Loyalty Strategy

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.

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.

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: