It’s All About Loyalty
They were two small-town boys: Mark Lacek from Mercer, Wisconsin (“Loon Capital of the World,” population 1,700); Peter Brennan from Fargo. They came to the big Twin Cities in their 20s to work for Republic Airlines. Brennan started behind the ticket counter, Lacek in revenue management. Both worked their way into marketing, where they met. Then, after Republic was bought by Northwest Airlines, they collaborated with other marketing staffers and transformed a fledgling frequent-flyer program into WorldPerks, a paragon of loyalty marketing.
What is a loyalty program? Basically, of course, it’s a method for attracting and keeping customers. Get them to ride your airline or visit your store, and then reward them with a treat of some kind—a free flight, an in-store coupon. Thanks to digital technology, loyalty programs also can help a company track customer demographics and preferences in order to tailor products and offers to them.
Loyalty has been the hallmark of the Lacek–Brennan success story throughout their careers. Now both 53, Lacek and Brennan have worked together for almost 30 years. “We wouldn’t be where we are today without each other,” Lacek says.
Together, they’ve founded five loyalty marketing firms, including their current one, Denali Marketing. They’re about to launch their sixth, whose product, they say, could fuel the next great leap forward in loyalty marketing.
Loyal To Each Other, Too
On a snowy morning in January, Lacek and Brennan sit in one of Denali’s meeting rooms on the 20th floor of the 100 South Fifth Street Tower in downtown Minneapolis. It’s a Class A office building, but the company has given it something of the feel of a Warehouse District creative shop. The walls are painted in shades of tangerine; sunlight floods in through huge windows.
Lacek’s jeans are full of holes; Brennan wears a black turtleneck tucked neatly into black pants. Brennan sits straight. Lacek sits back, legs stretched out, running his fingers through his Rod Stewart–style spiky blond hair. “Do you know I just lost my fifth iPhone yesterday?” Lacek says. “That’s the fifth in two years!” They both laugh.
“I think we complement each other real well,” Brennan says. “Mark is super-optimistic and really a creative guy, and I’m probably a little bit more pragmatic—and maybe a hair more organized.”
Denali is named after the Alaskan mountain peak. “We were looking for something that was sort of a metaphor for optimism and ascent,” Lacek says. “And we just love our logo—the simplicity of it, the message of positiveness, of getting up into the clear, clean air and light.”
“It’s real collaborative,” Brennan says. The fast-growing company’s executive team comprises seasoned marketers; all revolve in the Lacek–Brennan universe as friends or former colleagues or both. Clients include Best Buy, Sun Country Airlines, Rimage, and Toys ‘R’ Us—companies to which Denali offers a wide range of services: traditional loyalty programs, enhanced by a proprietary results-tracking software called Tally; branding; print and digital communications; software and systems development; and Web site design.
Margaret Murphy, who’s Denali’s president, describes Brennan and Lacek as brothers from different mothers. “Mark’s the outside guy, and Peter’s the inside guy,” she says. “Mark is more PR and sales; Peter is more academic and strategic. Peter is one of the most brilliant people I’ve ever worked with. I call him ‘Peter the walking Wikipedia.’ For an idea guy like Mark, it’s good to find a Peter Brennan to take your ideas and turn them into home runs.”
Lacek and Brennan combined on that first home run at Northwest Airlines, where they were responsible for blending the frequent-flyer programs of Republic and Northwest when the latter bought the former in 1986. Lacek was Northwest’s director of marketing, Brennan worked on partnerships. Working together—their own first partnership—they created the WorldPerks brand.
“It was a gas,” Brennan says of his job. “It was the best corporate gig ever,” Lacek says of his. “Fifty-five thousand people in the airline, and we had the two best jobs.”
WorldPerks wasn’t the first frequent-flyer program; American Airlines introduced the idea in 1981. But Lacek and Brennan took the concept and took off with it. They introduced best-customer tiers (levels at which best customers were rewarded with special services), the first frequent-flyer credit-card program (with Ohio-based BankOne, since subsumed into JPMorgan Chase), and the first airport lounges created exclusively for top customers (NWA WorldClubs).
By 1990, Lacek was growing restless, but not quite ready to go out on his own. Then, in a hospital emergency room because of a choking incident, he nearly died after a doctor accidentally perforated his esophagus, resulting in a massive chest infection. After coming through, “I had no fear of failure anymore,” Lacek says. “My fear was more about, ‘If I stay here and don’t do something, how am I going to feel? How boring is that?’”
Lacek left to be a freelance loyalty-program consultant; Brennan joined him a year and a half later. “We saw at the airline that frequent-flyer programs were migrating all over the world,” Brennan says. “Europe was starting to mushroom. And we knew it was going to happen in Asia and Latin America, too. We could see the wave coming.” And that meant a big opportunity to help airlines get their programs off the ground.
“WorldPerks was such good training,” Brennan says. “We were in on all facets of the program—the economics, the technology, the marketing, the customer service, the training. And we were able to leverage all of that learning when we went off on our own.”
They started out, just the two of them, in a 600-square-foot office in Edina. “We called ourselves the Lacek Group Worldwide, with the tagline ‘The Loyalty Marketing Company,’” Lacek recalls. “We branded ourselves that way because that was our vision. And we knew that if you’re small, you have to roar like a lion.” (The company was actually founded shortly before Brennan came on—they kept the one partner’s name.)
The very first day it opened for business, the Lacek Group got a call from three Asian air carriers—Cathay Pacific, Malaysia Airlines, and Singapore Airlines—that were developing a joint frequent-flyer program called Passages. “We met the leader in Vancouver,” Brennan recalls, “and landed the contract.” Other airlines soon became Lacek Group clients, including SAS, Swissair, Austrian, and Sabena.
What airlines were discovering was that loyalty programs had benefits beyond getting people to fly with them. The programs also offered a remarkably robust way to find out more about their customers—their demographic information, their income levels, their purchasing habits, all of it permission based. These data not only were useful for air carriers in targeting promotions, companies such as hotels sought to partner with airlines to gain access to their customer information.
In three years’ time, the Lacek Group had more than 180 employees, headquarters in downtown Minneapolis, and seven outposts throughout the world, including offices in Atlanta, Tokyo, and Latin America. “It just mushroomed,” Brennan says.
In 1997, the partners sold the Lacek Group to a large loyalty-fulfillment company and stayed on for a bit. But Lacek soon was feeling the urge to do something new once again. In early 1999, he and Brennan founded a new company, MilePoint.
MilePoint started as a business whose software allowed airline customers to convert their frequent-flyer miles into Internet “currency,” then use it for discounts from online merchants. Trouble was, Brennan and Lacek couldn’t get the volume they needed to stay afloat. “We raised the money right before the bubble burst,” Brennan recalls. “But the whole business was so different and just a bear. Like a lot of Internet companies, we ended up having to morph midway from the original model we had.”
After some struggles, MilePoint shifted to a business-to-business model, using its software to run mileage- and point-vending Web sites for airlines and hotels. When the partners sold it to Canadian firm Points International in 2004, Lacek says, MilePoint had had 11 straight months of profitability. “I learned a lot about perseverance,” he adds.
MilePoint’s struggles didn’t kill their entrepreneurial spirit. On the contrary: The company they run now is as much new-business incubator as it is a new business.
A Venture for Ventures
“We didn’t want to be a loyalty marketing company in the old sense of the words, and we didn’t want to be a branding–marcom company in the old sense,” says Denali cofounder Greg Heinemann. “The concept of loyal customer relationships, and creating that kind of endemic connection between a brand or a company and its customers—that’s what’s at the heart of Denali.”
Denali has three divisions: Loyalty, Marketing Services, and Ventures. Under the Ventures umbrella, Denali is pursuing co-investments with customers in joint ventures, providing business infrastructure and even capital investment—and starting businesses on its own as well.
“The whole thought behind the Ventures area is two things,” Lacek says. “One, we were at a point in our life where we wanted to do interesting things. The second thing is, we want to help our clients do the things they want to do—but can’t get to. Maybe they don’t have the resources, or it’s not their core competency, but they think it will make their brand better. Our belief is, no matter what you do, you need to market it, it needs to be branded, it needs to be promoted, it needs technology. So what better platform to start businesses than an agency?”
Denali’s first venture became the catalyst for the Ventures division. Soon after opening the agency, Lacek and Brennan got wind of an idea for yet another company. It came from their friend Jeff Patrias, current vice president of marketing services at Eagan-based Thomson Reuters, former senior vice president at the Lacek Group, one-time intern at Northwest Airlines, and owner of a northern Wisconsin retreat near the Lacek and Brennan family cabins.
Patrias says he got the idea after attending a silent auction for Faith’s Lodge, a charitable project founded by Lacek and his wife, Susan. “I never had an opportunity to bid on anything because it was so crowded,” Patrias recalls. “And I thought, ‘There’s got to be a better way to do this.’” He brought up his idea—an electronic handheld bidding device with auction items loaded on it—while he and Lacek were cruising around on a pontoon boat at sunset. “We just looked at each other and said, ‘That’s a good idea—that’s a really good idea,’” Patrias says.
The resulting company, called BidPal Network, now has a staff of 26 headquartered in Indianapolis and more than $5 million in funding. It works much as Patrias envisioned. Once auction guests’ credit cards are swiped, they receive their BidPal device, loaded with all the auction items, and use it to place their bids. They find out instantly whether they have been outbid and need to bid again. When the auction is over, the winners know what they have won and how much they’ve been charged.
“Basically, we set up a computer network at your event,” Lacek says. “We’re scaled to handle 1,500 units hitting our servers at once.”
Last fall, BidPal was used at five events, including an auction at the Solheim Cup golf matches outside Chicago, which involved 1,500 bidders. At those five events, Lacek says, “the lowest lift [increase] in donations over last year was 27 percent, and the highest was 136 percent. And we have something like a 95 percent renewal rate on our existing contracts.” A BidPal Internet application is in the works, so that bidders can participate remotely in auctions around the globe.
BidPal may be a technology product, Lacek says, but it’s still about loyalty: “It’s about lifting contributions—and getting people back. It engenders loyalty to your cause.”
Lacek and Brennan have a number of other ventures in the Denali hopper that they aren’t ready to discuss. But they are eager to chat about their own new business idea: a software company called Zeitgeist Technologies, LLC.
The Duo’s Next Tune
The idea for Zeitgeist came from Robert Stephens, a friend of Heinemann’s and the founder of the Geek Squad computer repair service. The product is being beta-tested at Denali’s longtime client Best Buy, which now owns the Geek Squad. Lacek calls Zeitgeist a “social monitoring and resolution” tool—a software program that tracks Twitter for clients and sends them reports of negative tweets about their brands from tweeters who have a significant number of followers. Brennan and Lacek believe that this is a way to monetize the Twitter social media platform—taking all of the data and messages and making them actionable for brands.
“Imagine Ashton Kutcher, who has millions of followers, says something terrible about your brand,” Lacek says. “We say to the corporation: ‘You not only should listen to what he’s saying, but you also should intervene and try to resolve it.’”
Zeitgeist’s software singles out tweets by those Twittering folk who can do the most damage—and the most good. “In theory, six months after a company begins to use our product, they should be seeing only new issues in the social networks, because we’ll have addressed those that before were causing the pain and the angst,” Lacek says. “And if you have people who are saying really good things, you can get to them and create incentives for them to let their circles know how great your brand is.
“Right now, a single person can have so much power over the perception of your brand, but companies are doing little or nothing about it,” Lacek adds. “So what we’re saying is, ‘Like it or not, you’ve got to get in the game. You’ve got to be listening—it’s all about listening. And if you’re not listening, someone else is delivering your brand message for you.’”
“What really caused us to be enamored with Zeitgeist was that we could see how it could help all of our clients,” Brennan says.
“Zeitgeist helps a company either regain loyalty or provide the great customer service that makes customers become loyal,” Lacek adds. “There’s a huge thread of loyalty that runs through it.”
Though Lacek and Brennan leave day-to-day operation of Denali to Murphy and her executive team, they’re still involved in the thinking behind the company. Indeed, Lacek believes Denali, with its ability to generate Net-centric campaigns and measure customer response digitally, is “where the market is moving.” The days of huge budgets and no-questions-asked-about-ROIs are over.
“This business is very trackable,” Brennan says. “And we do [profit and loss statements] for all of our clients so they can see how their programs are paying off in terms of retention or lift.”
Denali was founded by hardy marketing veterans, but it’s hiring younger employees who know about social media, how to use mobile devices, and what’s cool and what’s not. “It’s amazing the stuff they can do,” Lacek says. Adds Brennan: “And when you couple that with seasoned, traditional methods, you get a nice blend. Denali is a completely electronic, digital, Internet-based company.”
Ultimately, Brennan says, he and Lacek are “still in the same business” as they were when they ran WorldPerks. “The way a business builds and survives is by keeping its customers,” Lacek says. “How you do that may have changed, but it’s still about acquiring and retaining customers. That’s an age-old adage that’s as true today as it probably will be in 2050.”
Despite changes in markets and technology, loyalty is a timeless concept. Lacek and Brennan can attest to that, in more ways than one.