Best Loyalty Programs

I’ll be the first to admit that I take this email stuff pretty seriously. That’s because it is so underutilized and poorly executed by so many companies and I passionately believe it is essential to an effective customer strategy. But at this point, after we’ve posted six serious ways that your company can improve its email efforts, let’s lighten up.

 

I’m not suggesting that your casual dining chain hire joke writers for your email campaign. And I don’t think taking a comedic turn when you’ve spent years cultivating a serious tone as a high-end fashion retailer is advisable. Fun has everything to do with a concept I call “surprise and delight.” It’s kind of like the “shock and awe” of email marketing.

 

Surprise and delight means that every now and then you’re going to extend an offer, a discount, an experience, or an information package that is unexpected. This experience must be worth the customer’s while, not a frivolous venture. Like anything else it is also based on data. 

 

There are two kinds of surprise and delight. The first is somewhat random but still based on customer data. Example: A fashion retailer can spice up the dog days of midsummer with an unscheduled email to its most valuable customer segments based on total revenue as a “summer recess” discount. That makes your company more valued and less predictable. And it just might keep those customers on watch for the next campaign you send on the normal schedule.

 

The second kind is an “earned” surprise and delight. In this case, a company can set an internal marker for a certain set of customers based on their behavior. You must don’t need to let the customers know you’re doing it. Example: If a casual dining chain wants to spike its happy hour business, it can email an offer for a “martini night” for its customer that have shown the biggest percentage revenue jump, or even for the customers that have most recently joined its loyalty program.

 

The element of surprise is one that some companies have quite frankly abused. But it doesn’t need to be that way. Gain a trusted relationship by running a quality email program based on data and value, and you can move to surprise and delight. More work for you maybe, but a lot of fun for your customers.

The catalog has been the workhorse of direct marketers since Hammacher Schlemmer, Montgomery Ward, JC Penny and Sears began selling to frontier settlers (or that is how the legend has been spun for me.) Since then a lot has changed, yet at the same time, a lot has not. Digital printing and online delivery of catalog content has revolutionized the cost and customer ordering structure of this business. But the objective is still to engage customers and prospects, get them to look at products, increase purchase intent and then make a purchase. Simple concept, yet often very complicated. The focus for print catalogs is finite; the opportunity infinite.

 

Today the print catalog is still a powerful tool that contributes to converting the coveted sale. Although it no longer stands alone, it feeds the mix of outbound marketing channels, including email, phone, text, and social media. Additionally, the impact of the catalog on consumer's lives and the company's database can vary wildly, depending on the data, segmentation analysis and lifecycle channel understanding that goes into the targeting of those that will receive a company's catalog.

 

Certainly there is skill in the development process and execution that can generate substantial revenue from catalogs. But that revenue by itself pales next to the opportunity of using a print catalog to feed a multichannel retail engine, revving on customer data and its relevant opportunity for high-octane cross-promotions and loyalty programs. The real opportunity is to move beyond the standard catalog mantra of R-F-M (recency of last purchase, frequency of purchases and monetary value of purchases) to segmentation by past purchases, channel preference, lifecycle stage, and next best offer modeling. This is made possible with a marketing database foundation that is fully integrated with all the touchpoints providing a single view of each customer. This view allows for analysis of the customer showing what they have done, what they will do and then showing if they actually did do it. The up-side is infinite.

 

The opportunity now is to use the catalog in the marketing mix for targeting those customers that are most likely to convert via the most relevant marketing “push”, while avoiding those we know will convert with just an email, postcard or on their own with no encouragement. The approach is as traditional as the print catalog, and as old-fashioned as thrift. But with the right mix of print, online, and even socially enabled marketing catalog marketers can  target the right customers with the right catalog to earn decidedly modern revenue. 

I saw another interesting research study today that reported that 50% of email users delete marketing emails within two seconds of opening them. That’s according to Litmus Analytics. I’d hate to be one of those companies. It means they’ve engaged half their customers powerfully enough to get them to take that necessary step. But it means the email content is failing.

Any company suffering from a high deletion rate has most likely made a critical mistake that relates to my June 19 post on improving retail email practices. That one pointed out the need to drastically improve your understanding of the customer lifecycle. All customers are not the same. They don’t buy the same products as their neighbor or colleague now, and they won’t have the same value to your company a year from now. Yet, too many companies send the same email to the same customer at the same time. That will crash your open rate for sure.

I’ll also bet that companies who have high deletion rates do not consider the value exchange inherent in email marketing. You, the retailer, are sending your customers much more than an email. You sending them communications that promises value. They provide value by giving you their money, and maybe even an ongoing stream of information. If you are not giving them a valuable communication in return, of course they aren’t going to you’re your email or share it. They’ll hit the delete button as a force of habit. And you have wasted precious time, effort, personnel and customer equity.

A commitment to value exchange means your company is going beyond asking a customer to join your list with the possibility that they will be invited to special events or extended a discount at some point. Retailing is much more immediate than that. You need to use email to make the customer feel special. And there’s no magic algorithm to do it.

Here’s three ways to improve what I call your value exchange quotient (VQ).

 

1. Base your frequency on customer data. If I say “buy” twice, that translates to “bye-bye.” Email cannot be yet another way to nag customers into a purchase or information-based relationship. Use customer data to understand how often different customers want to receive an email. It’s not about your email marketing program that says “blast the back-to-school discount every week starting August 15.” It’s about the customer data that indicates the email list members that have school-aged kids, and have responded to frequent emails in the past.
2.  Attach an offer. Even if you properly segment your list and send relevant timely messages, include a compelling offer. Just letting the customer know there’s a back to school offer is not enough. Offer a loyalty program if the customer has more than two kids, for example. Offer a discount for holiday purchases to keep the back-to-school customer coming back.
3. Work hard and work smart. I use the exercise analogy. The guy who’s 30 pounds overweight and drinking beer every night in front of the TV is not going to run a marathon next week. But he could go for a walk instead of drinking beer. If you have not been running an email program that extends value now, don’t expect that you will win awards for one next month. But you can begin to identify the communications that will be valuable to them and move customers toward higher value to your company. That takes hard work, rigorous analysis, and always striving for the next level of value. 

There’s a part of me that thinks the recent Facebook mea culpa was admirable. You could give Mark Zuckerberg kudos for acting quickly to reverse some of his bad decisions on the “Like” program and the virtual takeover of shared data. But for me the initial act outweighs any possible reaction. Facebook trampled the boundary between its users and their personal information. They may get away with it. But it points out the dangers of too much personally identifiable information given to one network.

From a marketing perspective, I continue to stress to clients that Internet targeting, as we know it in all its forms, can be very effectively executed without the amount of personal data that Facebook and other sites collect and use. I don’t think a major fashion retailer, for example, is limited by targeting “moms who use coupons and shop for groceries three times a week.” That kind of non-personal profiling gives any company access to a campaign that will achieve superior ROI. Can that fashion retailer company do better with names, addresses, birthdays, and names of friends? Maybe. That fashion retailer would certainly be limited by targeting only “moms.” That’s a big universe that has been defined in a far more scientific fashion.  

Targeting customers has reached a tipping point with consumers because of the Facebook overreach and the Google wifi data grab. It’s unfortunate, because I do believe that responsible use of personally identifiable information will help consumers become smarter and more economically efficient when it comes to couponing , clienteling, customer service, and loyalty programs. But the events of the past month will understandably put consumers on guard.

For brand advertisers, its time to keep then momentum when it comes to targeting. I’ve always said that if consumers saw one day of the Internet experience without any targeting technology, they would be so disappointed with the irrelevant content and advertising that they would want the targeting back in a hurry. That momentum for right now needs to be with behavioral targeting rather than a blind run to gather as much personal information as possible.

It’s also important right now to restore customer confidence. Data breaches will be magnified now. Data responsibility, while using it for good business purposes, is still job one.

On the surface it seems so manageable and straightforward. After all, BtoB marketing lists are certainly smaller than BtoC lists. The customer segments are fewer and it would seem that the opportunities for true one-to-one marketing are many. But BtoB marketing comes with some serious pitfalls. They are different than those presented by BtoC but nonetheless challenging.

I see three specific challenges that marketers will have to deal with in order to make BtoB marketing an effort that will yield real results in the form of lead creation and marketing ROI. 

Complexity of Transactions: BtoB is rarely a simple transaction. One to one consumer marketing is born out of the retail, direct to consumer world. In the pre-Internet days the biggest challenges associated with getting a direct marketing program off the ground was getting the data assembled, cleaned and standardized and pushed to a mailing house on time. As the process developed over the decades, this process became more commonly known as the Extract, Transfer, Load (ETL) process. At the end of the process, media would go out via postal service or phone and finally email. If all went according to plan, orders would come in through any one of the retail sales channels: store, customer service call center and finally Web. But BtoB companies are often selling complicated and more abstract things like “contracts” or “policies,” many products bundled together like chemicals or construction materials, or an even more abstract service. Typically, you want to have your marketing efforts driven by purchasing behavior and complex products and services make targeting those behaviors more difficult.

The introduction of the “organization” into the database adds a new dimension to the data, and a level of complexity. B2C data is relatively easy. The customer has a name, billing and shipping addresses, and a credit card number, with data integrity enforced in the transactional web environment or through a loyalty program where you can tie a card number or coupon back to the same individual each time. But in the BtoB world, you are selling to organizations rather than people. There is inevitably a many-to-many relationship between an organization record and a contact and resolving this not a simple matter. Add to this the layers of hierarchy in a company, divisions, acquisitions, satellite offices, home offices etc. and determining what contacts and addresses can be bundled together into a single sales opportunity is a formidable problem.

Measuring ROI is difficult under ideal conditions and in B2B can actually be contentious. In the B2C environment, there are opportunities for “explicit” measurement. Send an email, click on the email, place an order. This pattern is easy to track and search for in the B2C database and it is easy to create a link between the marketing effort and the result. In the B2B environment ROI has to be measured “implicitly” by guessing causality between outbound communications and a subsequent purchase. This is complicated by the fact the sale is closed by a sales team way downstream and potentially weeks or months from the initial marketing effort. Although many companies are working to close the ROI gap, it’s still an issue. B2B marketers need clear goals and clear outcomes before executing a plan and an agreed upon method for measuring success.  

The conventional wisdom is that anything a marketing team can do in the B2C world will translate to the multi-channel B2C environment, and possibly even be easier considering the smaller data volumes. That’s the myth. In reality, the challenges mentioned above are common stumbling blocks to launching a successful B2B marketing effort. The good news is none of these problems are deal breakers. A well designed and thought out process for managing these types of complexities can lead to profitable marketing programs.  

 

Although we might want it to, building brand loyalty doesn’t move at the speed of technology. It moves at the speed of the customer. It’s important to remember this as mobile technology starts to round the corner. Mobile is a brilliant way to communicate with the customer and acquire customers. And like anything that has customer acquisition involved, data is essential.

We have seen some very smart mobile applications lately. Recognizing consumers' need to use mobile phones while shopping, Motorola has launched Mobile Loyalty Solution, which serves as an extension of existing loyalty card programs or as the basis for new digital efforts. The service eliminates the need for membership cards and paper coupons. More importantly retailers are using it to build a database of shopper product interests, purchase habits and preferences. The Motorola offering works with most smartphones, and will allows retailers to target consumers with the best offers and discounts on products that interest them. But let’s not forget smartphones are somewhere around 35 to 40 percent of your customers. It’s part of your customer base and will grow. Use data to track that growth.
The mobile loyalty programs are just starting to find a foothold in the QSR vertical loyalty programs, according to a 2009 report from information commerce provider First Data.

But they are starting to show themselves. Southern California pizza chain zPizza is implementing a mobile partnership with Mocapay, a Denver-based company that created a mobile platform for zpizza to use for loyalty and gift-card efforts. The platform allows customers to use mobile phones in place of plastic loyalty or gift cards. They can pay at point of sale and check card balances simply by using their phone.

Will it work? Depends how you define success. We encourage retailers in the QSR space to look hard at mobile loyalty programs for customer segmentation, and customer market research  as their customers integrate mobile commerce into their lives. Remember that the technology is not the driver. Remember that customer retention and engagement are the key drivers. Look at your customer data first, and proceed with caution.

With the economy still sorting itself out and the post-holiday period giving a chance to review 2009, I suppose it would easy for retailers, restaurants or any business to put customers in two segments. Those two segments: buyers and non-buyers. But retailing is never that simple and segmentation has never been more important.

We’ve been among those evangelizing segmentation for years. The more mainstream analytics business has caught up to the science of segmentation particularly behavioral segmentation.  Best-selling books such as Predictably Irrational  (Arielly, 2008) and Nudge  (Sunstein, 2008) detail the nuances of individuals’ behavior through the use of careful, controlled studies. Findings frequently run counter to popular understanding, and researchers in this space are uncovering a wealth of opportunities for understanding consumer behavior.  A recent article in TIME magazine recounts the team of behavioralists leveraged by the successful Obama campaign, and the likely implications of the behavioral revolution in American politics (Grunwald, 2009).

Behavioral segmentation seeks to identify discrete groups of people based on actual behavior.  To accomplish this, databases are often used to track and record customer behavior.  One of the most common ways that customer behavior is collected is through the use of loyalty programs.  Other ways that customer behavior can be tracked include responses to email campaigns, direct mail campaigns, or website activity through a website that requires its users to register in order to access content.

All of these data capture mechanisms provide insight into actual customer behavior, including but not limited to:

·         the products that a customer has purchased

·         the frequency with which a customer visits a store or website

·         the type of content a customer has accessed on a website

·         the average amount of a given customer’s transaction,

·         the number of emails that a customer has opened or clicked

·         direct mail pieces that a customer has responded to

Often, the sheer volume of behavioral data can be overwhelming.  A single table designed to record the history of email sends may easily result in hundreds of millions of records for medium to large list sizes. Some results from behavior-based loyalty will be easy to see. Incremental spending and profit cultivated from the targeted customer groups will grow. ROI for the overall loyalty program will spike with more efficient spending. Customers will become more engaged across all channels and more responsive to targeted offers. Companies can also expect some welcome unforeseen  consequences beyond these more predictable ones.

1)       Database growth: The overall size of a company’s database will grow if behavior-based loyalty is embraced. This will be rooted in a commitment to enticing the right customers to engage with the company and enroll in an exciting rather than predictable program. It will grow in strength from the continued interaction that customers have with your program, continuing to leave tracks of their purchase behaviors and evidence of their attitudes and emotions. Emotional connection with behavior-based loyalty will simply be stronger and the database will gain quality as a result.

2)       Segment strength: Because behavior-based loyalty starts from the standpoint of changing the behavior of a specific group, the company owns that knowledge. It knows how to get a specific segment to move their behavior and then move the needle on sales. “It’s not realistic to expect that you can move an entire customer base,” says MacCurrach. “But you can move the right segment of that customer base with the right knowledge and the right reward scheme.”

3)       Trackable programs: A company doesn’t have to guess about a loyalty program if behavior is at the center. It can use the knowledge gained to answer definitively questions such as did this offer work? Did the reward work? Did the customer respond with incremental behavior?

4)       Create buzz: It’s always one step tougher to predict and measure the word of mouth value created by a loyalty program, but it much more likely that customers and the press will advocate a program that surprises them rather than one that rewards them predictably.

Most importantly retailers in most every vertical need to embrace behavioral based loyalty to move from “I think I know my customer” to “I know my customer.” Knowing your customers is an essential competitive advantage. Knowing what will make them more profitable through a surprise and delight strategy is the next level of customer knowledge and the true cutting edge of customer loyalty. Without it a company runs the risk of being just another number among the 701 million retail industry loyalty programs. By employing it, retailers have a shot at making loyalty programs work for their customers and for a neglected part of their interests – the bottom line.

Hate to say “I told you so.” But….

We have been saying for about a year now that marketers are doing a good job at cookie-cutter customer loyalty programs. A new CMO Council Survey released earlier this week confirms that. Unfortunately, the survey confirms another more disturbing trend that we have predicted: Marketers think they could be doing better at loyalty.

And they could.

Here are the details: Surveying more than 600 marketers with active loyalty programs the CMO Council found that most (61 percent) believe that loyalty program participants are the best and most profitable customers. An almost equal number of respondents (65 percent) view customer loyalty program investments as a very essential, or a quite valuable part of the marketing mix. Unfortunately, only 13 percent of respondents believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20 percent don't even have a strategy for this. Another 25 percent admit they have not mobilized brand loyalists to become active advocacy agents, either.

The study also reveals that marketers are mostly inducing loyalty with discounts or free products and premiums rather than quicker, better service or improved customer handling. Some 39 percent of respondents view discounts and savings as the key member benefits, 34 percent view free products and premiums as essential incentives, while 33 percent are committed to offering points for merchandise redemption as a further motivator.

The report contains other good information points that show the dichotomy between what marketers like and what they wish they could do with their loyalty programs. Suffice to say that loyalty programs will continue to be a preferred customer retention model. But in order to close this dissonance between loyalty reality and the desired state, we recommend the following actions:

Stop shelling out random and predictable points: If a company thinks rewards are points and points only, something’s wrong. If you truly understand what your customer wants, it has to be more than points. It’s a relationship and an experience. Points can be given by your competitor. Get your data engine running to find out what moves the valuable customer and it will add to your program’s profitability.

Surprise and delight: Customer data can provide clues about the experiences that will set you apart. Maybe it’s a discount for frequent customers. Maybe it’s an invite to an in-store only event for customers that have fallen off in their spending habits. If you don’t find out, you’re stuck on the point treadmill.

Segment beyond loyalty members: Most companies look at their loyalty program members as one large segment. That’s a mistake. There are plenty of behavioral segments, value segments, and demographic segments within the loyalty membership.

Here at Customer Portfolios we’re feeling a little more than vindicated about our bullish view on e-commerce lately. Today comScore issued a report that shows 4 out of 5 US internet users visited a retail site during the month of November. For some categories such as consumer electronics, that’s a 33 percent jump over 2008. Overall holiday business was up four percent online, which is a good number considering the economy. According to a report in The New York Times on January 7, The industry collectively turned in a 2.9 percent year-over-year sales increase at stores open at least a year, according to Thomson Reuters. Some 75 percent of retailers beat analysts’ estimates — the most companies to do so since March 2007. Several retailers — including Macy’s, Nordstrom, Aéropostale, TJX Companies, Ross Stores, American Eagle Outfitters and Limited — expressed their growing confidence by raising their earnings estimates.

 
Here’s why we feel vindicated. This number, and some other success stories show, that it is customer engagement that will attract and keep customers. If a consumer visits a retail website, it’s because they are researching products, reacting to a brand or simply engaging with the retail brand experience. In our experience, consumers do not go to a website to earn points on a retail entitlement program. And it is not in the retailers best financial interest to push a loyalty program online when that program may or may not generate incremental business. Retailing is about excitement over entitlement. Look at Amazon (of course), which did not log its best holiday season because of a loyalty program, but because they did a great job using a new product (Kindle) to drive traffic and generate excitement.

The companies that do well in e-commerce understand that the future state of customer loyalty, behavior-based customer loyalty is based not on predictable behavior from the customer and the company, but on breaking the predictable patterns from the customer and appreciating those most valuable customers with exciting experiences, goods, and or services. Customers should not do the math or even understand the math around customer loyalty programs, they should be excited by them.


The ability to execute exciting loyalty programs depends on a customer command center, which must go beyond feeding simple revenue transactions. It needs to define and measure the more subtle ways in which customers share information and how often they touch a brand across all channels. Customers may sleep but customer information never rests. That’s where the goals of the company need to meet and use the wealth of information.

Here at CP we call this constant customer information “Lights-Out” marketing.  It can automatically execute programs that are relevant to the customer and more importantly relevant to encouraging and rewarding behavior that syncs with the companies marketing and sales priorities at that moment. Lights-Out programs will be executed if there is just one customer that meets those criteria or a million. The programs will be targeted even as the customer grows and their behavior modifies or the loyalty behavior changes. The integrated command center is a closed-loop marketing architecture that automates triggered programs and optimizes the relevance, frequency, and timing of marketing communications.  As stated earlier, customer information is easy and common. Using it to encourage profitable behavior is an art and a science.