November 25, 2011

KULA Causes turns benefits from unclaimed loyalty points over to nonprofit organizations

While most of us pay no more attention to our rewards program than a casual glance before Christmas, a new Boulder startup has a plan to change that for the better.

“Companies are starting to realize that they have to offer more than a $10 backpack that they are charging $100 in points for,” said Gerrit McGowan, chief executive of KULA Causes Inc. “It just doesn’t build a meaningful relationship between the customer and the brand.”

The vast majority of loyalty points, about 80 percent, go unclaimed. Whether that’s because of shoddy prizes, or the consumer doesn’t have enough points to claim a prize, more than $16 billion worth of loyalty points go unused each year that still have to be kept on the books by the issuing company.

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KULA Causes aims to change that by creating a portfolio of nonprofits that can accept these points or unused frequent flyer miles, McGowan said. This would mean that consumers can help out the worthy cause of their choice, and presumably brands could also create a loyalty program that consumers actually find worthwhile.

In many nations — especially Britain, Canada, Australia and New Zealand — such brand loyalty programs are a pretty big deal. For instance in Canada, where McGowan spent the last decade, about 60 percent of the nation’s credit-card wielding consumers participate in air miles programs, in which they can stock up points from a number of retailers, including the local grocery store and gas station.

Grocery stores are really the lynchpin for the success of such programs, McGowan said, and the more regionalized nature of the U.S. grocery market is one reason that idea has really taken off here.

“Today’s consumer demands more from customer loyalty programs.

They want rewards offering choice, liquidity and immediacy,” notes a prepared statement from Bill Hanifin, co-founder of Customer Strategy Network, a professional organization studying best practices in consumer loyalty programs.

“KULA Causes enables any brand to connect emotionally with their customers, increasing customer engagement and satisfaction, while making a real difference in the world through their ‘currency of giving.’”

Of course, many loyalty programs do offer a handful of donation options, but charitable organizations receive less than 1 percent of all rewards issued annually, McGowan said. He stressed that lack of choice also results in missed opportunity for meaningful engagement by businesses striving to reach consumers through their cause-related marketing efforts.

KULA has already put together a portfolio of more than 2 million organizations in five countries that can accept such loyalty points or flyer miles, which is half the equation. The issuing companies also have to be in on the deal, of course, and McGowan said that over the course of the next couple months there will be announcements by at least several major brands that they will also participate.

Consumers can also participate in the beta launch of a site, www.kulacauses.com that will allow them to participate. That may seem enough of a market to tackle, and it may be in the short term, but McGowan envisions something much bigger from his startup.

Kula (kurlə) in Kilifvila means a ceremonial gift exchange based on the belief that the more one gives, the richer one becomes. In Sanskrit, it means a community of the heart, which is what the company is really driving at.

After graduating from the University of Colorado, McGowan worked for United Nation community development programs, bringing together governmental and private sector stakeholders to create economic opportunities. While working in Africa and the Far East, he said, his business idea began to generate.

“More than a decade of work in the nonprofit sector made it evident to me the divide between charitable causes and the power of business community was massive, and the programs to close the gap didn’t exist,” McGowan said. “Today there is greater pressure for the government not to provide services, while charities and nonprofits, which are supposed to fill in the gap, are receiving less money.”

What KULA Causes ultimately hopes to be able to fashion are rewards programs that will actually support local community causes, whether they aid the homeless or the booster club of the local high-school football team. The company will soon be creating a pilot program, probably in New Zealand or Australia, which will work on the community level, something that could aid both the community and the small businesses that are supported by that community.

“We want to provide them the same tools as a billion-dollar retailer,” he said. He added that most loyalty programs, and online marketing programs such as Groupon, actually hurt small businesses.

While it appears the tax deductibility of the exchange will have to be verified by the consumer, McGowan said recent changes in financial law have actually strengthened his company’s position.

“The royalty industry long afraid their programs would cause consumers to be taxed,” he said. However, today “the royalty industry doesn’t have to be concerned about taxation.”

McGowan started his company 18 months ago, with about $500,000 in angel investment. Today the company has seven employees, mostly business-development experts, but is looking for a multimillion-dollar Series A investment and could be employing a couple dozen employees in the next few months, including web developers.

And as they help develop the local economy, they may in fact be creating a process in which all communities can help their own.

“And you can donate to your child’s classroom, or pay your dues to the alumni association, or give it to your church,” he noted. “We are really attaching an emotion to a brand.”

While most of us pay no more attention to our rewards program than a casual glance before Christmas, a new Boulder startup has a plan to change that for the better.

“Companies are starting to realize that they have to offer more than a $10 backpack that they are charging $100 in points for,” said Gerrit McGowan, chief executive of KULA Causes Inc. “It just doesn’t build a meaningful relationship between the customer and the brand.”

The vast majority of loyalty points, about 80 percent, go unclaimed. Whether that’s because of shoddy prizes, or the consumer doesn’t have enough points to claim…

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