Customer Loyalty Programs: 5 items for your next grease and oil change

August 19, 2011 By Leave a Comment

We all know what we want from our customer loyalty programs; more, and more profitable, customers.  The trouble is that customers are notoriously fickle, changeable, arbitrary, and our lifeblood.

What worked last month may not work today.

So Loyalty Programs need regular check-ups to make sure they are still achieving their objectives – in just the same way you need to regularly check and service your high performance automobile.

In fact, I sometimes think all Marketing professionals should drive old exotic sports cars, to get a feel for how much tinkering is required to keep relationship marketing initiatives on the road!

So here are five things you should check when you raise the hood of your Customer Loyalty Program;

1. Is it still mechanically sound? Brakes, steering, fluid levels all OK?

It’s easy to assume that because there are no rattles that nothing has fallen off.  However, a quiet customer is sometimes an absent customer, so regularly run through the program operations. For example, though programs vary widely, make sure you are meeting member expectations in yours;

  • Point balances accurate and timely
  • redemptions being fulfilled in a reasonable time
  • web site availability close to 100%
  • if you have earn partners, what percentage of their points are ‘missed points’ claims from customers
  • how long are welcome packs taking to get to new members
  • is my cost per point for the program steady, in my comfort range
  • are my operator SLAs all being measured, reported and met…

Make sure ‘BAU’ does mean ‘Business as Usual’, not ‘Best Are Upset’.

2. Is the ignition system still tuned correctly?

Poorly tuned programs can cost you money by rewarding the ‘wrong’ behaviours. This comes about as prices creep, or sometimes just because the program has succeeded in distilling membership to your loyal and committed customers. When this happens, tier thresholds stop becoming aspirational and start rewarding customer’s regular behaviour.  Worse still, tier advancement and privileges become an entitlement in the eyes of the member, not a thank you for a stretch.

You end up paying more for business you stood a good chance of getting anyway.

Even if your program does not have membership tiers, reward thresholds are subject to the same ‘bracket creep’, and should be reviewed regularly.

Thank Mr Pareto and plot your members into a curve by their value and the percentage of your business they represent.  Make explicit decisions about what percentage of your customers you want to reward and by how much.  Then recalibrate tier thresholds and reward point values. Build in planned value ‘stretches’ where customer types change to encourage members on the ‘cusp’ to spend a little more to achieve the next level/reward.

This is the loyalty program equivalent of the ignition timing light in that exotic sports car.

3. What is your fuel economy?

It is not always easy to measure the mileage you are getting from your customer loyalty program. Proving which action caused customers to stay and spend is difficult. But you do need a fuel flow meter on your program or inevitably the accounting types will question why you don’t take the bus instead.

For Loyalty Programs the flow meter is generally the measure of customer churn and the potential value that a customer who leaves takes with them. Customer Lifetime value measures that look at member retention, segment population and average member value allow us to take a snapshot of the current value of current & future customer cash flow (in today’s dollars), just like a Balance Sheet takes a snapshot of the companies physical assets.

These snapshots, compared over time show the impact your relationship marketing investment is having on member value.

For a more direct measure, or if customer churn is not an issue for you, calculate the sales lift that is required to pay for the program operation and relate this figure to the relative spending of customers who have redeemed in your program versus those who have not in the last X months (determined by your customers shopping frequency). If the difference covers the sales lift required, you have evidence the program is paying its way.

4. Does the car still look good? Paint and body work perfect?

The more a member has to do to earn rewards in your program, i.e. the more valuable the customer, the more important it is that the rewards include status, recognition, and exclusivity. Would your Platinum members be proud to pull your membership card from their wallet? Is your program an MG or a Ferrari? Which image would your target customers prefer; driving cap or helmet?

What others are saying about the program and its image is growing in importance, so a social media strategy is now a critical factor in Loyalty Program success for the members most interested in membership as a badge.

5. And finally, the most important question; is it still fun to drive?

Are customers actively accumulating and spending your currency, joining in your facebook discussions, redeeming  a mix of your rewards (versus cash back)?
Some measures of customer engagement are important to monitor;

  • New enrolments
  • Redemption rates and time to first redemption
  • Points breakage rates and average life of a point
  • Dead spots in the reward catalogue (if you have one)
  • Participation rates in feedback requests

If these measures are falling, perhaps it’s time to think about that super charger or more comfortable suspension?

Getting Help

Genroe offer a Customer Loyalty Program Health Check that covers all of these areas and provides independent, practical advice on how to improve your customer loyalty program.  For more information, please contact us.

Filed Under: Best Practices, Customer Loyalty Management, Customer Strategy

Interactive Marketing: the 7 Critical Factors you need for success

August 2, 2011 By 1 Comment

interactive marketing critical success factorsInteractive marketing is a relatively new feature on the marketing and customer management landscape.  It is only with the relatively recent advances in software tools that this dramatically more effective way to market to prospects and customers has come within the reach of most organisations.

And be assured that interactive marketing (also called trigger or event based marketing) can drive dramatic results: conversion rates of 45%, 35% reductions in direct marketing costs are just the tip of the iceberg.

However, to be successful there are five critical success factors that you need to consider.

1. Have The Right Technology

To implement trigger based marketing successfully you will require a base level of technology:

  • The ability to monitor customer behaviour via a customer database of some type
  • The ability to decide what to do; this needs a real time, rules based decisioning engine
  • The ability to execute in a timely fashion
    • Campaign management software
    • Email marketing automation software
    • Ability to input to face to face / contact centre channel
  • The ability to report on what happened

These really are the basic requirements.  With the advent of cloud based services like Aprimo, and Infusionsoft it doesn’t have to cost a fortune but you do need it.

2. Match the channel to the trigger

For instance if you are using analytics based triggers then you should use an automated channel; email or direct mail.  If you try to use a person based channel your staff will have problems believing in the trigger.  That lack of belief will impact on their ability to deliver the treatment with conviction.

On the other hand if you have a rules based trigger that can be explained to staff then they can be very passionate in delivery.

3. Inbound channels – pre-think the action

If you are using your inbound contact centre to deliver the response then you need to be “action based” in your treatment description.  You are not being fair to your inbound staff if you give them the trigger information but not how to react to the trigger.  This is because they do not have the time to review the customer record and devise a response to the trigger while on the call.

For instance, if a customer has made a large deposit in their transaction account don’t provide that information to staff.  Instead, include a note in the customer’s record that the agent should “update client on new term deposit rates.”

4. Speed / Timing

The effective lifetime of an event based marketing trigger can often be measure in hours if not minutes so you must automate the process and drive down cycle time.

When triggering an abandoned shopping cart email, you need to think about how long the person stays in the market for your product.  If you delay your treatment (email or outbound call) too long, the purchase may have already been made from your competitor.

5. Measurement

“Proving results to the executive team to garner support and budget” was the biggest challenge faced by business to consumer marketers in a recent Forrester report [1].  It just as important to measure success in interactive marketing as it is for all the rest of your marketing.

Unfortunately interactive marketing makes the measurement process harder.  This is because campaigns no longer have clearly defined launch, response and report events.  Instead a campaign may run for years with 50 executions a day.  Over a year that mounts up to almost 20,000 interactions and associated costs.

I don’t think it is any coincidence that the second biggest challenges for marketers in that same Forrester research was “Staffing marketing programs sufficiently”.  If you don’t prove the value of interactive marketing process they are not likely to continue to fund the program.

6. Dedicated Team (Update)

To improve your chances of success you should also set up a dedicated team within your organisation to have end to end oversight of the process.  From idea generation through to trigger implementation, a single team can bring focus to your efforts.

This is not to say that the team is solely responsible for success, all of the relevant functions in the organisation should be supporting the work of the trigger team and have relevant KPIs to match.

7. Focus first on the big wins (Update)

While there may be lots of trigger campaigns that you can implement, you should focus first on those that offer the biggest bang.  This ensures that management sit up and take notice of the work that is being done and support it with additional resources, as required.

You may even extend this approach to selecting opportunities that have a better big picture win if smaller ROI.  For instance choose projects that provide by revenue or gross margin gains over smaller volume but higher net ROI projects.  In terms of getting noticed, putting a big chunk of revenue on the bottom line will almost have more impact than a smaller revenue but higher net ROI project.

Thanks

Thanks go to Emilio Scatalani for suggesting items 6 and 7 in this list.

Free Download

If you’re new to trigger based marketing why not download our free “Implementing Trigger-based Marketing to Drive Customer Loyalty” presentation.  It has lots of success statistics and is a good introduction to this valuable approach.

[1] “How Interactive Marketers Should Rethink Traditional Approaches To Campaign Management”, Forrester, June 2011

By Adam Ramshaw

Filed Under: Customer Loyalty Management, Customer Retention, Customer Strategy, Marketing Automation

4 Practical Approaches to Calculating Customer Lifetime Value

June 26, 2011 By 1 Comment

Recently I came across a very useful Marketing Science article on customer lifetime value calculations. “Customer Base Analysis in a Discrete-Time Non-contractual setting,” presents an excellent and accessible way of answering the difficult question of customer lifetime value when no ongoing contractual relationship exists.

The paper itself was enlightening but unfortunately, as is often the case with academic papers, the key business insights are hidden from plain sight behind a rather dense, high order, statistics heavy paper. I am sure their findings are as clear as glass to the authors but for me, I needed some time to unpack the content, understand it, and work out how to apply it for my customers.

In the process of reviewing the paper however, I discovered a rather extensive array of content that the authors have been building for the last few years in several areas of customer prediction in contractual and non-contractual customer relationships. The authors have documented very valuable set of approaches that are accessible to a range of organizations.

As a starting point, in their paper: Probability Models for Customer-Base Analysis the authors Fader, and Hardie suggest a very useful way of classifying customer bases, shown below;

Instead of looking at only contractual and non-contractual customer relationships, their approach also includes an axis for Opportunities for Transaction. This two dimensional approach to the classification of customer relationship is the starting point for the authors to explore each of the quadrants. Over a period of several years and quite a number of theoretical papers, practical notes and example spreadsheets the authors systematically create methods for estimating customer lifetime value, and other key customer variables for each of the quadrants in this chart.

While each of the papers has a heavy dose of statistics, the statistics can be implemented in Excel spreadsheets making the overall approaches accessible to many organizations.

Over the next few weeks I will be taking each of the quadrants and providing a practical summary of the authors approaches and the application of those approaches.

In the next installment of this series I will look at predicting future purchasing patterns in Customer Continuous/Non-contractual customer bases (the top-left quadrant). If you are a retailer or similar organization this will show you how to predict customer actions without having to hire your own statistics department.

[Update]

Other posts in this series

[/Update]

Subscribe now to this blog feed to get the new installments as they are published.

By Adam Ramshaw

Filed Under: Customer Analytics, Customer Loyalty Management, Customer Retention, Customer Strategy

When does the Service Recovery Paradox work and when does it fail?

November 14, 2010 By 1 Comment

One of the reasons that I like the Transactional Net Promoter Score approach is that it allows for proactive service recovery.

Transactional NPS focuses on each service moment of truth and asks the customer about their experience at that exact time.  This allows you to drill down into each customer touch point and quantify its ability to generate or destroy customer loyalty.  As a bonus, if you run the process in the right way, you can generate a service recovery notification for sub-standard customer experiences.

This allows you to run a service recovery process and, hopefully, become the proud recipient of increased customer loyalty though the service recovery paradox.

But is the service recovery paradox real?  Do customers who have had an issue resolved really generate more loyalty than those that have never had an issue?

Luckily we have the help of academia to answer that question: yes indeed the service recovery paradox is real but it does not work equally well in every situation.

Magnini et. al. in their paper “The service recovery paradox: justifiable theory or smoldering myth?” set out to determine if, when and how the service recovery paradox operates.  Their findings are instructive not just on how to leverage this idea but also in reminding us that it is not a saviour for bad service.

What is most interesting about their research is that the service recovery effect is moderated by several attributes of the failure.  Their key findings in this area include:

  • It doesn’t work as well for customers who have prior failures:  This is logical, if the organisation has repeated service failures then the customer will not be satisfied with repeated service recoveries.  The implications of this are clear.  Service recovery processes are special event responses and should not be relied upon to deliver good service.
  • It doesn’t work as well for big failures: If a customer misses a major personal event due to a delayed flight no amount of discounted flight coupons is going to raise their level of satisfaction.
  • If works just as well for old customers as new customers: Long term customers who experience a service recovery will have their loyalty improved about the same amount as new customers.
  • It works better if the customer believes it was beyond your control: Where a customer can see, or you can show them, that the issue was beyond your control, a service recovery process has a better chance of improving customer loyalty.  So if you can provide a third party explanation of the failure you may be better off.  Take for example delayed flights by airlines.Saying, as airlines seem to do all the time these days, “this flight is late because it was late departing” is less likely to invoke the service recovery paradox than saying “this flight is late because of bad weather”.   The implication here is that staff should be taught to manage customer expectations when the service issue is truly beyond company control.
  • If works better if customers perceive the issue was not reasonably foreseeable: If your local supermarket doesn’t have enough aisles open late Sunday afternoon, when everyone does their last minute shopping for the week ahead, customers are less likely to be wowed by your service recovery.

It seems to me that all of these findings are consistent and lead to a clear view of service recovery.  Service recovery is like your favourite donut: it is a sometimes event, not an every day event.

Long term you need to work on your customer experience management processes to ensure that you deliver consistent and reliable service to your customers.  If occasionally you do make a mistake, customers will forgive you, subject to the areas noted above, and proactive service recovery will lift customer loyalty.  However, do not rely on service recovery processes as your service processes.

If you’d like to learn more about Customer Experience Management download our 4 Steps to Customer Experience Management whitepaper.  It examines the process of determining the value, designing and executing Customer Experience Management programmes.

By Adam Ramshaw

Filed Under: Customer Loyalty Management, Customer Retention, Net Promoter Score Tagged With: ,

3 Practical Customer Retention approaches you can start today

November 7, 2010 By Leave a Comment

Competition is tougher than ever before and many companies are out prospecting like mad for new customers.  However, most don’t realise that the fastest, cheapest and lowest risk way of protecting their business is not finding new customers but nurturing existing customers.  I know you’ve heard the old adage that it’s easier to sell to an existing customer than a new one; well it’s true and now is the time to take it to heart.

Right up front though there is one founding approach to customer retention management that will dramatically increase your effectiveness: have a bias towards action.

Planning is always important but it is better to start with an initiative that is 80% right and improve it over time than wait until it’s 100% right.  While you plan, your competitor is making inroads into your customer base.

But remember that because not everything is perfect when you start and you need to fine tune as you go. Test different approaches, try different ideas, keep the ones that work and discard the others. This also helps you to adapt to the changing market and business requirements.

Which are your valuable customers?

Before you start on any customer retention initiatives you first need to determine which customers are more valuable and which are less valuable.  This is important to ensure that you really look after the most valuable customers.

This can be as easy as ranking your customers by annual revenue, gross margin or profit.  Then you can split them into three equally sized groups: A, B and C.  “A”: customers are the most valuable.

Measure your customer retention

As the old saying goes “What gets measured gets done”.  Make sure that you measure your current customer retention in a meaningful way so that you know when you are having a positive impact.

Often, effective customer retention strategies are stopped because no-one thought to measure the baseline and success rate.  Without measures to demonstrate success, management and staff lose interest and the initiatives are often discontinued or fall by the wayside.

Retention Strategy 1: Onboarding

You can set yourself up for good customer retention at the very start of the customer relationship though effective customer on-boarding.  This is the process of introducing new customers to your company in an organised and effective manner. It generally commences at the time of order placement and may continue for up to three months, depending on the complexity of the product or service.

Done properly, customers that are on-boarded have a substantially higher retention rate, lower cost to serve and higher cross sell rate than customers that are not.

To apply on-boarding to your company think about the very start of the relationship when customers are not familiar dealing with you.  How could you make the experience easier?

For example you could have a staff member call each new customer, outlining the order and delivery process, contact names and details, etc, with a follow-up email that includes a reinforcement of the benefits of your product or services.  Not only will it make the customer feel more comfortable with your organisation but they will also probably buy more long term.  Also, you may find you have fewer order entry problems and delays which means fewer opportunities for customer dissatisfaction.

Retention Strategy 2: Pro-active complaint management

Organisations often give little thought to their complaint management process; it’s just another cost of running the business.  However, managed properly this process can be an excellent way to build strong customer relationships; it’s a little known fact that if you help a dissatisfied customer and resolve their issue they are often more loyal than customers who were never dissatisfied in the first place. Strange but true.

So you must get your complaint management process right and it’s not that hard.  There are just a few key elements:

  • Make sure that you actively seek, manage and resolve complaints don’t hide them. Let staff know that you want to hear about complaints.  If have to, change the organisation’s culture.
  • Remember that just recording a complaint is not enough: you actually have to do something about it.  Give staff the accountability and responsibility to act on complaints immediately.  This sounds risky but in practice the vast majority of employees want to do the right thing by the company and the customer.  So long as you have a few sensible controls in place, the risks are quite low.
  • Make it easy to complain by using a range of processes and tools: web forms, paper forms, etc.
  • Train staff in how to respond to complaints.  Receiving and managing a customer complaint is a skill just like any other and you need to provide staff with those skills.

There are training courses available but in summary when managing a complaint staff need to; listen carefully, agree that the issue exists (denial is never a useful option in this case) and then ask the customer what they want done to resolve the issue.  Then they need to fix the issue, thank the customer for their feedback and follow up a few days later to ensure that everything was resolved to their satisfaction.  This sounds simple but poorly managed  complaints can escalate customer dissatisfaction to anger and a customer to ex-customer status.

Retention Strategy 3: Understand what customers want and give it to them

This sounds like the easiest thing in the world and most organisations think that they are doing exactly that but often they don’t really know what customers care about.

For instance one IT company Genroe helped had a great technical support desk.  When a customer had an issue they jumped on it and solved it quick smart.  They weren’t however, as consistent with calling or emailing customers to close the loop when the problem was solved.  After some customer interviews, surveys and data analysis it turned out that having the support person close the loop with the customer was a bigger driver of customer loyalty that getting the problem solved in the first place.  It then took some explanation and training of the technical support staff so that they understood what customers really wanted and how to deliver it consistently.

Another client was about to embark on a major technical training program for their on-site staff believing that customers wanted more highly trained on-site support personnel.  Again, some research and analysis demonstrated that customers valued support staff that were responsive and “did what they said they would” more than pure technical training.  So the training was changed to target interpersonal skills and customer satisfaction improved.

So if you aren’t sure what your customers care about, and even if you think you do, take the time to do some good customer research and then act on it.  Knowing what your customers really want pays excellent retention dividends.

Building a great customer feedback process is not too difficult and you’ll find that it pays dividends over and over again.

Remember that improving customer retention will add substantially to your business bottom line, even if it is just in having to spend less to acquire new customers.  Implementing a few customer retention strategies like these is not difficult and will help you to keep your customers coming back year after year.

By Adam Ramshaw

Filed Under: Customer Loyalty Management, Customer Retention, General Tagged With: ,
« Older Posts
Newer Posts »