Loyalty Marketing, Made Simpler

9/8/2009 -  After trying unsuccessfully to have his dream career in the music industry, Henry Winter embraced internet and marketing.  As founder and CEO of Shanghai's SmartClub Loyalty Management, now SmartClub Member Media, Henry introduced Shanghai to the SMS marketing and brand loyalty points.

TCBN: This is The China Business Network and I’m Michael McCune. Joining me today via Skype from Shanghai is the China Consumer Loyalty and branding expert, Henry Winter. Henry has been a resident of Shanghai for over 10 years, and in that time he founded one of the first interactive marketing agencies as well as China’s leading consumer loyalty program – SmartClub. He currently serves as brand ambassador for SmartClub while overseeing an online virtual reality start-up and running the shanghai chapter of E.O. – “Entrepreneurs’ Organization.”

Henry, thank you for joining us.

WINTER: Thank you for inviting me, Michael.

TCBN: Henry, before we get into branding & loyalty issues, I want to address something that, frankly, I remain a bit mystified about; and that is “how did a University of Pennsylvania French and finance major come to have a China-centric career?” What flipped the switch for you in the early ‘90s?

WINTER: Back in the day I thought I was going to live my whole life in France; I’d put in so much effort into learning French language and French culture. I had set myself a goal that I wanted to speak French so well and have studied their mannerisms and their culture so well, that French people could not tell that I was American. That I was not a native speaker. And so I dedicated myself to that pursuit and I achieved that goal.

And then I woke up the next day realizing that I was unhappy. That in fact I am not French, I am in American. I like American football more than I like the opera, and I like drinking beer and shooting pool more than I like sitting in smoky cafes and talking about existential philosophy.

So I had sort of burned out on France and was looking for something new.

So in 1993, beginning of 1993, I got on a plane and flew to Taiwan which a friend of mine had told me was a more comfortable place to learn Chinese – especially back then. And that was the big adventure that got me here - just for personal adventure. The idea that China would be a powerful economy, and that learning Chinese was a very good business investment, that did not come until much later.

TCBN: Well I know that you came to that realization and went through the Lauder program back at Wharton and found yourself in Hong Kong in the early 90s with a management consultant with Bain [actually Henry was with Booz. But that didn’t seem to be the most satisfying realization of your goal.

WINTER: I got a job offer from Booz Allen Hamilton, now Booz & Co, a top consulting firm in Hong Kong. And so I joined them full time – I had a summer internship with them, and then I joined full time in the summer of 1996, but from the moment I arrived there I was trying to get out. I was trying to get a job at a record company, or MTV or Channel V or something like that. But every time I went for an interview, I had the same experience. The big boss of Asia would say, “You know, Henry, we’re interviewing or the head of Hong Kong, or the head of this… you seem so smart, and you know so much about strategy, tell me about your hands on experience in the music business.”

TCBN: Ah hah!

WINTER: - And whatever I came up with, whatever consulting projects I had done related to music, it just wasn’t cutting it. They didn’t accept that as hands-on experience.

And so I came to the conclusion that if wanted to get a job in the music business I would have to get experience. And so I left Booz Allen to become an entrepreneur, to set up a company that would be related to the music business, with the vision that even if the whole thing crashed and burned in six months, at least I would have experience.

So that was what gave me the impetus to be an entrepreneur, was to, you know address the experience gap when applying of the jobs that I wanted. That, and I had met a couple of guys that had been entrepreneurs in and around Asia, had not been successful (either blew up or just didn’t really take off) and they had found fantastic jobs with big companies who valued their entrepreneurial experience. So I thought, well, you know, there isn’t much downside risk to this.

So that is what gave me the courage to “jump into the water,” as they say in Chinese, in early Chinese New Year 1998.

And then in 1999 I started reading about all these 20 year-old kids in California getting fabulously rich from this thing called the internet. And I thought, you know, I should get in on this. At that time I had used up all of the cash that I had, and so it had to be something related to the internet that a) didn’t need a lot of money, and b) it should leverage what I had learned about brands and music.

Because the kind of music that I was doing was, I wasn’t running my own record company, I didn’t have money for that, I was running a music marketing company – Groove Street, trying to help brands who sponsored music to get value out of it – and that expanded into sporting events, the official theme song for sporting events. And so when internet time came around I thought, you know, maybe I can help companies who have an entertainment association – music, or sports, or movies, to extend that on to the internet. And so our breakthrough project was with Heineken, who spends a lot of money to sponsor a tennis tournament in Shanghai – the Heineken Open in Shanghai.

TCBN: So in terms of your work going forward, do you feel like music remains an untapped passion and business just continues to be built upon your previous experiences or is there some marriage of the two possible in the future?

WINTER: There is a statistic I remember reading when I was just getting into the music business that album sales or music purchases drop off precipitously when a consumer hits 27 or 28 years old. And when I was a young man of 25 or 26 I said that will never be me. But now that I am 41, I have to admit that my interest in pop music is not as strong as it used to be and so music is still a passion. But where I really feel that passion is at a night club when I am with one or two or three hundred other people dancing and going crazy to music: that to me is the true joy of music.

For my career, it has already been many, many years that contact with music has just been peripheral. I have gone from pure music marketing to just consumer marketing. I enjoy the challenge of marketing - of trying to create a product or a service that will be truly valuable to the consumer - and therefore the communication of that becomes much easier - rather than building some elaborate system to communicate or to track people’s purchase while sort of skipping over the part about building a truly valuable product.

So going forward, I have spent the last seven years building and running an extremely complicated business. A coalition loyalty program that gathers consumer data from the super market, from mobile phone, from the bank, from online, from transportation systems – aggregates that together, permitting data mining and direct marketing; a rewards program where points can be redeemed for frequent flyer miles, for lottery tickets for charity donations. From zero, I built, by far, the most advanced loyalty program in the world, ever, and in the end found out that consumer proposition just wasn’t good enough. That I had built a very complicated sort of gerbil maze and there weren’t very many gerbils running around in it because it wasn’t very attractive.

I was at least 10 years too early. Even today, middle of 2009, very few companies really operate a significant loyalty program because the person who is in charge of loyalty programs at any retailer or brand is eventually the marketing director. And if you are a marketing director of a company whose sales are growing at 25% a year, you are frantically trying to get your new store open, to take advantage of those new sales. Keeping repeat sales, trying to nurture repeat customers, there are very few companies in China that have time to think about that. No one will say that they don’t care, it is just priority 26.

So I was way too early, and for consumers as well the proposition of points is just not attractive enough. The kinds of consumers that we want in a consumer loyalty program are the kind or consumers that our retailer brand partners want – they’re people with money. People with money are not interested in saving up points for a long time to get a coffee cup. If they really want a coffee cup, they’ll just go buy it today because they have money.

If you have all the other pieces in place, you have the good product or service and then you have the loyalty or points program on top of that, that is surely a good idea, but what we were trying to do – to create something like Nector in the U.K., or Fly-Buys in Australia, or AirMiles in Canada, or PayBack in Germany, we were way ahead of our time. And so what we’ve had to do over the last year or so is really restructure to make points just a bonus benefit. And that the real benefit of being a member of SmartClub is that we negotiate attractive discounts and special sales with retailers online and offline. And to get the retailers to give our members that special deal we put together a media package of online advertising, email, mobile phone, and now we have two newer elements. The first is newspaper, because SmartClub has a strategic partnership now with a major Shanghai newspaper company, so we can put newspaper advertising in. And I also came to the realization that a retailer who is selling shoes, if they are doing a partnership with us to do a special sale over the weekend they want as many people to come in and buy over that weekend to make it worth their while to go through the effort of setting up that sale. But they don’t really care if those people are SmartClub members or not as long as they come in and
buy.

And so what we’ve gotten into now is going to other companies that have members like Shanghai Airlines, Lufthansa, a couple of banks here, and saying, you know, your cardholders don’t seem to have that many benefits. We can set up a benefit for you. And so we’ll arrange that this weekend’s special sale is for SmartClub Members or Shanghai Airlines frequently flier members, just bring your Shanghai Airlines frequent flier card and you, too, can get the 50% discount.
And therefore Shanghai airlines will send a direct marketing shot to its hundreds of thousands of, you know, affluent members based in Shanghai. And so our reach of people that we can communicate to has expanded dramatically.

TCBN: Is it fair to say you’ve shifted from being an engine of loyalty to an engine of redemption?

WINTER: So we’ve changed our name from SmartClub Loyalty Management, which is the typical name that loyalty companies have. I’ve changed the name to SmartClub Member Media because that is what we do. We have members, our own and our partners’, like the airlines’ members, who join because they think they are going to get a special value. We negotiate that special value and communicate it to those members who go buy. So we’re an advertising media. We help people sell things. We get paid, sometimes we get paid up front, that’s always the best. We get paid when our members buy things, so you could say we get a commission, but that is just a format of payment for success-based advertising.

TCBN: So let me ask you, in that regards, I‘d like to ask you about in-store marketing because we read about China’s in-store marketing networks, or even in-building networks, as being a little bit further ahead of where things are certainly here in the US right now, although we’re trying to build networks to cause in-store purchase decisions to be made a certain way. Does that compliment what you do, or is that something that get integrated into what you be doing in the future, the use of in-store networks?

WINTER: The whole out-of-home or OOH marketing in China has, especially in Shanghai, expanded way beyond the point of reasonableness. It’s gone to a combination of “Blade Runner” and “Minority Report” where every division of the government, of the municipal Shanghai Government, that can possibly put something on the street, whether that is a trash bin that is next to 5 other trash bins, so no one is going to use it; a pay phone booth, even though no one in China has used a payphone booth for years; a bus stop, whatever – every division of the government has put something on the street that belongs to them so that they can sell advertising on it.

TCBN: This dilutes even the effectiveness of in-store, it is just another OOH element?

WINTER: Exactly, it has gotten so pervasive that people, at least, we ignore it. There is just too much of it.

The rumor that I‘ve heard from a friend of mine that works for a leading out of home advertising company is that using the World Expo as a excuse, Shanghai’s government is going to have a dramatic cleanup of out-of-home advertising - very similar to how the Beijing Government dramatically cleaned up out-of-home advertising for the Olympics. So that might make things different.

TCBN: Now we are coming up on the end of our time, Henry, but I know that you are not sitting back on any of your entrepreneurial activity in Shanghai. I just wonder if you look back on this last decade of lessons learned and experiences gained, what do you think you are trying to do differently going forward in terms of how you look to execute against the ideas that you have?

WINTER: Well, “KISS.” Keep It Simple “Simon”. I can’t call myself stupid.

I built a business that would give me an interesting and exciting day at the office, and it has. For 10 years I’ve come in and been intellectually stimulated. It’s been fun, but I haven’t gotten really rich. And around me, my friends who have decent paying jobs who just bought apartments have done very, very, well. So my, you know, conclusion now is that going forward, whatever I do, it’s got to be something pretty simple, that is easily understood, easily executed upon, where the goal is to make money. And that the challenge is in building a business that can execute on that efficiently and grow that efficiently, rather than something that looked interesting.

Because I realize now, intelligent, educated people, naturally, unconsciously make things more complicated than they should be because otherwise it is boring. That is why we don’t play tic-tac-toe, we play bridge or mahjong or chess or whatever. Intelligent people easily get bored and can destroy a business if they are allowed to make the business suit their personality. That is what happened to me, and so I am committed now, whether working in partnership with someone else or on my own, to finding a simple business model, executing on that, and taking the challenge from creating the company structure and processes and finding the right people to execute well on something simple.

TCBN: Well for a country and an economy that embraces complexity, you might have taken on the most complicated and large challenge possible – to execute simply and cleanly within the China market.

WINTER: Indeed.

TCBN: Well we wish you the best of luck with your future endeavors, Henry. We appreciate you taking some time with us today to share with your experiences and we look forward to hearing more about your activities in the future.

WINTER: Thanks Michael.