creating customer loyalty (c) stowe shoemaker, ph.d 1 customer loyalty marketing stowe shoemaker,...

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

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Customer Loyalty Marketing

Stowe Shoemaker, PhDUniversity of [email protected]

www.stoweshoemaker.net

mailto:[email protected]


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Goals Seminar

• Discuss definition of marketing• Difference between frequency and loyalty

• Customer Relationship Management and loyalty

• How to calculate life-time value of a customer

• How to create customer loyalty within your organization

Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008

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Definition of Marketing• Identifying evolving consumer preferences, then capitalizing on them through the creation, promotion and delivery of products and services that satisfy the corresponding demand. This is done by solving the right customers’ problems, giving them what they want or need at the time and place of their choosing, and at the price they are willing to pay.


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Contextual Marketing

• Give the customer what she wants and make it useful and accessible so she can take action when it matters to her

• Widget: widgets are basically little websites that display directly on the Dashboard, rather than in a web browser.


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Awareness/Search/Evoked Set

Barriersa. Switching costsb. Perceived risksc. Lack of information

Trial (Initial Purchase)

Satisfaction

Dissatisfaction

Switch

Complain

Repeat PurchaseBrand Advocate

Consumer Buying Process

Why Switch?Need Recognition

WOM

Loyalty Circle Components

Pre arrival contact


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Evolution of How Marketing Defined

4 P’s 7 P’s 14 C’s


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Four P’s of Product Marketing?

• P• P• P• P


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Seven P’s of Services Marketing?

• P• P• P• P• P• P• P


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Fourteen C’s of Marketing – help create value

• Customer• Categories of offerings

• Capabilities of firm

• Cost, profitability and value

• Control of process• Collaboration within firm

• Cost to the customer

• Customization• Communications• Customer measurement

• Customer care• Chain of relationships

• Competition• Capacity


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Customer Loyalty/Relationship Marketing Does Not Equal Frequency Marketing

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When customers give you a greater share of their transactions than they might have without the program, usually in exchange for accumulating miles, points, or other surrogate discounts.You ask: Aren’t we quibbling here, isn’t that loyalty?

Frequency . . . Focusing on Behavior


Commercial on Frequency


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Drawbacks of Frequency• Exclusive focus on behavior ignores the emotional and psychological factors that build real commitment.

• Without that commitment the customer focuses on “the deal,” not the brand or product relevance.

• A behavior focus makes bribing the customer irresistible.

• Erodes the brand and diminishing product differentiation.

Commercial on Loyalty


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Loyalty . . . Focusing on Emotion

When the customer feels so strongly that you can best meet his or her relevant needs, your competition is virtually excluded from the considered set, and the customer buys almost exclusively from you — referring to you as “their restaurant” or “their hotel.”Winning maximum share of heart, mind and wallet.


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Like a Marriage• “The sale merely consummates the courtship.

• Then the marriage begins. How good the marriage is depends on how well the relationship is managed by the seller.

• It is more a matter of what the buyer wants.

• He wants a vendor •who will keep his promises, •who'll keep supplying and stand behind what he promised.


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The Benefits of Real Loyalty• “Loyal customers tend to maintain their positive expectations relatively longer than low-loyalty consumers, so they are not likely to adjust expectations based on episodic factors”

• “Loyal customers tend to show:• a special preference, attachment, commitment,

• positive WOM, • low switching to competitive brands, • willingness to pay premium price”

(Youjae and Suna, 2004).


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The Benefits of Real Loyalty• The customer focuses on your brand, offers and messages to the exclusion of the competition.

• Price is no longer the dominant consideration, but one component in the larger value proposition.

• Loyalty provides critical inoculation.• Competitive offers face a higher hurdle.• The customer becomes more forgiving — goodwill equity.

• Loyalty begets loyalty.


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Lessons Learned From Research in Hotels Restaurants and WOM

• A loyal customer in a restaurant tells a median of 10 people

• A loyal customer in a luxury hotel tells a median of 12 people

• 52.3% claimed that they would go out of their way to mention restaurant when the topic of restaurants comes up

• 19.3% claimed that they would go out of their way to mention hotel when the topic of hotels comes up


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Lessons Learned From Research in Restaurants

• 69% read the communication (letters, e-mails, promotional material) they receive from the restaurant to which they are loyal (8,9,10 rating)


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Lessons Learned From Research in Restaurants - tipping1 to 10 scale, with 1 being “I tip much less” to 10 “I tip much more,”

•47.2% among the total sample chose the top three boxes.

•Ten or more visits in the past three months, 56.1% chose the top three boxes

•Five to nine times (49.1%)•Three to four times (41.5%) •Less than three times (43.1%)

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Benefits

Trust

Relationship

Commitment

VoluntaryPartnership

Certainty

* Significant at .01

** Significant at .05

Product Usage

.24*.17*

.47*

.41*

.83*

.51*

.97*.63*

.63*

-.13**

Value

.55*

.66*

.43*

.17**Switching Costs

Opportunistic

Behavior

What ImpactsLoyalty in Hotels


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CRM entails the following:

• Customer-centric marketing and operations

approach

• Technology-enabled, automated business

processes

• Consistent brand experience across all touch

points

What Is CRM?“Customer Relationship Management should us to contact and treat customers better than anyone else -- establish, strengthen, and convert relationships”


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CRM entails the following:

• Real-time response to customer stimuli

• Every customer interaction begins where the last one

left off

• Tight integration between marketing and operations

• Understanding customer-level profitability

• Having an overall vision and building the solution in

stages

• Anticipatory as opposed to reactive

What Is CRM?


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The Evolution of Building Loyalty

Sales

Targeted

Promotions

Frequency

Programs

Push traffic,no targeting,discounts, littlemeasurement.

Still push, discounts, somemeasurement.

“Price” driven, segmented,transactionbased.

Added value toproduct, support price, customized, strengthen brand.

Brand

Relatio

nships

Profitability

Strategic

Knowledge

Relatio

nships

Knowledge,Help support VAR inloyalty

Tactic



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Word of Mouth


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Word of Mouth

• The One Number Firms Should Be Concerned About

• Critical in services because of variability and heterogeneity – customers discount advertising, PR, and the like

• WOM comes from friend, associate, family member


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Word of Mouth - continues

• Questions to ask:• How likely is it that you would recommend _______ to a friend or colleague?

use a 0 to 10 scale

Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

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Word of Mouth - continues• Net Promoter: calculate

• % of people who respond with a 9 or 10 (promoters)

• % of people who respond with a 0 – 6 (detractors)

Net Promoter Score = Promoters – Detractors

(E-Bay, Amazon, USAA 75% - 80%Median 400 firms in 28 industries was 16%)


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Lifetime Value of the Customer


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Life-Time Value

• Definition: •The net profit you will receive from transactions with a given customer during the time this customer continues to buy from you

•In today’s dollars/Euro/Yen


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Life-Time Value - continued

• Life-time value of a customer increases as defections decrease

• Life-time value needs to be calculated for each market segment

• Should be used in marketing strategy

• Calculate the following:a. Gross profit of an average purchase:

b. Average number of purchases per year by customer:

c. Average number of years customer will continue to purchase:

d. Probability customer will continue to purchase:

• Formula:

LVIC = a*b + (a*b*c*d)

Life Time Value Information

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• Know the following• Sale price $35• Fixed cost $3• Variable cost $12• Average stay 2.5 days• Customers come for about 12 years• Return customers 3,500• Total customers 8,000

Example Campground

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• Calculate the following:a. Gross profit of an average purchase: $35 - $12 = $23/dayb. Average number of purchases per year by customer: 2.5

purchases c. Average number of years customer will continue to

purchase:12d. Probability customer will continue to purchase:

3,500/8,000=.437

• Formula:LVIC = a*b + (a*b*c*d)= (23*2.5)+

301.53=359.03

Calculations

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Word of Mouth: Incremental Customer

• Need to know the followinga. Likelihood that customer will referb. Number of people to whom the recommendation will

be madec. Percent of referrals that are empathetic (i.e., have the

ability to act on what they hear)d. Probability of those who are empathetic who will buy

the servicee. LVIC

• Formula:WOM = (a*b*c*d*e)

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Word of Mouth: Incremental Customer

• Need to know the followinga. Likelihood that customer will refer 8 out of 10 satisfiedb. Number of people to whom the recommendation will be made 3c. Percent of referrals that are empathetic (i.e., have the ability to

act on what they hear) 2/3 or .667d. Probability of those who are empathetic who will buy the

service 14%e. LVIC=359.03

• Formula:WOM = (a*b*c*d*e)= $80.46 (note, if ignore A

then value is $100.58)

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Negative Word of Mouth: Incremental Customer

• Need to know the followinga. Number of people dissatisfied customers tells

b. Percent of people that are empathetic (i.e., have the ability to act on what they hear)

c. LVIC

• Formula (a*b*c) = $

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Negative Word of Mouth: Incremental Customer

• Need to know the followinga. Number of people dissatisfied customers tells

10 people

b. Percent of people that are empathetic (i.e., have the ability to act on what they hear) .667

c. LVIC=$359.03

• Formula (a*b*c) =$2,394.73

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Calculations• Average number of years customer will

continue to purchase:• 1. Look at by market segment: locals, groups,

etc• 2. Look in data base to see how long they have

been buying from you• 3. How likely are you to continue to visit this

property in the future? If scale 1 – 7 and they rate a 6 then 6/7 = probability of repurchase

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How To Create Loyalty


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Creating Loyalty

Process

Value(AddedandRecovery)

Communication

Static Fluid

ExitExit

Exit

Exit


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Communication

• Sales force• Outlets• Reservations• Direct Marketing• Electronic Commerce• Mobile Commerce• Employees

49Information-Driven Marketing- The Complete Model

5 Degress of Customer BondingAwareness Identity Relationship Community A dvocacyMarketing Strategy

Marketing Tactics

Data Processingand Storage

Applications of Data

PublicityRelationship

ProgramsGeneral

AdvertisingSales

promotionPoint-of-purchase

New ProductIndcubator

Life-time-ValueEnhancer

Crystal BallPredictor

New CustomerAttractor

PartnershipStimulator

Information Accumulator

The Information Core-Datamotion-

InformationExchange

InformationExchange

Information from the information core feeds back to the tactical level of the system, providing guidance for future activities on new busienss opporetunities, partnering opportunities, routes for enhancing lifetime value, information acquisition, anbd market predicting

DirectMarketing



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Other Keys to Successful Communication via E-Mail*1. Be selective as to who is added to your

list or you will create more work for yourself;• Use double op-in• Make it easy for people to opt-out• Put privacy statement on website and follow it

2. Use HTML instead of text• Make sure it can be easily read without

graphics appearing as some graphics blocked and if read off-line graphics will not appear

• Give customer choice as to how they would like to receive information

* From Right Now Technologies


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Other Keys to Successful Communication via E-Mail*3. Make e-mails relevant and extremely valuable;

• 50% e-mail now spam• From: represents your brand• Subject: represents timely and relevant proposition• Personalize • Use past buyer behavior information to target

offers

4. Let customer choose how often they would like to hear from you• See www.landsend.com for their policy• Do not send overnight so gets lost in morning

clutter


http://www.landsend.com/


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Other Keys to Successful Communication via E-Mail*5. Keep e-mail short and packed with

value;• Use bullets• Use lots of space• “come on, I am easy to read” • Print out and see what it looks like, as many

recipients will do that

6. Make it distinctive and appear as if they cannot get anywhere else• Subscribe to competitive lists to see what is

being done• Develop own voice and distinctive style



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Other Keys to Successful Communication via E-Mail*

7. Do Not Make e-mail visual circus;• Make focal point of e-mail obvious• Many people do not scroll• Design to be seen in preview pain • Print out and see what it looks like,

as many recipients will do that

8. Test Everything• Benchmark yourself• Split test



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9.Multimedia e-mails;• Know your audience• Useful or just showing off?• Do not assume audience wants

multi media



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10.Types of responses;• Valid response• Hard response (e-mail no

longer in existence or address error)

• Mail box full• Spam filters• Out of office replies



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10.Create and Think Customer Experience;

11.Make privacy part of brand promise



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Creating Loyalty

Process


Communication

Static Fluid

ExitExit

Exit

Exit


62The Four Components of the Process

PhysicalProduct

• Whatever the organization transfers to the Customer that can be touched

• Must be Customer-Oriented (create value)

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Process

The Four Components of a Service

PhysicalProduct

• Core performance purchased by the Customer• Includes all interactions with the Customer• “Plan Your Work”• Incorporate RATER system into each plan; e.g. in-room dining

ServiceProduct

Process


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Plan Your Work • Scripts for each service encounter

• Hostess:•“We will be asking you throughout your visit how we can do things better. Please be aware that our goal is to provide a wonderful dining experience; if we fall short of that goal, please do not hesitate to tell us.”

• Wait person:•“We have great desserts here. They are made locally by a woman named Cynthia. Cynthia has lived in area for ages and follows a family recipe.”



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Plan Your Work• Scripts for each service encounter• About Our Fish

•As you may know, one should not eat oysters in months that have an R. Therefore, we will not be serving oysters tonight as we only serve the freshest fish here. ”

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• Refers to what happens when your Customer interacts with employee

• “Work Your Plan”• Example: What is said to the customer

PhysicalProduct

ServiceProduct

ServiceDelivery

The Four Components of a Service

ProcessPeople



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Work Your Plan

• Goal is to incorporate some aspect of the RATER system in each interaction


68The Four Components of the Process

• The physical backdrop that surrounds the service

• 3 Elements: ambient conditions; spatial layout; and signs, symbols, & artifacts

PhysicalProduct

ServiceProduct

ServiceDelivery

Service Environment


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Customer-driven service designs and standards

Company perceptions of consumer expectations

Expected Service

Perceived Service

Service Delivery

ExternalCommunicationsto customers

GAP 2

GAP 1GAP 3

CUSTOMER

GAP 4COMPANY

GAP 5


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Reasons for GAP # 2

• Complete exercise starting on Complete exercise starting on next page:next page:• Use following scale:Use following scale:

• 1 Very True1 Very True• 2 Somewhat True2 Somewhat True• 3 Not applicable3 Not applicable• 4 Somewhat untrue4 Somewhat untrue• 5 Very untrue5 Very untrue


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Questions1. We do not know what our customers require

of us ______2. Policies exist for the convenience of the

organization, not the customer ____3. Everyone has a specialized job function

and is not allowed to intrude in others’ areas___

4. Customer contact people do not have the power to make decisions ______

5. Service polices are arbitrary ______6. We are more interested in making a profit

than in building a loyal customer base _______


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Questions continued7. Employees are not trained in people

skills____8. Management does not solve problems

creatively _____9. Employees do not seem to realize that

customers want to be treated well ____10. The organization is focused on solving

problems rather than preventing them11. We know how to handle complaints, but

not how to serve the customer12. The organization does not formally value

and reward employees _____


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Transfer scores to here1. ____2. ____3. ____4. ____5. ____6. ____7. ____8. ____9. ____10. ____11. ____12. ____

TOTAL _______


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Interpretation12-21 Your organization does not seem concerned with customers

22-31 Your organization seems to regard customers as an after thought

32-41 Your organization seems about average in thinking about customers

42-51 Your organization seems concerned with customers, but could improve its system with dealing with them

52-60 Your organization seems very customer friendly

From: Joan Koob Cannie: Turning Customers into Gold. NY: American Management Association


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Creating LoyaltyProcess


Communication

Static Fluid

ExitExit

Exit

Exit


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Value• Seeks to create new value for customers and then share the value so created between producer and consumer.

• Value is created with customers, not for customers.

• Requires that a company design and align its business processes, communications, technology and people in support of the value individual customers want.

• Types of Value• Value Added• Value Recovery


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Lessons Learned From Research in Restaurants• When asked to choose the top three benefits respondents would like to receive as part of a loyalty/frequency program, the benefits that received more than 20.0% are:• Complimentary Meals (55.4%)• Coupons/ Discounts (45.5%)• Reward Certificates (37.5%)• Gift Cards (24.8%)• Call-ahead seating (for restaurants that do not accept reservations) (20.9%)

• Complimentary Appetizers (20.3%)


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Components of Value -continued• Financial • Temporal• Functional• Emotional/Psychological • Experiential• Social• Trust• Identification with organization


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Value Recovery

• Complaint Management

Complaints Define What Customers Want


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No Product or Service Failure

Customer does not say anything

Celebration

No Product or Service Failure

Customer dissatisfied and speaks up

Proactive CustomerEducation/Research

Product or Service Failure

Customer does not say anything

Encourage Complaints

Product or Service Failure

Customer dissatisfied and speaks up

Service Recovery

From: A Complaint is a Gift


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How Well Are You Doing?• 1 = Not using strategy at all• 2 = Using the strategy but have had problems implementing it

• 3 = Using the strategy but with no noticeable results

• 4 = Using the strategy and have noticed positive results

• 5 = Using the strategy and judge it as a highly effective tactic for maintaining ongoing communication with customers



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Strategies• 1. Train staff to view complaints as a gift ___

• 2. Market the fact that you are looking for complaints ____

• 3. Evaluate your internal complaint structure ___

• 4. Set up listening posts ___• 5. Make customer comment forms available ___

• 6. Create staff comment forms to capture customer complaints ___



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Strategies• 7. Let customers complain in private ___

• 8. Set up customer confidants ___• 9. Do not be satisfied with the first response your customers give you ___

• 10. Go after the ones that do not respond to your customer surveys ___

• 11. Randomly ask for feedback ___• 12. Ask for value and quality ratings ___

• 13. Hang out with your customers ___



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Scores• 1. ____• 2. ____• 3. ____• 4. ____• 5. ____• 6. ____• 7. ____

• 8. ____• 9. ____• 10. ____• 11. ____• 12. ____• 13. ____• TOTAL ______

Your Total/65 = _________


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Problem Impact Tree

Please indicate if you reported any problems during your visit and how they were resolved. No problems experienced . . . . . . . . . . . . . . . . . . . .1 SKIP X Problems reported and were resolved in a friendly effective manner . . . . . . . . . . . . . . . . . . . . . . 2 Experienced problems, but didn’t report to staff . … 3 Problems reported and were not resolved in a friendly, effective manner. . . . . . . . . . . . . . . . . 4


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No Problems Experienced (n=3576, 84%)

Problems resolved in a friendly andeffective manner (n=295, 70.1%)

Experienced Problems (n=683, 16%)

FIGURE II: TOTAL SAMPLE (n=4259, 100%)

Problems Reported (n=421, 61.6%)

Problems not resolved in afriendly effective manner(n= 126, 29.9%)

Problems Not Reported (n=262, 38.4%)


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No Problems Experienced (n=3435)Percent Rating Overall Experience a “5” = 38.0%

Problems resolved in a friendly andeffective manner (n=284)Percent Rating Overall Experiencea “5” = 22.5%

Experienced Problems (n= 658)Percent Rating Overall Experience a “5” = 14.8%

IMPACT ON OVERALL EXPERIENCE

Problems Reported (n=405)Percent Rating Overall Experience a “5” = 18.0%)

Problems not resolved in afriendly effective manner (n=121)Percent Rating Overall Experience a “5” = 7.4%

Problems Not Reported (N=253)Percent Rating Overall Experiencea “5” = 9.9%

FIGURE IV:


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Goals Seminar

• Difference between frequency and loyalty

• Customer Relationship Management and loyalty

• How to calculate life-time value of a customer

• How to create customer loyalty within your organization


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Questions?

creating customer loyalty (c) stowe shoemaker, ph.d 1 customer loyalty marketing stowe shoemaker,...

Documents

d slide

marketing strategy

p slide

organization slide

contextual marketing

ps of services marketing

ps of product marketing

ps14 cs slide