culture to build loyalty 090920

Loyalty Marketing Day Sept. 29, 2009 1

Beyond the Marketing Department:

Creating an Organizational Culture that Builds Loyalty

Thinking of bolting on a Loyalty Program?

Be careful…


Do you think this is an issue? Do Loyalty Programs always work?


Physics envy

“In physics, it takes three laws to explain 99% of the data; in finance, it takes more than 99 laws to explain about 3%...Economists consequently suffer from physics envy.”

Emanuel Derman “Beware of Economists Bearing Greek Symbols” HBR October 2005

Marketers

marketing

1


Loyalty physics – the dream

Marketing Strategy

Loyalty Program

Loyalty Program

Marketing Strategy


Customer Response


Making relationship marketing like this…


Alleviating Physics Envy

• Marketing’s Quantum mechanics

Or – why should a Loyalty Program even be considered as part of my marketing strategy?


Underlying customer mechanism?

Reciprocity


The type of gift matters

• Love

• Status

• Information

• Service

• Goods

• Money

Tangible

Particular


Obligation to return the gift in kind

• Receive discounts – repay with a transaction

• Tangible repays tangible

• Receive great service – repay with tendency to loyalty

• Intangible repays intangible

• Receive personalised relevant status gifts – repay with loyalty and recommendations

• Particularist repays particularist


Intangible, particularist gifts create advocates

• Particularist gifts require trust. It matters who gives the gift, both parties must know each other. This takes time and interaction, making these gifts more expensive than cash discounts.

• This is where loyalty programs fit – but ‘hands-off’ points & prizes not enough because Intangible gifts must be relevant to have value to the customer; insight into needs and preferences is required.

“Loyalty programs are the price you pay for customer data. You make money through the careful use of this data.” Traditional


Customer loyalty; here’s the payload

Gupta, Lehmann & Stuart “Valuing Customers” Marketing Science Institute No. 01-119

Customer Value ($b)

% increase in Customer Value for a 10%improvement in:

Base Case Retention Acquisition Cost

Margin

Amazon 2.54 28.34% 0.51% 10.51%

Ameritrade 1.45 30.18% 1.19% 11.19%

eBay 2.11 30.80% 1.42% 11.42%

E*TRADE 1.89 29.96% 1.11% 11.11%

Impact of improving retention, acquisition cost, and margins on customer value

Base Case: 70% customer retention



• Marketing’s Quantum mechanics is reciprocity

• Marketing’s chain reaction


New Model of Value Creation

Old model:

B2C

New model:

C2C1000 impression = $10$10 CPM = $0.50 CPI

Each interaction is an impression

PassAlong

Influenced to visit community. Some

pass along.

No community visit, but positively

influenced. Some pass along.

Pass along continues

Loyalty Marketing Day Sept. 29, 2009 15 Coca Cola, MSI presentation May 2008

From… to


Payload

Recommendation

Loyalty program customers are 70% more likely to advocate for the brand (Colloquy)

Not in program In Program

32%

55%

Loyalty Programs can help if WOM is your strategy




• Marketing’s chain reaction is WOMM

• Marketing’s Uncertainty Principle


Customer engagement & measurement changes behaviour

“…customers we surveyed were more than three times as likely to have opened new accounts, were less than half as likely to have defected, and were more profitable than the customers who hadn’t been surveyed.”

Paul M. Dholakia and Vicki G.Morwitz “How Surveys Influence Customers” HBR 2002

Hawthorne is a place in the UK and an important Marketing Principle


Some Australian brands are talking to their loyalty program members…


Question…

• If you have an online community for your organisation, where customers talk to and about you…

• What sort of things will they ask you to do?

• Use less comic sans in your email offers? (Marketing can do this alone) or…

• Change products, prices, services – takes a company wide response…




• Marketing’s chain reaction is WOMM

• Marketing’s Uncertainty Principle is the positive impact ‘conversations’ have on customer loyalty

But in the real world, where Aussies

“… average16 programs in their wallets and are aware or use no more than five (women) or three (men).” Perkler


Customers are not paying attention to us

Coca Cola, MSI presentation May 2008


They prefer to talk to each other…

• What happens in Vegas stays on YouTube, Flickr, Twitter, Facebook…

• There are over 200,000,000 Blogs

• 54% = Number of bloggers who post content or tweet daily

• Because of the speed in which social media enables communication, word of mouth now becomes world of mouth

• 25% of search results for the World’s Top 20 largest brands are links to user-generated content

• 34% of bloggers post opinions about products & brands

• People care more about how their social graph ranks products and services than how Google ranks them

• 78% of consumers trust peer recommendations

• Only 14% trust advertisements


Customers are generally less loyal

52% of high loyal consumers in 2007 had either reduced their loyalty or completely defected from the brand in 2008.

© CMO Council & Pointer Media Network. 2009.


"No one wants to hear this, but there is very little evidence that customer satisfaction is related to loyalty. In our studies, 65-70

percent of all people dissatisfied with a call still will repurchase from that company. However, 40-50 percent of satisfied customers will go

on to purchase from someone else."

Good service is not enough

“…75% of customers that defect to a competitor claim that they were satisfied with the enterprise

[service] from which they defected.”

Gartner Group, CRM analytics and personalization

Yankee Group, reported in CRMDaily.com


“Consumers are like roaches, we spray them with marketing and for a time it works. Then inevitably they

develop a resistance.”Bond & Kirshenbaum – “Under the Radar

– Talking to Today’s Cynical Consumer”

What’s the answer?


97 empirical studies, 17 years of research

Customer• Relationship benefits• Dependence on seller

Seller• Relationship investment• Seller expertise

Customer & Seller• Communication• Similarity• Relationship duration• Interaction frequency• Conflict

These

Customer & Seller• Cooperation

Seller• Objective performance

Customer• Expectation of continuity• Word of Mouth• Customer loyalty

To achieve these results

Produce

• Commitment

• Trust

• R satisfaction

• R quality

Palmatier, Dant, Grewal & Evans “Leveraging Relationship Marketing Strategies for Better Performance: A Meta-analysis”MSI No. 05-003, October 2005


Relational mediators; largest impact on WOM




These





Produce

• Commitment

• Trust

• R satisfaction

• R quality



Objective performance – satisfaction – seller expertise




These





Produce

• Commitment

• Trust

• R satisfaction

• R quality



Loyalty – commitment – seller expertise




These





Produce

• Commitment

• Trust

• R satisfaction

• R quality



Cooperation – trust – similarity- (conflict)



Customer & Seller• Communication• Similarity• Relationship duration• Interaction frequency• (Conflict)

These





Produce

• Commitment

• Trust

• R satisfaction

• R quality



The clear lesson

Relationships depend on customer benefits and your people. You need both firing…

#1

#2

#3




• Commitment

• Trust

• R satisfaction

• R quality


Pesky customers not as predictable as sub-atomic particles

Loyalty Programs work

well here

Personalisation required here

Marketing Strategy


Building a customer loyalty culture


Customer relationship capability, a corporate competence, depends upon;

1. Orientation: an organization’s priorities towards customer relationships & decision making criteria

2. Information: including databases and CIF

3. Configuration: the alignment of organization structures, accountabilities and incentives for customer retention.

Day & Van den Bulte “Superiority in Customer Relationship Management: Consequences for Competitive Advantage and Performance”. Marketing Science Institute No. 02-123


Simply put -

Company

• Customer recognised everywhere, by all• Company memory• Consistent treatment across touchpoints• Shared objectives & customer insights• Integration of processes & systems

Customer

Sally in the Call Centre

Strong link

Stronges

t link Minimise link


Loyalty

Remember

The “virtuous cycle”

Increasing convenience forCustomer, “switching costs”

escalate over time.

Remember

Customer Interaction(even better)

Sales more efficient,less waste, more profit

Customer Interaction(better)

Customer tells you more

CustomerInteraction


Relationships: Four implementation tasks

1. Identify customers, individually and addressably

2. Differentiate them, by value and needs

3. Interact with them more cost-efficiently and effectively

4. Customise some aspect of the enterprise’s behavior

i dci

Peppers and Rogers


“Ten Lessons for Improving Service Quality” Leonard Berry, A. Parasuraman, V.A. Zeithaml Marketing Science Institute No. 03-001, 2003

Customer satisfaction still has a role


Making the relationship sequence critical

Glen L. Urban, “Customer Advocacy – is it for You?”eBusiness@MIT Sloan School of ManagementPaper 175

RelationshipMarketing

Quality CustomerSatisfaction

CustomerAdvocacy

Pre-requisite: Trust

Personalise for loyalty


Simplified Checklist of critical elements


IBM Research found: companies with a customer loyalty Orientation have 5 elements

CRM done right: executive handbook for realizing the value of CRM

By: Steve LaValle and Brian Scheld


1. A Business Case:

• Why a customer loyalty strategy?

• Return on investment; where is the money & how much?

• Where customer plans fit with other strategic projects; enough corporate resources for success?


2. Change Management Plan

Employee Behaviors

Management Behaviors

Strategy

ProcessManagement

Scorecard

Improvement

Courage

StrategicContext for

thinking

Trust

Letting go of old

behavior

Balancedview

Blame-freeenvironment

Datadriven

Trust

Personalaccountability

Opencommunication

Systemthinking

Customerfocused

Senior Executive Buy-in

Explicit Change Management Project Plan


People make the difference: “Change Roles”

Change Sponsor

Change Agent

Change Target

Change Advocate

Individual/group who legitimizes the change

Individual/group responsible for change implementation

Individual/group who actually changes (stakeholders)

Individual/group who wants change, but lacks legitimization power


3. Treatment Plans

• What types of customers do you have? Which are most valuable? How do they behave differently?

• How will we treat each type to optimise value to them and the company?

• What parts of the treatment plans can we deliver through

• Loyalty Program, eDM, DM, Contact Centre, Office staff etc

• What do our staff need, where is the value for them?

• What do our partners need, where is the value for them?

• Internal Stakeholder assessment & alignment


4. Ideal Customer State:What work is to be done?

• A picture of strategy execution in the future, a blue print for,

• Organisation; the structure, support and development of our staff. Aligned reward systems.

• Process; the “way we do things around here”. Includes “what we measure”.

• Information; what data & insight do we provide to help our staff provide the optimum experience to customers

• Technology; what infrastructure support features do we need

• Capability gaps between current state and Ideal Customer State; this shows where the work is required to implement the strategy

• Risks; in closing the gaps

Gaps and Risks are specific input into the next requirement….


5. Customer Roadmap:Plan the work

• Plan to implement, task priority and ownership assigned. Project Governance formally in place.


Portfolio managers are “in charge” of devising and executing treatments for different types of customers

Portfolio managers: authority versus responsibility• Authority for pricing, offer, communication flows

• Responsibility for customer equity improvement

Customer portfolio managers worth a thought


Loyalty Marketing is not yet physics


Happy to take questions

www.linkedin.com/in/timwtyler

www.twitter.com/timwtyler

Skype timwtyler

[email protected]

www.strikeachord.com.au

http://www.linkedin.com/in/timwtyler

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culture to build loyalty 090920

Business

customer loyalty heres

customer data

physics envyin physics

customer retentiongupta

customer insight

intangible gifts

advocatesparticularist

customer valuebase case