Pierre Bourbonniere, Chief Marketing Officer for Société de transport de Montréal (STM), displays STM’s new Merci mobile app on his smartphone while standing at an STM bus stop in downtown Montréal. Merci is an innovative recognition and rewards program that provides personalized incentives to its 1.4 million daily passengers to increase their use of public transit. The mobile app was downloaded 5,000 times on its May 7, 2013, launch. Despite enjoying a 15% surge in ridership over the last five years, the Société de transport de Montréal (STM) was still faced with a vexing challenge — an attrition rate holding steady at 13%, which translates to about 325,000 riders every year no longer using the largest public transit company in Montréal for their transportation needs. While STM expects a certain attrition level — due to deaths and moves out of the city, for example — that 13% figure was a large part of the reason why the transit company launched a new 1:1 marketing campaign. By engaging directly with passengers and providing a better user experience, the company thought it could keep more of its passengers, enticing those customers to not only stay, but to increase the frequency of their public transit use. A long-time 80/20 marketing strategy leaning heavily toward acquisition over customer retention was flipped: Now, just 20% of marketing efforts target acquisition, with 80% focused on retention. Retention efforts included partnering with bike, car, and taxi-sharing services to extend the transit network and lessen the need to own a car. STM went after one key demographic in particular: university students who upon graduation trade in their $77 monthly STM pass to lease a low-cost vehicle for about the same price. “We know who is leaving us and why they are leaving, and the aim is to put strategies in place to cause these people to delay or put off that decision,” says Pierre Bourbonniere, STM’s Chief Marketing Officer. “To do this, one key thing is to start developing relationships with them. We have a lot of transactions with a large number of people each day, and historically we haven’t known who they are.”

A Co-Innovation Project

Having worked in marketing for the airline industry for many years, Bourbonniere is an expert on loyalty programs, and he thought something similar could help with STM’s retention goals. However, as a public sector company — 50% of STM revenues come from the city of Montréal and the province of Québec — there were two seemingly impassable hurdles. The first was that loyalty points programs won’t work in the public sector because outstanding rewards have to show as profit and loss (P&L) liabilities. The second was privacy concerns; Québec regulations mandate that any information STM collects about its passengers must be critical to the mission of the organization. About five years ago, STM started collecting basic information on its passengers with the debut of the Opus card, a smart fare card that allows passengers to add and maintain a balance, and that STM can in turn use to track riding history. This information, such as name and email address, satisfied privacy concerns because it could be used to notify passengers about delays, closures, capital projects, and other mission-critical issues. Privacy concerns and the balance sheet issue prevented the Opus card from becoming the centerpiece of a re-engineered rewards program. STM’s standing as a long-time SAP customer would change this. In the spring of 2012, as STM was pondering several potential retention strategies, SAP approached the transit company as a potential partner in a co-innovation project, and the idea for the Merci App was hatched. “SAP asked us to identify one of our bigger problems and wanted to see if together we could make some headway into finding a solution,” recalls Bourbonniere. “So we gave them a heck of a problem.” Months of co-innovation roundtable discussions and strategy sessions led to the May 2013 launch of the STM Merci App. The iOS app integrates with a passenger’s Opus card number as the centerpiece of STM’s reward and recognition campaign. The recognition part refers to the app giving STM the ability to communicate with passengers in real time, letting them know, for example, that if they took the 7:45am car from the Jolicoeur station instead of their usual 8am car, they have a 50% better chance of finding a seat. Or letting riders know if they spent more in single fares than the cost of a monthly pass. The reward part refers to the discounts offered by the more than 1,300 commercial and event STM partners that have signed on to reach potentially 1.2 million STM daily passengers, enticed by the boundless geomarketing opportunities presented by having transit users looking at an offer on a mobile app as they’re 50 feet from that particular commercial location.

A New Kind of Loyalty Program

While riders can use the Merci App independently of the Opus card, passengers who enter their Opus card number will receive more targeted and relevant offers based on the information they provide. University students majoring in fine arts who indicate an interest in art, for instance, might receive offers for discounted museum admission. Standalone offers, though, don’t necessarily entice a passenger to use more public transport. To link rewards with ridership, the app ranks the available offers and reserves the most attractive rewards for its top-tier users. One requirement for STM’s partners is that a portion of their rewards must include free offers — a majority of which are then reserved for top-tier STM riders. The Opéra de Montréal, which Bourbonniere cites as an example, could offer 100 free tickets, 100 tickets at half price, and 100 tickets at 20% off. Those deals, respectively, will be offered in turn to STM’s top-tier, mid-tier, and first-tier riders. By ranking customers and rewarding them accordingly, STM incentivizes an increase in use of its public transit network, yet satisfies its public sector considerations because the rewards are partner-based. STM even linked this incentive program to another one of its imperatives for the program: promoting environmentally conscious behavior. The reasons for this are two-fold. One, through surveys and segmentation studies, STM knows that environmental issues like clean air, for example, are important to many of its riders. Two, STM has a financial incentive to increase ridership. More riders translate to more public funds for STM, the city and province’s carrot to STM to lessen traffic congestion. How, then, does the STM Merci App help the transit company and its passengers become greener? “We don’t give our riders points, we give them what we call trees,” says Bourbonniere. “The equation we reinforce with our customers all the time is that one return (round-trip) fare is equivalent to the value one tree provides for the environment in one year. So at the end of the month if you’ve had 84 rides, we give you 42 trees, and that determines your reward tier.” Eco-friendly riders, then, are incentivized to take more public transit for better rewards as well as reducing their personal carbon footprint. STM lets riders know where their tree rating stands among other riders, so users know exactly how many additional rides they need to move to the next tier. Another user incentive is that rewards are continuously updated. The variety and volume of offers — which are spaced to no more than one every 36 hours so as not to inundate passengers — make it more attractive for many riders. In a traditional rewards program that trades miles traveled for reduced fares, the reward is always the same. With the Merci App, however, riders in the top tier don’t know the exact rewards they’re eligible for; they only know that they’re receiving those with the highest value. And, for those who’ve chosen to share information about their interests, those offers are something they’ll be likely to redeem. Also unlike the standard rewards programs offered by airlines or other transportation companies, riders’ points — in this case, trees — aren’t deducted when they redeem a Merci App offer. Instead, it’s quite nearly the opposite: A rider’s redemption history influences future offers. So if a rider redeems more offers on women’s handbags than discounted seats for a Canadiens game at Bell Centre, that rider will see more offers for discounted accessories. Because riders aren’t saving up “trees” for specific rewards, the offers are intended to trigger more of a spur-of-the-moment response. “In the case of tickets, say the opera house lets us know they have 150 tickets available for a performance that evening, we would offer them to riders according to tier,” says Bourbonniere. “Merci would offer the free tickets to the top tier, and those riders who wish to redeem it will be given a bar code that they can scan at the ticket office.”

Reaching Riders at the Right Time

With endless geomarketing opportunities, STM didn’t struggle with lining up partners to participate in the Merci program. Retailers such as Le Parchemin and Joshua Perets and restaurants such as Le Chasseur, for example, knew that riders of university age, or post-graduation, would be particularly enticed by discounted merchandise or food. A pastry shop such as Le pain doré might offer free coffee or half-off breakfast to university students riding within a certain radius of the establishment. A grocery store can slash milk prices when it knows professional commuters are on their way home to make dinner. Likewise, at 5pm, a sushi restaurant can offer a free appetizer to the 100 riders within two stops of its location. And, based on riders’ interests, only make the offer to those who have shared with Merci that they like sushi. This type of functionality, Bourbonniere says, is a testament to the successful co-innovation sessions that STM had with SAP Precision Marketing. “We could tell that the goal of SAP was to listen to us and understand all our concerns,” he says. “We wanted to be creative to satisfy our customers, and working with SAP enabled us to do that with state-of-the-art technology, while still maintaining our values as a very traditional public sector organization.”

Solving the Privacy Issue

With the partner program satisfying the STM concern over redeeming points, there remained the issue of privacy. Again, the sticking point was Québec’s strict privacy regulations that limit collecting information on passengers beyond what is deemed critical for the organization. STM doesn’t need to know which of its riders like sushi to make the trains run on time. SAP Precision Marketing resolved this issue to the satisfaction of all parties by splitting rider information into separate databases. Information deemed critical, such as tickets purchased or email address, is stored in one database under a passenger’s first name, and non-critical information, such as food preferences, musical tastes, and favorite activities, is stored in another with the passenger’s last name. “The information only comes together for that instant that it’s sent to the Merci App,” says Bourbonniere. “So a marketer cannot speak to a rider as an individual, but only in an aggregated manner. It has really driven value in our 1:1 marketing efforts to be more relevant to our customers.”

Merci Beaucoup: Riders Embrace the App

STM riders have embraced the Merci App. The app was downloaded 5,000 times on its launch date, and STM quickly reached its pilot threshold of 20,000 downloads. Through the first five months, those customers received approximately 2.5 million commercial or STM offers, with a 4% click rate and 3% redemption rate. However, for the offers valued in the top 10%, the click rate stood at 67% and redemption rate at 64%.“That success rate is almost unheard of, but the Merci App satisfies the four dimensions of bringing the right product to the right person at the right time in the right place,” says Bourbonniere. STM constantly measures ridership, so as the Merci App takes hold, the business will be able to tell how the app has affected riding behavior. For example, to see if retention among recent university graduates is up, STM could look at 5,000 riders in that age group who usually take 40 rides each month. The following month, it could see how many of those 5,000 passengers have increased their rides, and of those, how many have downloaded the Merci App. STM expects the app to be available on the Android Marketplace soon, and anticipates a threshold of 100,000 downloads by the end of 2014, with Merci available to all of its 2.5 million customers by the end of 2017. Better Wi-Fi coverage is one way STM plans to attract more Merci App downloads. The transit network currently has four Wi-Fi equipped stations, but expects to make Wi-Fi available at every station over the next few years. In expanding the Merci App to additional riders, one major factor in STM’s favor is that 80% of its current fare transactions are through the Opus card network. Because these riders already are using a public transit smart card, it’s expected that the transition to a smartphone will not be seen as a major hurdle. “We’re very excited,” says Bourbonniere. “We’re scratching the surface of a very state-of-the-art program, and we’re going to walk before we run, but we absolutely see this as the future of public transit.”