Culture To Build Loyalty 090920

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
marketing
1
Marketers

Loyalty physics – the dream
Loyalty
Program
Marketing
Strategy
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
Particular
Tangible

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
Impact of improving retention, acquisition cost, and margins on customer value
Base Case: 70% customer retention
Gupta, Lehmann & Stuart “Valuing Customers” Marketing Science Institute No. 01-119

Marketing’s Quantum mechanics is reciprocity
Marketing’s chain reaction

New Model of Value Creation
Influenced to visit community. Some pass along.
Pass
Along
No community visit, but positively influenced. Some pass along.
New model:
C2C
Old model:
B2C
Each interaction is an impression
1000 impression = $10
$10 CPM = $0.50 CPI
Pass along continues

Coca Cola, MSI presentation May 2008
From… to

Payload
Recommendation
Loyalty program customers are 70% more likely to advocate for the brand (Colloquy)
55%
32%
Not in program
In Program
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.

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
"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."
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
These
Customer

Expectation of continuity
Word of Mouth
Customer loyalty

Customer

Relationship benefits
Dependence on seller

Produce

Commitment
Trust
R satisfaction
R quality

Seller

Relationship investment
Seller expertise

Seller

Objective performance

Customer & Seller

Communication
Similarity
Relationship duration
Interaction frequency
Conflict

Customer & Seller

Cooperation

To achieve these results
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
Customer

Word of Mouth
Customer loyalty

Customer

Produce

Commitment
Trust
R satisfaction
R quality

Seller

Seller expertise

Seller

Customer & Seller

Communication
Similarity
Conflict

Customer & Seller

Cooperation

Objective performance – satisfaction – seller expertise
These
Customer

Word of Mouth
Customer loyalty

Customer

Produce

Commitment
Trust
R satisfaction
R quality

Seller

Seller expertise

Seller

Customer & Seller

Communication
Similarity
Conflict

Customer & Seller

Cooperation

Loyalty – commitment – seller expertise
These
Customer

Word of Mouth
Customer loyalty

Customer

Produce

Commitment
Trust
R satisfaction
R quality

Seller

Seller expertise

Seller

Customer & Seller

Communication
Similarity
Conflict

Customer & Seller

Cooperation

Cooperation – trust – similarity- (conflict)
These
Customer

Word of Mouth
Customer loyalty

Customer

Produce

Commitment
Trust
R satisfaction
R quality

Seller

Seller expertise

Seller

Customer & Seller

Communication
Similarity
(Conflict)

Customer & Seller

Cooperation

The clear lesson
Relationships depend on customer benefits and your people. You need both firing…
Customer

#1

Commitment
Trust
R satisfaction
R quality

Seller

Seller expertise

#2
Customer & Seller

Communication
Similarity
Conflict

#3

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;
Orientation: an organization’s priorities towards customer relationships & decision making criteria
Information: including databases and CIF
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 -
Customer
Strongest link
Minimise link

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

Strong link
Sally in the Call Centre
Company

Loyalty
Remember
The “virtuous cycle”
Remember
CustomerInteraction
Customer Interaction(better)Customer tells you more
Customer Interaction(even better)Sales more efficient,less waste, more profit
Increasing convenience for
Customer, “switching costs”
escalate over time.

d
i
c
i
Relationships: Four implementation tasks
1. Identifycustomers, individually and addressably
2. Differentiate them, by value and needs
3. Interactwith them more cost-efficiently and effectively
4. Customisesome aspect of the enterprise’s behavior
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
CustomerAdvocacy
RelationshipMarketing
CustomerSatisfaction
Quality
Glen L. Urban, “Customer Advocacy – is it for You?”
eBusiness@MIT Sloan School of Management
Paper 175
Personalise for loyalty
Pre-requisite: Trust

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
Data
driven
System
thinking
Courage
Letting go of old
behavior
Strategic
Context for
thinking
Strategy
Customer
focused
Trust
Process
Management
Improvement
Scorecard
Trust
Balanced
view
Blame-free
environment
Employee Behaviors
Personalaccountability
Open
communication
Management Behaviors
Senior Executive Buy-in
Explicit Change
Management Project Plan

People make the difference: “Change Roles”
Change Agent
Change Target
Change Advocate
Change Sponsor
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
tim@amateras.net
www.strikeachord.com.au