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Monday, September 8, 2014

Loyalty Programs: Lots of Hidden Challenges

When thinking about ways to increase your customers’ loyalty it’s not surprising to consider adopting some form of a rewards program. Many have.  The fact is, whether effective or not, loyalty programs are being offered by just about everyone.  From your corner dry cleaner to American Airlines, marketers everywhere seem convinced that a loyalty program is a ‘must have’.  With such universal acceptance, we didn’t find the results of the 2013 Loyalty Census from Colloquy very surprising.  According to the investigation:

  • The average U.S. household is enrolled in 22 loyalty programs; (that's a 17% increase over 2010's 18 programs).
  • However, each U.S. household is ‘active’ in only nine programs!
  • And, the proportion of programs in which a household is 'active' appears to have peaked (2010's 46% exceeding 2012's 44%).
  • We all know that 'averages' are deceiving.  The Hannifin Loyalty blog reports that in one specialized segment of consumers, business travelers, the average number of loyalty program memberships is as high as an astounding 40 programs per traveler!



But Are We Asking the Wrong Question?


'Membership' numbers, active or not, can be a fickle indicator of effectiveness.  As opposed to mere ‘belonging’, a better question to ask might be how many programs are ‘top of mind’ for customers?  That is, how many programs are truly engaging members of the program?  More importantly, from the sponsor’s side, how many loyalty programs are actually influencing members’ behavior - increasing spending?
We use a
Value Equation as our model in considering how customers decide about repurchasing brands, products and services.  If they’re effective, the loyalty programs in which a customer is enrolled should become components in each customer’s value equation calculation for a brand.  The more effective the program, the more weight the program component should exert in urging repurchase.  This being said, here are several actions loyalty program owners should be considering:

  1. Is your loyalty program stimulating active engagement, or does your structure condone passivity - merely setting membership ‘hurdles’ but failing to involve members in your brand?
  2. Have you truly identified the behavior you want your program to influence?  While it sounds trivial, many loyalty programs suffer from weak or non-existent goals.  Be specific.  Do you want: to retain customers; to broaden the range of products they buy from you; to increase the frequency of their purchases?  The way you structure your program can help accomplish very specific behaviors.
  3. Do you recognize that your loyalty program is part of the total experience you provide your customers, not an isolated adjunct.  Whatever your loyalty program offers, however it’s conducted, all of the program's components contribute to the total experience you offer your customers.
  4. Are your program’s rewards significant, relevant and desired such that they actually possess motivating power?  Are your customers sufficiently familiar with your rewards so that they strengthen their emotional bonding to your brand?
  5. Does your program offer specialized rewards consistent with your typical customer’s needs and interests as determined by his/her status in their life cycle with your brand.
  6. Do your program members spend more and behave more positively toward your brand than they did prior to becoming members?  Is that increased spending more or less than the total cost of planning and executing the loyalty program?
  7. Are you certain your loyalty program is more than just a ‘mileage program’?  A mileage program will only perpetuate current purchasing.  A true loyalty program should impact many different aspects of your customers’ interactions with you.

All said and done, creating a loyalty program may be your easiest task; keeping it engaging and motivating is the real chore.  And, there's also the frequently overlooked implicit obligation of justifying your program by tracking its ROI.



7:13 pm edt          Comments

Thursday, July 24, 2014

Filling The Hole In Your NPS

Corporations large and small depend upon their NPS (Net Promoter Score) to evaluate staff, compare themselves to their competitors, monitor their progress over time, and more. As you probably know it's a survey-based process asking people how likely they are to ‘recommend’ a brand, service or company to others based on their own personal experiences with the brand, service or company.  The key NPS statistic is created by subtracting the number of "detractors" (respondents who score their willingness to recommend at only a 1-6 on a ten-point scale, or 1-6 on an eleven-point scale) from the number of "promoters" (those who rate their willingness to recommend at a high score of 9 or 10).  Hence the construct of ‘net’ promoters (the proportion of a customerbase likely to promote minus those unlikely to promote).

You Really Should Know

The NPS score is frequently criticized both because it only assesses ‘likely behavior’… and because it fails to further probe qualities of the likely behavior.  In short, it fails to provide enough information to help remedy the extent of failure it identifies.  In our work on word of mouth, we’ve addressed the NPS weakness by focusing on actual recommendation behavior; and what was actually communicated.  Here’s how we recommend NPS programs can be enhanced to make them much more useful.  They should be teamed with a 'follow-up' survey that focuses on:

  • Assessing the actual ‘reach’ of recommendations, by itemizing how many people the “promoters” actually did speak to and what they actually said.
  • Comparing how promoters’ messages, tonality and reach differed from those of detractors.
  • Identifying the type of emotion associated with the messages (i.e. “positive”, “negative”, “neutral”).
  • Describing how recommendations are actually being communicated: narrowcast (through private channels: phone, texts, emails, face-to-face) or broadcast (through public channels: Facebook, Twitter, blogs).

One Way You Can Objectively Find Out

While admittedly not the purpose for which we developed it, a tool like our Buzz Barometer® addresses all these missed opportunities and increases the value of NPS programs.  Our approach is simple; we would draw the email addresses of three groups of customers who had responded to a corporation's survey that included the NPS question.  One group would be those who had rated the brand a 9 or 10, a second group would be those who rated the brand a neutral 7 or 8, and a third group who scored the brand a 1-6.

We would invite customers in these three groups to respond to a secondary survey.  Our Buzz Barometer® questionnaire asks customers to report on their own word of mouth behavior (frequency, valence, medium, message summary, etc.).  All this information would allow us to produce qualitative and quantitative pictures that bring promoters (as well as detractors and neutrals for that matter) to life, to help the entire organization better understand the key drivers of promotion and detraction and how energetically these positions are being spread.

10:28 am edt          Comments

Tuesday, June 24, 2014

When Things Go Wrong....
Disaster recovery” is something that large organizations - trained in quality control principles - recognize to be a necessary component of their operations.  They know exactly how they want a process (e.g. guest registration at a hotel) to proceed, but they also recognize that occasionally things won’t go as planned.  In these few instances of failure, they provide a roadmap for employees suggesting specific ways employees can put things right.  These roadmaps (for many different anticipated failures) are their disaster recovery plans.
At the Ritz
A disaster recovery policy at one time in place at Ritz Carlton Hotels has become a legendary example.  Reportedly employees were given “Ritz Carlton dollars” to help ameliorate the angst of guests who encountered problems during their stay at a Ritz property.  Maybe requested turn-down service wasn’t rendered.  No problem; the housekeeping staff or front desk personnel could offer the complaining guest a complimentary manicure or dessert.  Employees were kept in reasonable tow by being allocated a fixed number of Ritz dollars every week which they issued to guests to pay for the proffered reparation – at their own discretion.
Despite the specifics of the Ritz-Carlton example, disaster recovery is generally not about 'paying to restore' the customer’s satisfaction.  Instead, the generally respected philosophy of disaster recovery is to show concern that an organization didn’t live up to the needs or expectations of a guest and is truly sorry.  Obviously if turn-down service isn’t provided, there’s likely a systemic problem with scheduling or personnel that needs to be corrected – but the more immediate “guest-facing” solution is to show concern and regret by doing something that will be both unexpected and appreciated.  The real skill of successful disaster recovery is in making the reparation both unexpected and truly cherished.
Disaster Recovery Isn't Well Known

Our reason for this particular Insights column is that while big organizations generally understand all of this, disaster recovery may not be well understood or practiced by smaller organizations.  Our case in point, a recent dinner at a local restaurant.  We were joined by several couples at a restaurant which had delighted us on several previous meals.  Upon arrival we were greeted by the hostess-co-owner and in turn we introduced our guests as referrals we wished to have experience her restaurant.
Uncharacteristic of previous visits to the restaurant, from our arrival the experience deteriorated quickly.  It seemed that the kitchen (the hostess’s husband) was over-taxed by a full house.  Our appetizers came out in a reasonably timely fashion, but then there was an hour’s wait for our entrées.  In short, a disaster was in full bloom.

Thanks, But No Thanks!
When we explained to the Hostess how unfortunate the delay was, we were treated to a defensive discourse about how busy the kitchen was….and that we and our guests should have more patience.  This response illustrates how organizations without instituted disaster recovery plans often extemporaneously attempt to solve a problem.  The general result is to become rationally self-defensive.  But customers almost never want to understand the difficulties a service provider is experiencing.  From their more emotional perspective, they simply wish to enjoy timely and perfect service!  The bottom-line?  When a business lacks a scripted or well thought-out disaster recovery plan, the ad-libbed response may often worsen the disaster rather than curing it.
This example also characterizes another failure of many organizations.  Diners at the restaurant weren’t the only ones aware of a problem; the wait-staff and kitchen staff should have been aware of their difficulties in meeting the evening’s demand.  In such situations, some organizations will adopt an ostrich demeanor by stubbornly refusing to acknowledge the developing problem as if ignoring the problem will make it go away.  If a member of the wait-staff had confronted the problem and had actively informed us that the kitchen was having difficulties, we would have been fore-warned and might have accepted conditions more cordially.  In addition, if a gratis appetizer had been offered it could have minimized the pain of the wait avoiding a full-scale disaster.
So the key learning here is to assume the worst - that you won’t always properly deliver your customers the experience you wish them to have.  In the few situations when you fail, you need a practiced disaster recovery process.  Staff and management need a well-planned solution that seeks to placate the angst of your affected customers.  These processes will be your disaster recovery systems.
8:31 pm edt          Comments

Wednesday, April 23, 2014

SLCP: Getting More Growth and Profits From Your 'Loyal' Customers

Every brand we encounter wants loyalcan be defined in many different ways. Is a loyal customer an exclusive customer?  Does he generate the highest revenue? Does he advocate for your brand or business?  Is she less demanding of exorbitant support and resources?


You Need More than Just Loyal Customers!

With 25 years of working in the category we’ve come to understand that loyalty is not the universal panacea it’s often touted to be.  To achieve profitability and growth you not only need a precise understanding of how you're defining loyalty; you need a set of further qualifications by which to evaluate your ‘loyal’ customers.

Unless you have a very unique business model, your primary motivation for identifying loyal customers is probably the belief that the more of them you have, the more likely it is that you can operate at a profit.  We don’t disagree that loyal customers are a desirable asset, but we can offer a new paradigm for managing which of your loyal customers will lead you to greater profitability.  The crux of this identification is data.  And, in recent years, many of us are beginning to acquire more of the right kind of data to help us find the customers who, when properly treated and ‘cultivated’, can lead a business to the ‘promised land’.

Thanks to today’s acceptance of ‘big data’ we are reaching the point where most businesses can meaningfully score and segment their customers on a myriad of criteria.  We’ve developed our SLCPSM Model specifically to accomplish profit-based customer scoring.  It’s composed of four characteristics that can be observed for every customer:

  1. S - Satisfaction – Businesses continue to expand their satisfaction measurement efforts, but rarely, if ever, are the scores applied to individual customers (instead of being ‘rolled’ up to a business average).  With the proper questions, businesses have the opportunity to judge customers’ current satisfaction levels with a business.
  2. L - Loyalty – By overview of a few activities (Facebook likes, Twitter posts, direct correspondence, participation in company-sponsored events, etc.) we can start to create an emotional affiliation or loyalty score for each of our customers.
  3. C - Costs of Servicing – Each of our customers has a different cost associated with him depending upon how demanding he is of special services and considerations.  Or, she may only buy on deal or by demanding a substantial discount.  By tracking these considerations we can calculate a cost of doing business with for each customer.

  4. P - Potential – And by tracking not only what a customer buys from our brand, but the number of purchases she makes in total, we can create a ‘share of wallet’ or spending proportion for each customer.  Selecting customers with less than a 40%, 50% or 60% proportion identifies a segment of customers with upside potential to spend more.

Four Measures Offer a Better View

Through such a multi-criteria segmentation scheme a business would be in the enviable position to better manage loyal customers; allocating attention and rewards in a very strategic manner.  Not only does the scoring promise to identify logical target-customers for ‘development’, it is also capable of identifying current customers whom a business may be over-serving, costing it resources unlikely to produce increasing revenues.

A ‘pipe dream’?  We don’t think so.  It only takes a business willing to make the appropriate commitment to collecting and consolidating the information.  That does mean some additional spending, but more than that, it requires breaking through the ‘silos’ of all too many businesses in which information is hoarded by discrete departments who are loathe to share it with others.   One current initiative, Chief Customer Officer, begins to empower this pursuit.  We embrace it and look forward to seeing successful applications of SLCP!


4:39 pm edt          Comments

Monday, March 17, 2014

Do Satisfied Customers Still Tell Others They Love Your Brand?

Social media has given consumers greater opportunity to talk about the brands they know and love. That means brand advocacy must be skyrocketing, right?

Maybe not. Mindshare World has tracked advocacy-behavior through annual research in which they ask consumers’ agreement with the following statement, “When I see or hear something interesting about a brand, I like to pass it on”.  Their most recent findings serve as a harsh reminder that we can’t necessarily count on the continual growth of frequent and positive word of mouth to drive the growth of our businesses.  One might think that technology should be facilitating advocacy-behavior, but apparently more than just ample online vehicles (for posting) is needed to keep word of mouth healthy.   The trend of advocacy behavior is clearly downward:

  • In 2010 66% agreed they would “pass it on”
  • In 2011 62%
  • In 2012 53%
  • In 2013 only 47% agreed they would “pass it on”.

And, It Might Be Worse Than It Appears!

Think 47% still seems pretty good? Let’s take a closer look. Unless we’re missing something, the study really shouldn’t be interpreted as suggesting that 47% of consumers are currently actively advocating brands – or anything close. What the researcher’s question really seems to ask is: if a brand managed to get something before an individual and the individual considered it “interesting”,  would they then “like to” pass it on?  Do you see the tenuous connections here?   Knowing how many messages are thrown at each one of us every day, there’s a considerable challenge to be met to get any recommendations!

And, a separate recent study from EngageSciences (telling us that fewer than 5% of a brand’s fans generate all of the social media referrals for any brand), further suggests that in the real world there is undoubtedly a huge gap between those who say they would “like to pass it on”, and those who actually take any action!

So, What Does This All Mean?

It‘s clear that it’s going to take new strategies and additional executional effort to maintain (let alone to increase) the frequency, volume, and positive tone of word of mouth for your brand in the future.  Delivering good value for the money and a positive overall customer experience will continue to be essential, but even they won’t nearly be enough.

Success in engendering word of mouth will be dependent upon:

  1. Identifying the best potential advocates (those current customers who have proven behavioral commitment to a brand, have an emotional connection with the brand and, possess the 'communicator gene').  And,
  2. Providing each of them with the necessary motivation, content, and opportunity that will prepare those potential advocates to pass along their own versions of the brand’s story, both online and offline, to friends, neighbors, co-workers, relatives, and even strangers



11:23 am edt          Comments

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Customer Experience Partners, LLC
Measurement, Management, Optimization
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