Monday, September 8, 2014
Loyalty Programs: Lots of Hidden Challenges
7:13 pm edt
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?
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:
- 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?
- 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.
- 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.
- 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?
- 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.
- 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
- 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
Thursday, July 24, 2014
Filling The Hole In Your NPS
10:28 am edt
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
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.
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,
Way You Can Objectively Find Out
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.
Tuesday, June 24, 2014
When Things Go Wrong....
8:31 pm edt
“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.Disaster Recovery Isn't Well Known
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.
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.Thanks, But No Thanks!
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.
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.
Wednesday, April 23, 2014
SLCP: Getting More Growth and Profits From Your 'Loyal' Customers
4:39 pm edt
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:
- 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.
- 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.
- 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.
- 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!
Monday, March 17, 2014
Do Satisfied Customers Still Tell Others They Love Your Brand?
11:23 am edt
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
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!
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
- 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,
- 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