The Semantics of Loyalty Marketing

While I believe precision in language is important, I rarely find value in debating semantics.  One key exception, though, is the semantics of “loyalty marketing”.  The term loyalty marketing conjures up images of loyalty cards and rewards statements.  Most people see loyalty marketing as a program, generally a currency-based one.  And frankly, most loyalty initiatives are just that – tactical programs.

I prefer to view loyalty marketing efforts more broadly, as enterprise-wide, strategic initiatives.  True loyalty marketing encompasses much more than a points program.  It needs to encompasses customer service, all communications, and even operations.  Loyalty efforts should also encompass all customers – not just loyalty cardholders.  That isn’t to say that a card-based program cannot be a component of a loyalty initiative.  It also does not imply that all customers are treated equally.  Your best customers should be treated as such, and a card-based program will likely skew towards high value customers.

A great example is Southwest Airlines.  They engender loyalty through a strong value proposition, on-time service, great employees, and consistent branding.  Sure, they also have Rapid Rewards, a frequent flyer program.  But Rapid Rewards is one tactic under a loyalty umbrella.

One additional point:  a holistic loyalty initiative requires one to go beyond the scope of Marketing authority.  It will require buy-in from the top on down.  And will require extensive internal communications, training, and IT infrastructure to implement the effort.  It’s one part marketing program and two parts culture change.  But the dividends will be worth it, as Southwest, Enterprise rent-a-car, Harrah’s, and many other loyalty leaders have learned.

Brand Resonance

Saw a great webinar today from Dr. Kevin Lane Keller (Dartmouth) about ‘brand resonance’.  Essentially, he described a construct for brand equity.  At the top of the brand pyramid was resonance, which consisted of four attributes:

1. behavioral loyalty – repeat purchase behavior
2. attitudinal attachment – consumer’s emotional attachment to the brand
3. sense of community – affiliation with other brand users
4. active engagement – willingness to invest personal resources (time, money, energy) to engage with the brand

There are also building blocks at the base of the brand pyramid such as functional performance, brand personality, points of differentiation, and experiential/enduring brand feelings.

Great model.  My only disagreement is one of semantics.  To me Loyalty is synonymous with Resonance.  In other words, behavioral loyalty is not loyalty – it’s simply behavior.  Not to say it’s unimportant.  But true loyalty implies attitudinal and behavioral actions. Maybe a nit, but a true loyalist is someone does exhibit all four attributes described as subsets of brand resonance.

One other sticking point:  metrics.  Measuring repeat purchase behavior and share of wallet is relatively easy.  So attribute #1 can be measured.  #2, attitudinal attachment, is tougher but can generally be measured through surveys, qualitative research and other quantitative research techniques.  Community and engagement are even harder to measure.  There are many online analytics tools that will allow you to measure e-mail open rates and click-through rates, number of Facebook fans and Twitter followers, and the like.  But these are superficial measures at best.  There is no sure-fire way to measure emotional attachment, engagement, and word-of-mouth activity with precision.  As technology and marketing becomes more sophisticated, better metrics will be employed.  But for now, most marketers are using one part inference and two parts faith in making investment decisions in social media – the primary channel for engagement and community.

Social Media – a new paradigm for business?

Facebook. Twitter. YouTube. LinkedIn. There is a lot of buzz about the explosion of social media. Many businesses are trying to scramble to gain a presence on these social media sites. All too often, they are joining in the frenzy without a thoughtful strategy and are simply doing it because “everybody else is doing it”. Many businesses also are not committed to creating a dialogue with customers and prospects; rather, they want to control the conversation. In essence, they view social media as another marketing channel through which they try to influence consumers’ attitudes and perceptions. This phenomenon raises a question: is social media a new paradigm for businesses or is it simply a different form of communication?

The murky reality is that it’s a little bit of both. Businesses that will best harnesses the power of social media need to marry some of the tried-and-true marketing axioms with unique characteristics of the medium. Some of the key attributes that need to be incorporated into corporate social media pages are relevancy and compelling creative content. The ubiquity of social media, particularly with consumers, allows people to spew out mundane details about their life. Businesses can fall into the same trap. Just because you can provide minutia about your company doesn’t mean you should. Information should be relevant to the audience you seek to reach. It also should maintain consistency with your brand personality. The ability to tell great stories and connect with consumers on an emotional level can occur through social media, just as it does through well-done advertising, websites, and retail experiences.

Conversely, there are unique attributes of social media that businesses need to understand. Social media is inherently viral in nature. As such, any messaging can scale very quickly. Nike created a spot using soccer star Ronaldinho, which was seen by over 23 million people on YouTube. On the flip side, negative messages can also scale quickly. Recently, Domino’s faced a PR nightmare brought on by two (now ex-) employees, who posted a less-than-appetizing video on YouTube. The video spread quickly and was seen by thousands of viewers.

Another unique attribute of social media is the ability to create a 2-way dialogue rather than 1-way communication, which is more typical of traditional media. Companies can glean important insights from consumers – both good and bad – about their products and services. Companies can also open up dialogues with channel partners, suppliers, investors, and the media.

Lastly, social media operates in real-time, so communication can be timely. Rather than doing lengthy research projects or focus groups, companies can use social media to solicit immediate feedback from consumers. Companies can also have real-time dialogue on any number of subjects that are urgent, important, or both.

Social media can be a boon for companies looking to connect with customers and other stakeholders. However, they need a well-planned strategy to maximize the benefits of social media efforts and drive true customer loyalty.

Ten Tips for Improving B2B Loyalty Efforts

Loyalty marketing is just as imperative for B2B marketers as it is for B2C marketers. Likewise, many of the loyalty principles are similar across both business models. The following ten tips can help you improve loyalty efforts in B2B markets.

1.Determine relative importance of value-drivers for each customer segment and your strengths and weaknesses

Customers have different value equations. Research can help determine the relative importance of different value-drivers for each of your customer segments. Next, assess your organization’s strengths and weaknesses on each value-driver. Then compare your strengths and weaknesses with what is most important to each segment. Based on this analysis, develop strategies to leverage strengths and close gaps for targeted segments.

2.Create an organization structure centered around customer segment rather than product lines

Most companies are still structured around product lines. Each division communicates with the customer independent of other divisions. Since no one group is responsible for “managing the mailbox”, the result is a proliferation of contacts sending conflicting messages. By organizing around customer segments, the company can speak to the customer with a singular voice.

3.Staff, train, and incent employees to deliver superior customer service

The best strategies fall flat if not executed properly at the front-lines. In today’s market, delivering superior customer service can be the difference between success and failure. Therefore, selecting the right employees, training them properly and developing performance management systems to reward customer service is critical.

4.Ensure that your have emotion-based communications to customers – not just informational contacts.

Generally, customer communication are informational. Invoices, product information, et al. are necessary. However, they do not build relationships with customers. Personalized communications that are emotion-based do build customer relationships and loyalty. As a rule of thumb, send 1 relationship-building communication for every 2 informational contacts.

5.Build a distinctive brand personality and consistently communicate it at every point of contact.

The need for a distinctive brand personality is as important in the B2B market as it is in the consumer market. And the strongest brands have emotional elements as components of their brand personalities. For example, MasterCard’s “Priceless” campaign extols the memorable experiences that credit cards can foster — not the card features or APR.

6.Leverage the speed & connectivity of the Web to simplify how customers interact with your organization.

The Internet provides an opportunity to simplify how customers interact with your organization. Real-time information on order status, inventories or invoicing can be accessed on-line. Some leading companies such as Dell provide key customers with secure, customized WebPages, tailored specifically to that customer.

7.Determine ways to remove steps from how customers buy and use your product.

Time is precious. To the degree that you can save time for your customers, you will engender loyalty. Analyze your sales, ordering and fulfillment processes from the customers point-of-view. Look at how they use your products. Activities that can be streamlined or eliminated will ultimately save your customers time.

8.Learn customers’ channel preferences and interact with them through their preferred channel.

As channels proliferate, customers are demanding that their preferences be accommodated. Organizations must capture channel preference information in their customer database and tailor communications and operational processes accordingly.

9.Consider staging special events for high value customers

Special events for high value customers are a way to deepen the relationship. For example, staging a seminar can be value-added to your customers. Whatever the event, the goal is to show key customers that they are appreciated.

10.Meet with high value customers face-to-face to learn their needs and build the relationship

The most basic, and yet still critical, tip is to continue to contact your customers face-to-face. There is nothing like direct dialogue to understand customer needs. And there is no substitute for a personal meeting in building business relationships.

Optimizing CRM Efforts through Attitudinal Segmentation

Many CRM efforts are sub-optimal for two reasons: first, segmentation strategies focus purely on transaction behavior and second, companies struggle with turning data into insight and action. A new approach to segmentation is needed to provide powerful consumer insights, guide communication strategies, and unleash the potential of CRM.

This approach to customer segmentation extends beyond traditional segmentation methods to gain a better overall view of the consumer. The result is a more actionable customer segmentation that is easier to market to, because you not only know what they purchase, but also what motivates them to purchase.

Traditionally, customers are segmented based on the types, value and frequency of products that they purchase. Transaction-based segmentations are useful in determining what products a particular consumer has an affinity for and what other products they might also be interested in purchasing. For example, if you find through data mining efforts that over 75% of your customers that purchase product A also purchase product B, it is reasonable to use a promotion to cross-sell product B to those customers only buying product A.

Additionally, companies create demographically-based segmentations through data acquired by internal means or through data overlays from 3rd party sources. This type of segmentation is useful in customizing marketing messages and offers that best suit the demographic target of interest. However, demographic segmentation plans do not address motivation. Essentially, they assume that all consumers in a demographic segment have similar needs and attitudes.

To address motivation, a new segmentation scheme is needed: a consumer-based attitudinal segmentation. Attitudinal data can be gleaned from qualitative research and/or lifestyle data which will identify prevailing consumer attitudes and motivations. Consumers are then grouped into unique segments based on their attitudes, using factor and clustering algorithms. Using a combination of client data and external overlay data, algorithms are built to place every consumer on the client’s database into an attitudinal segment. Once segments are defined, attitudinal information can be captured and tracked within a company’s CRM system moving forward. This type of segmentation allows marketers to understand what motivates customers: factors such as price, service, convenience, or brand affinity. Once needs and attitudes are understood, marketers can tailor communications and other activities to personalize the customer experience and drive loyalty.

CRM systems facilitate the capture and dissemination of customer data; however, data needs to be translated into insight and action. The first critical step is capturing the right data. Currently, most companies have a wealth of transaction data, which is critically important and a good starting point. Mining transaction data can determine relative customer value, buying affinities, and other purchase behavior. At the same time, companies should also begin to capture qualitative data like customer preferences and feed that data into the CRM system. For example, the Ritz Carlton hotel chain captures unique customer preferences in their database and can act accordingly when a reservation is made. If a customer prefers an extra feather pillow, one will be awaiting the visitor on subsequent visits, regardless of location. Harrah’s casinos tailor their benefits from their Total Rewards program based on customer motivations. For example, a complementary meal might spur a visit for one customer, free valet parking or a complementary hotel room might drive behavior for other patrons. Harrah’s has the ability to tailor rewards because preference data is captured in their CRM system.

Customer communications and offers should also be customized based on CRM data. Tailoring communications and offers based on past purchase behavior and/or lifestage increases the effectiveness of the contact. For example, a financial services company might target parents of young children with a communication about 529 college savings plans. The same institution might target affluent empty nesters with information about estate planning and young married couples with information about mortgage loans. An even more targeted approach can be taken once attitudinal segments are defined. For example, if a consumer perceives himself or herself to be cutting-edge and techno-savvy, a PC offer might highlight expanded memory, modem speed and other innovative features. And the creative approach might use sleek, futuristic design with sophisticated jargon. The same company might highlight superior customer support for someone who is a traditionalist and is intimidated by technology, using creative that is friendly, approachable and authentic. In other words, understanding customer attitudes guides not only what to say to customers but also how to say it.

When executed properly, actionable segmentation strategies should drive efficiency and effectiveness. By sending relevant messages and offers, campaign effectiveness should improve (e.g. response rates, retention, sales). Segmentation and modeling can also be used to improve efficiency through eliminating unproductive marketing costs. First, mailing costs can be reduced if customers unlikely to respond to a campaign can be identified and removed from the campaign. Predictive models certainly can identify non-responders. Segmentation can play a role in better targeting campaigns. For example, if a mobile phone customer is an early adopter of technology, a campaign to promote wireless messaging is appropriate. However, if another customer has wireless service primarily for emergencies and to keep track of their children after school, wireless messaging is not relevant. So a promotional mailing should not be sent to this segment. Similarly, rather than sending a 32 page catalog to all consumers, a cataloger could be better served – at a lower cost – by producing 4 versions of 16 page catalogs tailored to the needs and preferences of distinct segments.

To summarize, CRM initiatives are not suboptimal due to a lack of technology or data. What is lacking is the ability to turn data into customer understanding — about their needs and motivations. By using data to gain genuine insights into customer preferences and attitudes, marketers can fulfill the promise of Customer Relationship Management.