The Changing Face of Loyalty

There was an interesting article written by Mila D'Antonio in the August edition of
1to1 Magazine. The article posits the notion that customer loyalty is evolving. I agree! A brief look back in time brings to mind the memory of S&H Green Stamps that my mother diligently collected. That process is the first loyalty program that I can remember The second one that comes to mind is the American Airlines AAdvantage program of which I am still a member. But business is not the same as it was 40 years ago or even 10 years ago.

The appearance of the Internet and all the accompanying social media has changed the face of business. Some of the statistics that tells the story include the fact that 75% of consumers today are enrolled in at least one loyalty program and more than33% are enrolled in 2 or more programs. The Internet has helped the consumer to be well-informed. With all the information that is available, the consumer can use the Internet to get product and service information as well as reading reviews from other shoppers.

In January, 2010 the CMO Council reported that 60% of marketers say that loyalty program participants are the best and most profitable customers,only about 15% believe they have been highly effective in leveraging loyalty among its customers and 20% don't even employ a customer loyalty strategy.

What has changed is that customers now have many channels of information to access when making a decision for product purchases or services. Companies are now being forced to manage all the channels so that there is a consistent message. The social media, while new, brings as much, if not more, value to the customer that the traditional methods. Social media has and will continue to significantly impact customer loyalty. In fact, it appears that the social media may become one of the ways to establish emotional attachment to companies. Kevin Knowles, VP of merchant loyalty at First Data notes that "if you don't have a centralized model you run the risk of having your customer data fragmented."

This evolution of information availability has led a number of companies to evolve their loyalty programs to include managing social media, providing proactive customer service, and establishing ongoing programs to maintain contact with their customers. Some of the newer programs include including Twitter and chat capabilities with the company.

The bottom line is customer loyalty requires a long term relationship with customers. That relationship must be built on the episodes that occur during the customer's life cycle with the company. Therefore, companies must think of approaches that continuously build and strengthen the customer relationship. The connection between company and customer must proactive, NOT reactive.

As I have said to many clients, every time you touch a customer you will either add a strand to the bond of your customer relationship or will be break a strand of that bond. This includes every customer contact whether it is with someone from sales, customer service, accounts payable (the cashier), or any aspect of your social media. The stronger the bond the less likely the customer look for an alternative supplier.

Loyalty Programs Help Restaurants in Tough Times

An online survey was conducted in 2010 among members of the National Restaurant Association. There were approximately 1300 responses. The survey had several objectives; namely:
1. investigate the level of penetration of loyalty programs in the industry,
2. identify the types of loyalty programs,
3. collect the metrics being used to measure performance, and
4. determine the level of resources dedicated to support the effort.

There were a number of findings that appear to be significant. They are
1. 77% of the respondents said that loyalty programs helped drive business during the economic turn down,
2. 90% said that the loyalty programs gave them a competitive advantage
3. for those already using loyalty programs, 84% plan to maintain or increase their program investment
4. 74% of the respondents used social media to support their loyalty programs. Facebook was the most common site and was used by 65%, followed by Twitter at 40% and blogging at 17%.

The bottom line is that loyalty programs are clearly a competitive weapon. That weapon has been shown to be particularly effective during the economic downturn in the last two years as can so easily be noticed by the willingness to continue the programs. It is not difficult to image that its effectiveness will continue even as the economy improves. Loyalty programs can provide the added incentive to increase visits from individual customers.

What Price Loyalty

I saw a quote on the net the other day. It asked the question "Why do customers need to take the initiative to ultimately be rewarded for loyalty?" GREAT question! As we review the many loyalty programs that are offered by B2C and B2B companies the onus is almost always on the customer to initiate the program and often it is the customer's responsibility to manage it as well. Businesses have the resources and the tools necessary to do the work for the customer. It seems that treating the loyal customers with a little extra effort by taking care of the loyalty program for them is a natural step for showing them the benefits of being a loyal customer.

This is an open question to those companies who have a loyalty program. Are your customers responsible for initiating your loyalty program? if the answer is yes, why? One of the major objectives of just about all loyalty programs is to entice the customer to continue to return (as often as possible). Are there any hurdles that the customer must overcome to continue to capture rewards? Must the customer always have his loyalty card to get reward "points"? Are there other policy obstacles that might disallow the addition of loyalty points?

One of the prime rules of business that has become part of the gospel of customer loyalty is that the business must do everything it can to make it as easy as possible for the customer to do business. The obvious extension to this fundamental rule of business should be, in my opinion, to make it as easy as possible for the customer to accumulate loyalty points (or whatever is used) as easily as possible. To burden the loyal customer seems to be against the basic tenet of making it easy to do business with the company.

One of the latest marketing concepts is to segment the customers as finely as possible so that advertising programs and rewards can be finely tuned to the customer level. As long as the marketing program is tracking customers to determine their buying habits, would it not be reasonable to use that data to build the loyalty profile of the customers so that any loyalty program developed can be automatically applied to the appropriate customers?

I believe that the next step in loyalty programs is to take them off the backs of the customers and put them into the company where they belong. The idea is to make loyalty a benefit not an aggravation.

Is There a Dark Side to Analytics?

A case study in the Harvard Business Review issue of May 2007 was written by Thomas Davenport and Jeanne Harris. The case considers the possible uses of client information and suggests that there may be some unintended consequences that may be less than the "right thing to do". There were case commentaries by George Jones, President and CEO of Borders, Katherine Lemon, Associate Professor of marketing at Babson College's Carroll School of Management, David Norton, Senior VP at Harrah's Entertainment and Michael McCallisster, President and CEO of Humana to complement the case study.

One of the key points of the case study is that customers are generally not aware that much of the information they provide to businesses is often sold to other businesses. Some of the more egregious examples are prescription information from a large supermarket with a pharmacy who sells the information to insurance companies; another example is the amount of alcoholic beverages that is being bought by a specific individual or family which might also end up in the data base of the insurance company that holds the insurance policy for that individual or family and which could lead to increased premiums.

It doesn't take a lot of imagination to conjure up additional ways in which the data gathered for analysis can be used in ways that the customer never understood and who probably would not have given permission to share had the customer been aware of who was buying access to the data. With the amount of information given by individuals and companies and then being sold to other companies for analysis, it is becoming eminently clear that there is a need for better communication between the customer and/or business and the companies who are asking for that information.

As a first step companies who sell the information need to apprise their customers what information is being sold and to whom. The first step to resolve this issue is transparency that could provide the customer with the opportunity to request that information regarding their purchasing behavior either be limited to certain items or even eliminated from the data base.

As it turns out many of the retail stores that gather that customer information need to sell the information because of the low margins many retains stores operate on these days. This added income may be the difference between profit and loss. Nevertheless, withholding this knowledge that the company is gathering specific information regarding the buying habits of specific customers to sell to other companies that can analyze and make business decisions about those customers MUST NOT continue to be withheld. The opportunity to abuse and misuse the information casts a dark shadow on those of us who make a profession of using analytics to make better business decisions. It is worse than the old adage that people lie with statistics. In this case people are using statistics to possibly punish people who are unaware of what is happening.

The bottom line is that we who are in the analytics industry must find a way to bring sunshine onto our analytics. Any other way is both unethical and immoral!

Satisfaction Is Not Enough

There was an interesting thought by Dick Gorelick about satisfaction that needs some further discussion. His premise is that customer satisfaction is not enough. He starts out by stating that the majority of customers that defect are satisfied. It is a follow-on of the Harvard Business Review article by Jones and Sasser titled "Why Satisfied Customers Defect."

Mr. Gorelick surveyed print buyers for American Printer, an organization that services senior executives in commercial printing. He states that the problem is that customer satisfaction is a poor metric for predicting account retention or loss.In his survey he found that fewer than 3% of survey respondent's' comments mention products or equipment. He found that the important factors in a customer relationship are memorable and unique events and services - ranging from green pretzels on St. Patrick's Day to the personality of the receptionist.

The main point of his note is his conclusion that the "silent killer" of a customer relationship occurs when it appears that all is well with the customers based on feedback that indicated no pressing problems or deficiencies. His belief is that when a company believes that just "doing more of what we've been doing" is making the incorrect assumption that customer satisfaction is a static concept. Within this assumption is another incorrect assumption that competition is not getting better.

When competition increases the company that continues to provide the same level of performance will find a year-to-year erosion of the customer base.

The bottom line is that the real issue for business is customer defections and those defections will not usually be the result of product quality or defects. Customer retention occurs when memorable events continue.

NPS One More Time

It is with great hope that this is the last blog regarding Net Promoter Score (NPS) written by the Customer Institute. This blog has two components. The first is a short discussion of one of the problems noted by the Customer Institute and the second is a brief discussion abstracted from an article by Craig F. Kolb, a marketing research specialist with Ask Afrika, a marketing research firm in South Africa.

A concern of the Customer Institute

One of the key concerns of the Customer Institute is to understand measures of customer satisfaction and loyalty. NPS is promoted as "the fundamental perspective that every company's customer's can be divided into three categories: Promoters, Passives and Detractors. On a scale of 0 through 10 the categories are defined as Promoters score 9 or 10, Passives score 7 or 8 and Detractors score 0 through 6. By asking one simple question - How likely is it that you would recommend [Company X] to a friend or colleague? - you can track these groups and get a clear measure of your company's performance through it customer's eyes."

The calculation of NPS takes the percentage of customers who are Promoters and subtracts the percentage who are Detractors.

Here is the problem. Consider three companies A, B, C. Each has a NPS of 70%. Consider each company's score is computed as follows:
Company A has 80% Promoters and 10% Detractors for an NPS score of 70%
Company B has 75% Promoters and 5% Detractors for an NPS score of 70%
Company C has 70% Promoters and 0% Detractors for an NPS score of 70%.

Of course many combinations are available that will yield an NPS score of 70%. The business problem (perspective) is that these three companies (A, B, C) are in very different conditions and yet the executives of each company believes their company is equal in customer perception with the other two.

Concerns by Craig F. Kolb

Mr. Kolb makes a number of statements and backs them up with references that will not be repeated in this blog. The statements are listed and those interested in checking the validity can refer to his article "Re-Evaluating the Net Promoter Score" dated July 14, 2010. The concerns are:
1. The Ultimate Question is far from being ultimate and is not the best predictor of customer retention.
2. The NPS does not relate to the percentage of customers switching away from each institution. A survey of 8000 customers were asked the likelihood of recommending question along with a rival set of question is and then followed up a year later. The ultimate question was outperformed by a simple repeat purchase intention question.
3. With NPS "promoters" are not equally loyal.
4. The relationship with growth is not clear with NPS. A study by Morgan & Rego in 2006 found that NPS was not predictive of company growth rates and customer satisfaction outperformed NPS as a predictor.

The bottom line is that NPS needs to be viewed very carefully. There are a lot of questions that must be answered before companies can use the NPS score without reservation.

Service is Important - Proven Once Again

American Express Global Customer Service Barometer provided some results from their latest survey conducted in the United States and eleven other countries. The findings are further verification that customer service REALLY is important and plays a critical role in the success of any company. Here is a list of the major findings of the report.

1. 61% of Americans will spend an average of 9% more when they believe a company provided excellent service.
2. 91% of Americans consider the level of customer service important when deciding to do business with a company.
3. 81% of consumers are more likely to give a company repeat business after a good service experience.
4. 52% of consumers will never do business with a company again after a poor experience.
5. The three most influential factors when deciding which companies they do business with include personal experience (98%), a company's reputation (92%),and recommendations from friends and family (88%).
6. 86% of consumers report they're willing to give a company a second chance after a bad experience if they've historically experienced great customer service with that company.

The bottom line is that the research continues to show that good customer service has a financial benefit. It is not rocket science to figure out how to provide excellent service. The Customer Institute believes that good customer service starts with the CEO/Chairman.