Is Now a Good Time for Loyalty Marketing?

While it may seem counter-intuitive on the surface, the simple fact is that strong companies use a recession to take advantage of weaker competitors. How do they do it? They focus their resources on proactively engaging existing business, cross-selling to current customers, and encouraging former customers to buy again. According to CMO Council Executive Director Donovan Neale-May, “Everybody is spending money on demand-generation programs, but they’re not taking their existing customer data and leveraging it.”

During a recession, marketers really need to identify their most profitable customers, then find ways to improve the customer experience and increase business with those customers. In addition, they need to leverage buying history, and knowledge about customers to re-connect, stay in touch, and demonstrate the value that the brand brings through the products and services. Today’s smart leaders will reduce the urge to cut customer loyalty marketing initiatives, and will remain resolute in developing communications programs that strengthen the loyalty bonds with existing customers.

Managing Customer Migration: Secret to Marketing in a Recession

Results, results, results. It is the mantra of 2009! That is not any surprise given the economy. Whether you work at a company that is financially strapped and filed for bankruptcy or a well-led company that is financially sound, the 2009 marketing budget will more than likely get axed or reallocated to programs that generate measurable results.

For CRM managers or loyalty program managers, this means that you will have your work cut out for you to ensure your loyalty program is engaging customers and moving the needle. Our research and client experience has shown, that the best approach is to proactively manage customer migration. Customer migration is the change in customer value over time. It is the leading indicator of potential defection and is a very actionable customer metric. By monitoring customer migration you can:

• Evaluate which customers are spending more — indicating an opportunity for you to meet more of their needs and continue to increase spending, purchase frequency and share of wallet.
• Diagnose and profile problem customer segments that are spending less

By proactively monitor customer migration, you can optimize customer interactions across customer touch points and stimulate profitable behavior change.

Elements of Defining Loyalty Marketing

I was originally planning to move on and talk about how to nurture customer loyalty. But before I do, I want to expound upon a few of the key elements of my definition of loyalty marketing.

"Discipline of identifying and nurturing the yield of best customers through a long-term, reciprocity, value-added relationship."*

Discipline: Loyalty is not about short-term promotional tactics or a points program that is launched today and forgotten. It is needs to be a set of ongoing customer interactions that consistently exceed the needs and expectations of the customers.

Nurturing: Companies need to proactively engage their customers to grow more profitable (or strategically improved) long-term behaviors of customers. To often companies get bogged down with sales promotions and don’t stop to put the customer’s needs at the center of their strategy. Years ago, I spoke with the marketing manager at Montgomery Ward and she shared with me that each department and retail tenant can contact the customer. Wards didn’t have an integrated communication. Wards customers could receive more than 600 communications a year from the company. Obviously, this lack of customer-centricity played a part in the company being forced to close their stores in 2001.

Yield: By cultivating the customer relationship we expect that there will be a product of our efforts. This can be measured in customer satisfaction, retention, referrals, sales and profits.

Reciprocity: You have a mutual dependence, action, or influence. It is a give and take relationship. A customer spends money, provides personal data and hopefully becomes a potential advocate of the organization. The company gives the customer recognition, uses the information to better meet the customers needs and may reward them for their loyalty.

How do you define loyalty?

Many people associate the quality of loyalty with their families, close friends, even their dogs. Loyalty plays a part in most of our daily activities. The brand of toothpaste most of us use each morning probably is one we have used for years, as maybe our coffee, soap and cleaning solutions. We generally order from the same pizza delivery service, visit a dry cleaner whose face we know and whose reputation we trust.

As a result, when I looked up the word 'loyalty' in the dictionary, I wasn't surprise by its definition:

"Faithfulness; advocacy, devotion; constancy".

Now, when you ask marketers how do you translate loyalty into business terms, there is a lot of confusion. Are you talking about a rewards credit card, or is it a grocery discount card? Or are you talking about a coalition program? Frequent shopper program? Or is it an email club? Punch cards? I don't want you to get bogged down by these tactical descriptions of marketing programs. Instead, I want to give you a definition of loyalty marketing that provides you and your organization a strategic focus.

After helping over twenty-five Fortune 500 companies understand the drivers of loyalty and defection from the customers' point of view, I define loyalty marketing as:

"Discipline of identifying and nurturing the yield of best customers through a long-term, reciprocity, value-added relationship."*

This definition speaks to your CFO as well as your customer experience manager.

Now that we have some common definitions, it’s time to concentrate on the hard stuff: nurturing customer loyalty. There are five key elements of successful loyalty marketing:

1. Insight — Create a competitive advantage
2. Precision — Treat different customers differently
3. Relevancy— Make it resonate
4. Reciprocity — Deliver value in every interaction
5. Yield — Gain an amount as a return on an investment

* Definition is trademarked to Customer Insight Group, Inc.

Loyalty Is Not about Points and Rewards

Building loyalty is not just about points and rewards! It is about identifying and nurturing the yield of best customers through a long-term, reciprocity, value-added relationship. It requires a disciplined approach to putting your customer at the center of your business process.

This concept may prove challenging for many companies. If you want to learn how you can master the art and science of nurturing customer loyalty, please join me at the IQPC's Customer Engagement and Loyalty Summit on November 17-19, 2008 in Miami, Florida.

IQPC’s Customer Engagement and Loyalty Summit focuses on the programs and metrics to engage your customers and enhance loyalty, and lead you through the change management that will backup the initiatives and drive the competitive edge. American’s most admired companies will bring you proven, hard hitting strategies for:

• Building the loyalty through engaging your customers and winning their commitment
• Aligning your business strategy and processes with the understanding of your customers
• Acting on the customer data and translating customer loyalty into business performance and competitive edge
• Nurturing positive corporate culture to support engagement and gain customer loyalty
• Building employee engagement & loyalty to win customer loyalty
• Getting your CEO/CFO involved into the loyalty commitment

For more information, visit IQPC's Customer Engagement and Loyalty Summit or call 1-800-882-8684. As a special guest of Customer Insight Group, you will receive 2 for 1 pricing when you mention code IUS_CIG_001. Register today to get a jump start on the competition!

Confusing Profitability with Customer Loyalty?

Call it the dominance trap: The larger a company's market share, the greater the risk it will take its customers for granted. As the money flows in, management begins confusing customer profitability with customer loyalty.

Starbucks, the world's most dominant coffee retailer, just had a wake up call. It is experiencing a slowdown in same-store sales – specifically declines in transaction volume or “foot traffic. The soft economy, higher cost of living and new competition from McDonald’s and Duncan Donuts, have taxed demand for Starbuck’s premium coffee. With ebbing store traffic, it is not surprising to hear that Starbucks is turning to a loyalty programs as a way to perk up sales. All I have to say: What took you so long to figure out that having a direct relationship with your customers was important?

I am delighted to hear that Starbucks wants to reignite the emotional connection between its customers and the brand. The new loyalty program value proposition and in-store execution is not perfect, but it’s an important step toward customer-centricity. If Starbucks understands its customers better than its competitors do, and if Starbucks can inspire its employees to have richer interactions with customers, then Starbucks will be in a stronger competitive position. Cheers.

Rebranding Loyalty Programs

Some of the most successful loyalty programs started very differently than they are today. By responding to changing customer needs, shifts in business climate and new inroads from competition, loyalty programs succeed in remaining fresh, relevant and profitable. Here's a quick look at how some popular retail programs have evolved.

Hallmark Gold Crown Becomes Crown Rewards
In 1994 the Hallmark Gold Crown program debuted, a frequent-buyer reward program for customers at selected Hallmark retail stores. Two years later, the Hallmark stores participating in the reward program were rebranded under the Hallmark Gold Crown name through a $100 million remodeling program in which stores were revamped with a fresh look. Just recently in August 2007, the Hallmark Gold Crown program was reinvented again into Crown Rewards. With the name change came a new tiered loyalty program with a fresh set of rewards and ways to earn them. The new program is strategically focused on getting customers to move up and earn more rewards. Program benefits are designed to increase basket size by giving customers bonus points for purchasing three or more cards, drive shopping frequency through new monthly member offers and rewarding high-value Platinum customers with more points and rewards.

DICK'S Sporting Goods Sports ScoreCard Rewards
Recreation retailer Dick's Sporting Goods has featured their ScoreCard Rewards program for years with a stable rewards structure that has remained unchanged over time. What has changed, thanks to insight from current customers, are its enhanced benefits, a fresh new look to the program that's supported across all print, electronic and in-store communications, and a continuously nurtured strategy that keeps the program topmost in customers minds. One of its more notable refinements is how the program now uses the information it has gleaned from its various customer segments to tailor messaging and offers specific to each segment - ultimately making the message even more relevant to each customer and in turn, their membership more valuable.

Best Buy Reward Zone
Launched in 2003, Best Buy's Reward Zone has since made its own transformations. After soliciting feedback from customers, they dropped the $9.99 enrollment fee, made it easier for members to use the web, and simplified the way customers receive exclusive offers, deals and reward certificates by e-mail or by accessing MyRewardZone.com. Just this last February, Best Buy offered up a never-before-seen perk for program members - exclusive access to The Police Live in Concert tickets. This unique benefit was right on target for their entertainment-savvy member base and rang true to their program's goal of maximizing their members' entertainment lifestyle.

Loyalty programs are like our customers lives: changing, growing, evolving to meet the demands of each day. Successful companies recognize this process and keep their programs fresh, relevant and profitable.