking about it. And I think the behavioral science workshops that we've done have been some of the most favourite things I've done. And I never get it right as well in terms of which ones you think are actually going to pull the right lever. Dan, I think you've prepped some stuff on a couple of the different principles for us and how they're actually used in loyalty in some programs. It'd be great to bring that to life with some really good examples if you've got any.

Speaker D: Time for the examples.

Speaker B: Yeah, time for the examples.

Speaker D: M. I mean, what, what's great about when people start working with behavioral science? It does two things. It helps you. It gives language to understand things that you instinctively know. And then it also introduces some totally different things that you wouldn't. So one of them is the idea of leverage. So there's a principle known as the stopped gun effect, which is basically the idea that we would all instinctively know that, um, if you were to point a gun at someone's head or kind of give them a threat and they don't know whether the gun is loaded or not. They act as if the gun is loaded. Psychologists call it the stocked gun effect. And it really is a powerful way of shaping our behavior. That's something that explains something that we already instinctively know. But it gives it language for us to kind of operate with. And then there are other principles that usually Feel more like new news to people and kind of, and give us new concepts to work with. So we worked with, uh, Odeon for many years looking, trying out different ways to kind of increase memberships, get people to buy more premium seats, you know, get to enjoy the film with more, you know, food and drink along the way. One of the ones that we had a really great success with was looking at, um, the membership signups. So how do you get somebody who's a regular visitor, regular guest, infrequent visitor to kind of sign up for the loyalty program? So they would kind of, you know, give us a chance to communicate, to get them to go more and, and really as well just exploring those different levers that we can pull. Ah. So, you know, imagine you've kind of gone to the cinema, you've seen a great film, and because you've bought a ticket online, we get to send you an email, but you're not yet signed up to the program. We tried four different ways of doing it. So the first one we tried was you basically say, this is the control, if you like, for the experiment, earn, uh, points every time you visit the cinema. You might not know when you go to the cinema, when you go to Odeon, you're going to earn some points, or you could be earning points if you signed up. So we tried that, or we tried, uh, what psychologists call hot states, which is basically that our behavior is highly influenced by our current emotional state. So if you ask them in that kind of really juicy moment, I just remember the joy of film. I've had a great time, now's the time to get me. So you send an email after saying, got that post movie feeling, get points every time you visit the cinema to, like, really go on that hot state. Or it could be that the third out of four, which was, uh, looking at what psychologists call exclusivity, that kind of scarcity bias. So see exclusive screenings before everyone else. So I'm going to get something not everyone else is getting. Does that maybe of everybody else, perhaps, uh, something free as well? Uh, or is it what psychologists call the endowment effect, which is basically that we're more likely to commit to something that we feel psychological ownership over. So if I feel like something's already mine or it's a kind of a concrete thing, I'm more likely to take it. So we said, your points, your points are waiting for you. Claim them now. So you kind of feel mad that they're kind of sitting there and I've just left them on the table. It feels Like I've kind of left my phone behind. I. Something is that quite a big kind of psychological, um, piece. And, and you, when you ask, you know, we, we often present these to kind of roomfuls of people and you ask people to vote which one you think is the most powerful. And it usually goes pretty evenly across all of them.

Speaker B: This, uh, is where I normally get it wrong. Which one I think is going to work?

Speaker C: Yeah, yeah, absolutely. We all do. We all do. No, absolutely fine.

Speaker D: If we could know before time, we

Speaker B: wouldn't have to, you know, must look at those speeches before, before we're stood up at conferences.

Speaker D: Exactly, exactly. Um, and the one that tripled membership signups for Odeon was the Endowment effect about saying to people that your points are waiting for you claim them now. So there's just something really instinct and innate in us about that situation, about the customers we were talking to that makes them want to sign up after that. Whereas, you know, paying for exclusive screenings, we often tend to think about how do we give people free stuff? Free stuff. How do we just kind of bribe people into it? Sometimes it might just be a slight psychological hack inside the brain that, that lights us up a bit more.

Speaker B: Yeah, that's a good example.

Speaker C: It was actually doubly valuable in a way because that particular test, because one, it showed that effectively that loss aversion approach your points are waiting for you simply worked disproportionately well. I mean, it was a factor of three point something or other, wasn't it? I think, um, the other thing we learned, which was that people don't actually care about exclusive preview screenings as much as they say they do. So everybody in research will go, oh, I really like the idea of this. It turns out that it's not as big a motivator. So I always say marketing is about two things. It's about unmet needs, but it's also about met unneeds, which is quite often because of market research. You'll invest an awful lot in something that consumers claim to care about, when in reality their behavior shows that, to be honest, it doesn't matter that much. And an awful lot of market research is dangerous because what we're, you know, we don't really know what drives our own behavior. That's true of myself, as it is of any consumer to a large extent. And you can only discover this through experimentation because what people say, uh, is usually what sounds rationally plausible, not what's actually true.

Speaker B: Yeah, I think that's brilliant. I think that's one of the Things I love about working with the Ogilvy practice is it's the experiments. So not only does the behavioral science thinking and specialists, it makes you think differently about the solution to the, the problem or the opportun. But then I love the experiments and then actually seeing what happens in the real world and then like you say, you can actually prove what works with those kind of instant results. It's, it's fantastic. We did a really cool podcast actually with Polly Jones of OD and if anyone's really interested to find out more. She's fantastic, fantastic. And it's a really, really great episode. So it's, it's on the archive if anyone's interested to see more about that. That's a brilliant example. Um, please tell me about the IAG case study.

Speaker D: Oh, we'll do one more, shall we? Yeah. Um, so this was a really interesting uh, piece of work we did with IAG and Barclay. So it was a partnership which I know we'll talk about later. Um, so we were looking at finding the right persuasion lever to get more customers to open an Avios earning current account, which is quite a big deal to switch your current account, isn't it? To bank huge that gets their current account. So you'd want some kind of pretty good paper sites to do that. We tried four different ways, four different kind of levers to get into there. So we had the control which was supercharged your Avios balance. We had um, what we called that, you know, so we said supercharge Avios balance. We also tried is your current account unlocking holidays for you so you really go on. That kind of what we call the distinction bias which is kind of highlighting the differences, changes how people compare the options basically. So basically we're kind of merely framing around holidays. Um, we tried status and we know that status is a huge driver of behavior. So we tried saying your chance to bank more Avios than average members so you kind of get ahead of everyone else. Is that going to be the best way or is it what we call the endowment effect, which is you position something that's been owned by somebody. So we say your yearly cabinet grade, ready when you are. That one had a 26% uplift in conversions without the use of an offer, which was absolutely huge. It had an increase in the click through rate that had barely been seen before. Um, and just because we'd found the right behaviour science lever to pull. And I think that that's the interesting part which is it's really hard to know which principle is going to work in which situation it's not that predictable unless you have personality data. But that's another, that's another, um, another podcast altogether. But this was the one that did quite a significant job really, and getting people to, to switch their current accounts, that's brilliant.

Speaker B: And that's a really great kind of second example and really nice to see in those two different industries as well, from cinema to airlines. Um, what's something else you think our, ah, audience, you know, oh, I don't know that you've, you've not talked about before or that might make them think so differently again? Rory, like, what's something else you've really wanted to, to bring to the loyalty audience that you haven't shared before?

Speaker A: What happens to loyalty when the customer never visits your loyalty program? Today, customers are using AI to discover brands, evaluate options and make purchase decisions, changing the traditional path to engagement. Faden is leading the discussion on what this shift means for loyalty leaders, where brands risk becoming invisible and how organizations can prepare for a future where AI sits between the customer and the brand. Reserve your spot@loyaltyinsiders.com that's loyalty insiders.

Speaker C: Uh, one thing is that quite a lot of loyalty programs are bifurcated between points for yourself or give the money to charity. And there's a halfway house which needs exploring, which is a loyalty program which allows me to be generous to somebody else. Now you might know that I think Cafe Nero allow you, if you've completed a card for a free coffee, you can send one to somebody else else. Um, that's one area which I think, uh, is very, very interesting. Um, and I always used to call this godfather benefits, partly literally because it's the kind of thing that your godfather would do to a godchild. The ability to use the BA program to upgrade someone else on their honeymoon, for example, would be absolutely fantastic. But also, um, what's great about it is A, you probably get somebody else into the program, but B, the person giving the gift feels good about it. So I always joke to Dan that the best value I've got from my, you know, one of m. My. I joined the BA loyalty program in 93 or something. But it was when my daughter and three of her friends were sort of stranded in Geneva, uh, because they were on a ski trip and there was a ferry strike and they were having to get back by coach. And I was able to, uh, I just went in and put four of them in business class back from Geneva on the flight. And for briefly, for about seven days I was here no dad. And that made me almost feel better than anything I'd actually spent on myself. And so that one of the things I think we can explore is that the other thing to explore, by the way, is just spontaneous acts of generosity to see to what extent they pay through reciprocation. So little things like the AO bear, where they give you a bear if their children in the house when they deliver your. Yeah, M. When they deliver your washing machine or your appliances, those things. Now, maybe it's impossible to measure them, but that doesn't mean they don't work. Not everything we do that's worthwhile necessarily needs to be immediately justifiable. It can simply be just a really good idea, which is John Roberts argument in ao. Uh, look, I can't really measure this, but the reason we do it is because we deliver our own appliances. It's something we can do that nobody else can do. Consequently, we think it has an advantage in terms of differentiation. The fact that he, when he spoke to me about this, he'd just written a check for £1 million for a new consignment of bears. He is the largest buyer of bears in the uk. I think these are not real bears.

Speaker B: Delivering a real bear,

Speaker C: That would be

Speaker B: an experiment worth trying.

Speaker C: There was a small company called Lux Leopard in Kent, which my wife bought clothes from. And rather than flogging off stuff in a sale at the end of the year, uh, they. They simply sent us a package before Christmas. Now, all I can say is, empirically, that's had a huge effect in my loyalty to them. And that's what's called in behavioral science, just reciprocation. We tend to, you know, we tend to look to reciprocate when people are generous to us and too much of business has been made transactional. If you do this, we will give you that. That's not the same emotionally as here's something extra.

Speaker B: Yeah, it's a bit like your pumpkin example from earlier, actually. It's that really nice application of that extra thing. Dan, I know you were a huge fan of the pret scheme when it existed and the kind of. The surprise and delight coffee is another one that's just become part of British culture, isn't it, that sometimes if you're lucky and you get the right barista, you can get your free coffee or your free turmeric latte or your free cup of tea or whatever you like. I think that's another really good example of that in action.

Speaker C: I mean, actually, you know, my whole background was in advertising as a Copywriter. And what I discovered, particularly in service brands, is that there's just as much creativity waiting to be discovered in mechanics pricing. I mean, Dan ought to talk about the deshume Dice, which is also one of my favorite loyalty programs which we kind of invent in the behavioral science practice. And um, you know, I also ought to mention, by the way, fascinating story. When Jeff Bezos came up with the idea for Amazon prime, several people on the board of Amazon threatened to resign if he implies.

Speaker D: Gosh.

Speaker C: So it's always worth noting that Amazon prime doesn't seem that innovative now. Uh, it was however that mechanic, uh, where you pay to belong to a program. I think it deserves being explored much, much more.

Speaker B: Yeah.

Speaker C: You know, because that's a commitment device. And actually one of the reasons I think people like them is that sometimes people like choice reduction that, you know, in an online environment you have such a massive plethora of different options for doing things that a mechanism which goes, well, I'll go there first.

Speaker B: Yeah.

Speaker C: Actually makes your life easier.

Speaker B: Yeah. And in the case of prime, you know, it's going to work and it's going to deliver on time. I've recently had a crisis with my teenage sons and their school trousers. In the over Easter, they both seem to have grown a foot without anybody realizing. It must be the kind of chocolate reaction.

Speaker C: Next day trouser delivery.

Speaker B: Next day trouser delivery for school. And there's nobody else. You know, in all honesty, it was free delivery. There's nobody else I trust. I think Amazon prime, you know, is, I would call it a lifesaver in my household sometimes because the alternative is driving down to the local, you know, supermarket or Marks and Spencer's attempting to find giant trousers which I know they won't have in stock. And just the compared example, you know, an experience of that is, uh, is massive. It's a great, great example by the way.

Speaker C: There's huge. You know, one of the things that really interests me by the way also is if you're, let's say a hotel brand like Marriott or ihg, the loyalty program doesn't just pay in terms of the commercial behavior, in terms of how often they stay with you. It also pays off in a way you can't measure, which is propensity to book direct rather than book via an intermediary.

Speaker B: Yeah.

Speaker C: And of course, I don't know, I always think that marketing is very harshly treated by finance because marketing is held responsible for every unit of cost, but it can only lay claim to a certain percentage of the Value it creates and only for a short time.

Speaker B: Yeah.

Speaker C: And you know one of the things I think that's very important about hotel loyalty programs is they probably massively drive the propensity to book direct. Now if you look at the commission taken by um, online travel agents, maybe that's not being adequately factored into the value of the program.

Speaker B: Yeah, we've had that exact conversation actually. We work with Marriott Bonvoy, um, and with a call of limitless actually as well as, as Ogilvy did. And that is one of the major things. It's so hard to a measure but you know, it's there. It's almost like a hidden piece of value that you know, that you've brought to the table. Um, yeah, that's a really, really good point. What about with subscription? So there's some new legislation um, coming out next year that I know we've all been debating and discussing and seeing how this is going to affect sort of broad subscription businesses but also loyalty, subscription and paid for loyalty and things like Amazon prime and the kind of the top tier subscription services and consumers also we know have a love hate relationship with them. And what impact do you think that's going to have on loyalty programs? Um, I'll put this one to Dan. Um, and how, you know, how do you think behavioral science might be able to help loyalty program leads kind of deal with that.

Speaker D: As we've been discussing this we've realized it's huge. Like it's going to be a fundamental challenge to a lot of business models because a lot of the people that we work with always knee jerk towards subscriptions because it gives you that certainty of income straight away and you along the way. The challenge is that everyone's kind of ignored the fact that to a consumer there's this kind of subscription saturation that you can't handle more than kind of 10 to 12 going on at once and you start to feel kind of out of control. And m, because your contract is with the company, you can't cancel them. Like you can do direct debits uh, on your bank for example. So we've created this situation where uh, if you work in marketing, you personally feel like you're at subscription saturation but your day to day role is still creating more for other people.

Speaker C: People.

Speaker D: So there's a bit of a disconnect here between our personal experience and what we think is right for the business. And as we know that you know, the department of business and trade have been talking about the crackdown on subscription traps, um, and the rules of tightening and tightening. There's going to be, uh, you won't have to make endless phone calls to cancel a subscription. You know, hopefully in spring 2027 you'll have a 14 day cooling off period. It should be as easy to get out as it was to get in. And you'll be, have to be reminded, uh, before any payment is taken, within due time on the due platform.

Speaker C: And if we're being blunt, consumers never like them that much. In fact, we can look at it and say the mobile phone industry only reached 100% penetration because it introduced the option of pay as you go as opposed to some people are commitment. As anybody in a relationship knows, some people are commitment phobes. And um, uh, consequently, uh, one of the things is that I think there's a massive, uh, opportunity cost to demanding people subscribe to things rather than offering the pay as you go option. There's also a behavioral tip I'll give to all your listeners which is, I think it's very important that you allow people to pause subscriptions because at the moment you have a bifurcated choice which is go on subscribing or cancel. What's been found psychologically is people who cancel never come back. If you can frame it as a pause, you can win them back. If you make them cancel, they've somehow put your brand in that category of things. I'm no longer going to have a relationship with, you know, it's like an X if you like.

Speaker B: Okay.

Speaker C: And consequently one of the things that companies will need to look at very, very carefully is, I mean, you know, actually I, I have a, uh, I work a little bit with a company called Kagi.com which is a pay to use search engine, which is ad free and objective. And one of the things I suggested to them is they have a subscription at, uh, my suggestion, which is if you don't use it in any given month, we refund you your money.

Speaker B: Oh, wow.

Speaker C: And I told them to instigate that because I said once you get to a million users, your finance people will never allow you to do that. So you need to do it now before you're too big to actually instigate it. Now how can we ever prove to what extent that works? We will never be able to prove it because the counterfactual doesn't exist. However, the degree to which it inspired gratitude and affection in the user base and trust, uh, was extraordinary.

Speaker B: Yeah.

Speaker C: And so one of the things we need to do is, you know, fundamentally I think people like Amazon prime that's the kind of commitment which is, you know, uh, and also we use Amazon often enough that it feels like it's paying off. I think this subscription thing, we're on a kind of burning platform. The finance people pressured companies to do it because they, because investors love future forward predictable income income. And so a lot of the pressure for this, it never came from consumers. It came from the, you know, uh, the financial analysts and investors. And ah, that is what we know from behavioral science is once you can cancel easily, all that revenue is at significant threat. No commercial organization apart from utilities allows you to pay by direct debit. Now utility is slightly different because if you cancel it, you know, your lights

Speaker B: go off cold and dark.

Speaker C: Everybody wants you to subscribe by credit card. Why? Because it's easy to cancel a direct debit. You can do it through your online banking app. Until recently, it's almost impossible to cancel a recurring credit card payment without going to the original company. Now there are apps that are being developed. There's a website called donotpay.com which is designed to facilitate cancellation. Then there's legislation. Then there's the psychological problem that consumers are reaching a ceiling, which is they're beginning to see their salary come into their bank account on payday and 3/4 of it walk straight out again. And they're beginning to question, uh, uh, first of all, the extent to which they have these commitments. And also they are now preternaturally reluctant to take on any more because what's happened is every consumer is once bitten, twice shy. They've all discovered that they pay for Club Penguin while their children are working as stock market analysts. Okay. You know, in other words, long after they needed it, everybody's made a mistake. Everybody's been once bitten, twice shy. And consequently there's a fundamental threat that if you're only offering this subscription model and you're in, you're a new entrant to the market. You're at a huge disadvantage. Once people have Netflix and they have, you know, maybe Disney plus, you come along and you're HBO Max. Uh, you're up against this problem, which is I, I can't have a third one. It, you know, it's just too painful.

Speaker B: Yeah, it's going to be a really interesting kind of change, I think. And to see kind of where the boundaries are and then what behaviors we can see kind of come in. Where would you see kind of behavioral science playing in a role? Because I'm sure there's quite a lot of people listening and watching this episode going, oh, crikey, that's going to be me. Firstly, I need to go and look up this legislation if I was unaware of it. But what sort of ways could behavioral science help somebody deal with that challenge?

Speaker D: I think some of it is about um, uh, helping to think more divergently and helping to open up the solution space. I don't think there's going to be one magical behavioral science principle we can use that would kind of rescue the challenge. But it's more likely that we would get to a place where you could think about. You would have more of an open relationship with lots of brands or you'd have a lot of defaults there that you could turn on and off every month. So you might have a bigger amount of people that you, you, you're potentially wanting to uh, wrong analogy. But potentially wanting to um, kind of have a relationship with, but you don't have that relationship with them every single month. So you could have kind of, you know, seven of the, of the TV subscriptions, but uh, you'd only turn, turn on and off so you don't get too, too locked in. It's, it's kind of the same with charities and kind of committed giving. You know, this idea that everyone wants you to get to sign up to give £10amonth. £10amonth challenge is it kind of robs you of that gift of giving because, you know, it's like going on a first date where in, uh, the first date you're very happy to pay, you put the money down. But if on the second date they don't even fumble at their pocket as the bill comes to the table, you kind of feel a bit robbed by it. You get that same good feeling of giving. So we, I think, we think we're going to get this place where you need some soft defaults of who you're going to be spending your money with. But not so much kind of feeling locked in. A lot of it goes back down to this core feeling of feeling in control or out of control. And especially at the time of kind of financial crisis and things feeling more squeezed. That's the time where we need consumers to be as in control as possible really. So you don't get that knee jerk effect that Rory talks about. I might be definitely in or definitely out.

Speaker C: Ah, I also make the point that there's threat and opportunity here in that there is obviously massive threat. Because let's imagine you had to email someone a week before you billed them for a subscription and that email had to contain a Simple button that you could press to cancel. Okay. That is a fairly major threat to quite a lot of business models. Where there's an opportunity, however, is that there are far too many businesses where there is no pay as you go alternative. Now, you know, by the way, there's a very interesting fact here. Quite a lot of people on pay as you go mobile phone, um, arrangements spend more than they would if they were actually on a contract. They pay more. What they're doing is they're actually paying a premium for flexibility for not having to be absolutely committed. They like the feeling that if I'm skint one month I could lock my mobile phone in a cupboard and spend that. They never do, as it happens. I think we're also. I think there's also a huge opportunity cost to forcing people into subscriptions because there's a whole chunk of people who effectively are, uh, essentially rejecting this as a means of payment wholesale. There is no way I can bring myself to subscribe to the Financial Times. I would pay a couple of pounds to read an article in the Financial Times, but whatever it is, 59 pound 69amonth for a subscription. And you know when. And also, if you think about it, I work in advertising, I don't work in finance. I feel that I'm getting huge value from 10% of the financial Times and very little value for the other 90% because I'm not that interested in the prospects for central banking reform in Ecuador. You know, it's not my thing. Right. And so I would very, very happily pay a premium in some ways to cherry pick those parts of the FT that I really enjoy.

Speaker A: Yeah.

Speaker C: Um, and so one of the bits of psychology here in behavioral science is that we hate paying for things if we think we're getting comparatively less value from them than somebody else. I'll give you a lovely example of this. I had a huge argument with people about railway season tickets, which I think just need to go. I think it's a ridiculous sort of ludicrous binary idea of you either pay daily so the carne or some sort of other system has to be brought in. And the argument I had with the rail company was they said, but even if you just travel into London three days a week, you still save money. And I said that may be true in economics, it isn't true in psychology because someone who's traveling in three days a week who's paying the same as someone who's traveling in five days a week feels hard done by. Yeah, that's the great thing with Amazon Prime. I don't really feel, although I probably am. I don't really feel I'm cross subsidizing people who buy more from Amazon than I do.

Speaker B: Yeah, because you get so much from it and actually that point of view can choose the content that you like

Speaker C: and I can choose what I like. So I also think there's a threat to this business model, which was a, which was a business model, by the way, which never emerged through consumer demand. It simply emerged from the fact that on the Internet it was difficult to make money. Micropayments for 15 years, really. The subscription, the propensity to drive subscriptions, exactly the same as the railway season ticket. We now have technology which can simply go. The more you travel by train, the less you pay for each journey. So you can actually, I'm going to suggest this to Transport for Wales because they've got a certain degree of autonomy, be the first part of the UK which just gets rid of the season tickets and instead we have an app based or, you know, um, relationship which is simply the more you travel, the more you get, which will also allow us to send people little presents. So you can say, since you've made your hundredth journey, why don't you have a free first class upgrade?

Speaker B: That generosity that you were talking about

Speaker C: earlier, that takes things from the transactional to the relational. Now, the season ticket arose simply because in the 19th century, uh, the word commuter emerges from the fact that you commuted your ticket. It's an, it's actually a commercial act. It's nothing to do with traveling to and from work. Commuter, commuter came from commuting your ticket to a multiple tickets rather than a series of individual tickets. And then that word then took on the meaning of someone who travels in, into work every day. Really interesting. But that was because in the 19th century they didn't have smart means of payment. You basically had to have a paper ticket. And so it was either pay for everything or pay 1, 1 at a time time. There are now wonderful opportunities to experiment with new pricing mechanics.

Speaker B: Yeah, I think that's one of the things we've seen so much in loyalty. The opportunity that technology can now let us do the things that we only sort of dreamed of, you know, five, 10, 15 years ago. I know that that's one of your sort of hot topics, Rory. Um, I wanted to ask you about partnerships as well, because I know that's another really hot topic. I know we were going to round out on innovation, but actually you started off the kind of call talking about innovation. Partnerships is One of your other kind of key passions. Um, how do you see that sort of playing loyalty? And what do you think people should be thinking about?

Speaker C: It's, uh, very interesting because, um, Mark Ritson will back me up on this. Brand partnerships are one of the most underrated, underused, uh, techniques in the marketing armory. And my only explanation for how little attention is paid to them is precisely because they're not very expensive. And one of the things that seems to happen in client businesses is the more expensive something is, the more people are involved in policing. It's it. I was at a very large multinational client's media day, and, uh, there were hundreds of people, as you can imagine, because they spend a billion dollars on media every year, hundreds of people there. Uh, and I bet that's despite the fact that that very same organization has engaged in a brand partnership that has brought them, I would confidently say, a billion dollars in revenue. I can't name them, but. But I know who you're talking about.

Speaker B: We'll tell you off the record.

Speaker C: We'll talk about that later. We'll tell you off the record. Record. Okay. Despite the fact they've come up with a billion dollar brand partner, brand partnerships are beautiful because instead of saying what can we buy? It asks the question, what can two of us do together to our mutual benefit? It's the most fundamental form of human cooperation, not transactional. But let's both work together to do something that we can't do on our own. And strangely, because that's inexpensive, because cooperation is, is less expensive than, um, commerce commercial solutions to the problem, it correspondingly gets too little attention. I'll also do a mare culpa. Ad agencies were always rude about brand partnerships. And that's because you had two brands, one of which wasn't your client, and you were terrified of losing control and you didn't make much commission from it. And so I was sort of taught in the early days of being in an ad agency that you go, if someone mentions a brand partnership, you say brand partnerships dilute your brand. And then I realized that's as stupid as saying my having friends dilutes my personality. It's simply a plausible sounding sentence. It's complete nonsense. Generally you both benefit from the arrangement reputationally and commercially.

Speaker B: Marvellous. I completely agree. Which is obviously why I work in it. I'm so passionate about it. Yeah, it's such an interesting area when two brands work together and you can do so much more. And if you combine it with behavioral science kind of thinking like spectacular, spectacular things can Happen. Um, I could talk for hours. I know our listeners and our audience could watch for hours as well. But I'm very conscious of your time, Rory, and I'm sure our listeners would love to find out more about behavioral science. And I'm very conscious you've got nudge stock coming up, so I wonder if you want to kind of. I know our normal question is to round out the episode going, how do people get in touch? The answer is obviously LinkedIn. Both Dan and Rory can be found on LinkedIn. We'll stick their kind of contact details in the show notes. But would you like to round out telling them a little bit about nudge stock and why they should go?

Speaker C: Yeah, it's fantastic.

Speaker D: So, uh, since the world's largest festival of behavioral science and creativity, it's the 14th year we're doing it, uh, it's in London on September 17th. And um, this year the theme is all about trust issues. You know, brands have trust issues, institutions have trust issues, consumers have trust issues. But we never really tackle them head on. We always kind of, uh, try and tackle them laterally. So this year where you kind of uniting the, the world's greatest psychologists, those in business that have dealt with some real, real severe trust issues and how they've overcome them and really getting together to go deeper on the psychology of what is trust, how is it built, broken and rebuilt? And um, and we can't mention the keynote today, but by the time you listen to it, if you go to nudgestock.com you'll see we've got an incredible, uh, keynote coming down. So worth getting the tickets now because the ticket price goes up every month. So worth getting it as early as you can.

Speaker C: You see, we're deploying that very same mechanic. Mechanic. And by the way, you know, the scope for innovation. Again, Mark, another Mark Ritson thing. We, uh, agree on nearly everything. Um, but the psychology of exploring different pricing mechanics. To economists, price is a number. To consumers, prices are feeling.

Speaker A: Yeah.

Speaker C: And the same amount of money can feel completely different. This is the point I make about Klarna, by the way. Now, to an economist, it's an interest free lower loan. To me, and to almost all normal people, three times £100 feels completely different to one payment of £100.

Speaker D: Yeah.

Speaker C: And so the scope for innovation in terms of different forms of business relationship, the money you make might be exactly the same or more, but the feeling of value is completely different. And you can literally simply synthesize perceptions of value for money simply by not changing what you charge but how you charge and points programs were, uh, really interesting because they were there, uh, long before there was Bitcoin. They, uh, actually fulfilled this Hayekian idea. Hayek and the Austrian school economist believed that there should be multiple currencies. And of course, the loyalty program was a case of commercial organizations inventing what is effectively a parallel currency. Now I'm going to end with a really radical political idea. I think there should be a government currency, a loyalty program for government. Let me explain. So if you wanted something like a parking space, or you wanted your GP to visit you at home, or you wanted an extra service from the government, if you had a points program, so it was based on willingness to pay, not ability to pay, you could create, uh, what you might call a hybrid between socialism and capitalism. So let's imagine you had a state issued currency called the zog, and you wanted, you know, let's say you wanted a second parking permit. Uh, you could spend a certain amount of your annual egalitarian points allocation on something you wanted rather than something you didn't. And uh, uh, then if you wanted to buy more zogs, I don't know why I've called it the zog. The price of a ZOG would be proportionate to your wealth and earnings. So you could actually create, by model with the loyalty program, you could create a kind of egalitarian currency which allowed people freedom of choice without having the slight problem of money, which is that the rich people get everything and the poor people get nothing. So there you go. That's redistribution of wealth through a loyalty mechanic. It's my craziest idea, but it's worth exploring.

Speaker B: I think it's wonderful and it's what we set this podcast up to do, which is kind of to inspire, inform, and come up with like really big ideas as well as give everybody kind of top tips and insight into programs. I love that you finished off on that, Rory. Honestly, that's definitely the biggest, best, and slightly craziest amazing idea that we've had on let's Talk Loyalty. And we'll be sending it into the government, um, to get them to get an opinion on it. It's awesome. Thank you so much for your time today, both. It's been absolutely brilliant. We'll put links to everything in the show, notes for everybody and all that's left for me to say. Thank you very much and goodbye.

Speaker C: It's always a pleasure. See you soon too.

Speaker B: Bye.

Speaker D: Take care.

Speaker A: Uh, this show is sponsored by Wise Marketeer Group, operating the Wise Marketeer and Loyalty Academy for nearly 25 years. The wise Marketer is the industry's longest serving publication and source for news, information and insight, which now includes its own branded industry research, insights and advice for global coverage of customer engagement and loyalty. Check out thewisemarketer.com and become a Wiser Marketer member or subscriber. The Loyalty Academy sets a global industry standard for loyalty education with its Certified Loyalty marketing professional, or CLMP, designation, which has created a community of more than 1200 marketing executives and professionals across more than 50 countries. Learn more about global loyalty education for individuals or corporate training@loyaltyacademy.org thank you so much for listening to this episode of let's Talk Loyalty. If you'd like us to send you the latest shows each week, uh, simply sign up for the let's Talk loyalty newsletter on letstalkloyalty.com and we'll send our best episodes straight to your inbox. And don't forget that you can follow let's Talk Loyalty on any of your favorite podcast platforms. And of course, we'd love for you to share your feedback and reviews. Thanks again for supporting this show.

Speaker D: Show.