A few weeks ago I met the VP of Marketing from my bank at a local business event and she asked if I would be willing to answer a series of focus group type questions as part of some research she was doing with a number of the bank's other clients.

 

They were standard-issue qualitative research questions but one was quite striking, not just as it relates to banks, but to so many other industries as well.

 

During the same week in The Wise Marketer, there was a short piece from a research report indicating that a majority of bank customers, 63%, plan to switch primary banks, with a similar percentage intending to switch insurance providers.  These numbers echo an IBM study that boldly concluded that a significant majority of customers have little or no emotional connection to their bank.

 

With only a small handful of exceptions, namely "ThankYou" from Citibank and the new Chase Exclusives, banks have been noteworthy in their failure to embrace what we call "whole-bank" loyalty.  Yes, there are thousands of credit cards out in the market with loyalty "features" but these are often the extent of a bank's loyalty marketing efforts.

 

There are a number of reasons for this, including a bank's product- rather than customer-centricity, largely reflecting being organized around products, in silos, rather than by customers.  Of course like all industries there are exceptions, including the smaller and more nimble banks (particularly those catering to high net worth individuals and businesses).

 

The lack of loyalty in banking is one of great irony.  While loyalty is often (and largely) a function of habit, real loyalty is driven by an emotional connection and certainly people are, for the most part, quite emotional about their money.

 

So the question that struck me from the bank VP Marketing?  It was simply about how I thought they should thank the bank's customers.  My answer:  the bank should figure out how to get the customers to want to say thank you to the bank! 

 

In order for this to happen, the bank will need to shift its focus from being product-centric and take a customer-based approach to growth.  Having a customer thank them for being their bank should be the bank's ultimate objective. 

 

Customers expect to be thanked and appreciated.  But it's time to turn the tables and make customers thankful for their alignment with a particular brand.  Brands of course, do not typically include this as a key goal.  It's time that they should.

 

Recently a colleague at a promo agency called when his agency was pitching concepts to a client and he saw a loyalty opportunity.  After a few minutes of discussing the opportunity, he lamented that "loyalty is expensive."  It was one of those comments that reflected a very traditional but all too common perspective - focusing on the "cost" or expense of marketing, rather than the top (and bottom) line impact:  incremental revenue and profit. 

 

Describing loyalty as expensive is a bit like saying that cars are expensive.  Sure it's cheaper to take the bus (mass transit), but that assumes that it will get you to where you're trying to go, on time and with relatively little inconvenience.  The bus gets "expensive" too if you're late and miss an appointment, if you have to stand, or especially if your origin and destination aren't anywhere near the bus route and you need a ride to get there!

 

Loyalty marketing can answer some very explicit and precise questions.  It can tell a company who its customers are as well as when, how often and what they buy.  More importantly, it can allow a company to directly address (i.e., communicate) directly with its customers and get them to buy things.

 

For marketers, loyalty is more like a car.  The unfortunate reality is that not everyone likes to drive or can afford a car.  It's a lot more expensive than taking the bus or the subway but (unless you live in New York City) it's much more practical and gets you to exactly where you want to go, rather than just in a general area.

 

So yes, compared to other marketing initiatives and disciplines, loyalty is expensive.  Like other certain other expensive things in life, it is worth it, as like so many other things, you get what you pay for.

 

Advertising, which still commands the bulk of marketing spending and was over $230 Billion for 2007, is only now being measured in terms of actual sales.  In fact last week Ad Age reported that (alas) a definitive study linking TV advertising to actual sales was being undertaken "to answer advertising's million-dollar question: Do TV ads make consumers go out and buy products?"

 

The value of loyalty marketing is driven by a number of things, including certainty (i.e., defined risk) and the outcome, which, when done right, is directly measurable revenue and profit -- with highly mitigated risk.  Unlike acquisition-oriented direct marketing, advertising or even most promotional marketing, loyalty is an investment in the means to talk with your customers for a long time.  It's what makes relationship marketing not only possible, but more effective.

The metrics for loyalty are unlike most other marketing disciplines, which tend to deal in cost per thousand impressions (again, mass transit...or marketing) versus metrics like customer profitability, incremental revenue or, at a basic level, cost per incremental sales dollar.  Yes loyalty is about selling things - usually more things to more people more often.  And that should command a premium.

As readers of this blogue know, last year I qualified for Platinum Medallion (elite) status in Delta Air Lines SkyMiles for the first time.  Being a bit of a loyalty "geek" (as you might expect), I knew the exact flight on which I qualified and was greatly disappointed that Delta did not acknowledge this for weeks.  Ahh the challenges of triggered email campaigns!

So when I fell just short of requalification for 2008, I was fully prepared to be downgraded to Gold Medallion.  Lo and behold it is late February and guess who is still a Platinum Medallion!?!  Of course this is wonderful and keeps me engaged and loyal to Delta, but as a loyalty practitioner, it is compelling to point out where Delta is really missing out on a great opportunity.

When designing loyalty programs, one thing we look for is an opportunity to package and merchandise things that companies are doing that they are not getting proper "credit" for from their customers.  Things that need a bit of romancing in order to bring them to life and create more customer value.  We love the often cited line from "When Harry Met Sally" where Billy Crystal and Meg Ryan's characters are, let's say, beginning to engage in physical intimacy, and she says to him, "At least kiss me when you do that!"

Delta should consider kissing everyone that they soft land as they are not getting proper credit.  Members might feel grateful and appreciative, but they also might be thinking that Delta made a mistake and thus it's only a matter of time before they're downgraded.  Or worse they might not fully realize that their status is the same and switch carriers!

Whatever the reason (even if it is cost savings - i.e., by not having to re-fulfill credentials), Delta should take this opportunity to kiss its customers.

 

Introducing a New Measure of Customer Loyalty and Organic Growth for Retailers:  Comp Customers^TM

 

For too long, America's leading retailers and the investment analysts who track them have held "Comp Sales" (also known as "same-store-sales") as a sacrosanct measurement of performance.  The measure is expressed as the percentage change in revenue on a store-for-store, or comparable basis and certainly an indicator of retailer health. 

 

As if to call the emperor naked, over the last year or so, more and more retailers have elected to either not report these numbers or to report them less frequently.  They cite that the number is either over-rated as an indicator or too short-term in nature.  While it might be both, the real shortcoming is that it presents a shallow perspective on how the business is doing.

 

So, Home Depot pushed back.  So did Starbucks and Bebe Stores, Charming Shoppes, Dress Barn, Guess, Gymboree, New York & Company and Talbots.    Yet despite what these retailers are refusing to report publicly, comp sales are the key number that these companies look at internally on a daily basis!  The emperor is still in the buff.

 

So much for Sarbanes-Oxley and company transparency.

 

There's nothing inherently wrong with the "Comp Sales" metric.  So what's wrong?  If Home Depot and Starbucks are right and "comp sales" is not the key metric, what is?  Even Eddie Lampert, the hedge fund manager controlling what is left of legendary Sears, thinks there is a better metric (though he doesn't say what it is!).

Yet no one is reporting one.

 

Consistent with the way so many companies in the US and around the world manage their business, the traditional comp sales metric is missing the point.  If you think about what drives store-level (and ultimately all) sales, it's very simple:  Customers. 

 

Perhaps the most important measure of a company's organic growth and customer loyalty is not (just) comparable store sales, but comparable Customer sales, or Comp Customers^TM.  It's a metric we use when measuring customer loyalty and assessing the opportunity for loyalty marketing for a given business.

 

Consider that a company's customers are its true revenue-producing assets and thus just like stocks in a portfolio.  If those customers spend more, they appreciate in value and the portfolio goes up in value, the same way as if individual stocks increase in value. The other way to grow the portfolio, of course, is to add capital, or in this illustration, acquire new customers.

 

Just as any mutual fund or hedge fund is judged by the returns its investors receive, companies are ultimately rewarded the same way.  The better they are able to grow the value of their customers, the more the company will grow, with or without acquisition.  This organic growth is what commands a premium from investors.

 

Without growing existing customers, new customer acquisition is simply replacing lost revenue, rather than being true organic growth.  When existing customers are growing, acquisition drives even higher rates of growth.  When you consider how much more expensive it is to acquire rather than retain an existing customer, you understand the true importance of a metric like Comp Customers.

 

A few weeks ago Starbucks' Chairman and CEO Howard Schultz declared that the company would no longer report comp sales, rationalizing that the company had been too focused on improving same-store sales rather than the customer experience.  According to reports, Starbucks plans to introduce new quantitative metrics beginning in Q2.  It will be interesting to see what these metrics will be.

 

This concept does not just apply to retailers.  It's really appropriate to any business with customers (and what businesses don't have customers?!?). Maybe we'll see hotel companies report REVPC (revenue per customer) instead of REVPAR (revenue per available room)? 

 

While there are definite challenges in developing Comp Customer reporting, the value from these data and information is more than worth the effort.

 

It is our expectation that as more companies realize the value of identifying and engaging customers in order to build those relationships, there will be some leading companies willing to go out to the public and report Comp Customers, the same way they report other key business performance metrics, like store comps.

(c) 2008 rDialogue LLC All rights reserved.

 

 

A lot has happened in 2007 and there are clear implications for marketers concerned about customer loyalty in 2008, especially with a recession looming (or here already, depending on whom your favorite economist is). 

 

So in the interest of making customers happier and companies more profitable, here are our top customer loyalty marketing-related resolutions for the year.  Over the next few months we hope you'll further the dialogue on these issues and others presented here.

 

In terms of context for 2008, there are lots of ingredients stirring the pot but there are two that are most important here - the economy and elections.  These two combine to stress out both consumers and corporations, especially in terms of their ability to receive communications.  At the minimum they add to the already increasing clutter in their minds, hearts, in-boxes, and yes, on their Facebook pages.

 

As with any stress or anxiety, there is only one solution:  work it out.  This means being disciplined, understanding the situation and taking action. 

 

There is an article in last Saturday's New York Times that is well worth reading about Amazon, now a $15 billion retailer!  To put that in perspective, that is more than 50% larger than Nordstrom, another Seattle legend in customer centricity.

 

In the article, Joe Nocera anecdotally relates a holiday shopping experience that he has been talking up since the holidays.  Further, it made him look at Amazon's stock price and discover that their financial performance has been stellar.  Investors are realizing the benefits of Jeff Bezos' strategy that being obsessed with customers translates into growth and profits.  Given that Bezos owns more AMZN stock than anyone, he has his, and every other shareholders' interest at heart (and wallet).

Their numbers are simply awesome:  72 million active customers who spent an average of $184 last year versus $150 the year before.  That is how you grow your business by 35%:  increase your existing customers' business by over 20%.  Simple, though easier said than done, especially for public companies.

The Amazon story is a great setup for our resolutions.

 

Resolution #1:  Have a strategy and be disciplined in following it.

 

It seems that with increasing frequency, more and more companies are pursuing tactics in search of a strategy; or, as a former boss characterized it, a "dog's breakfast" of a marketing plan.  Of course our bias is towards strategy first, and preferably customer strategy at that. 

 

Bezos committed to a business strategy years ago that put the customers at the center of their operation and, while it's taken some time, their performance speaks for itself.  By his own admission, Amazon is "not a great advertiser".

 

Lucky for them.  As it's an election year, we like to think of Amazon's strategy as "It's the Customer, Stupid."

 

Resolution #2:  Connect All the Dots

 

We see three key elements to any customer marketing plan as more important than ever when times are tough.  With deference to both Dr. Seuss and Jesse Jackson, they are:

1. Integration
2. Calibration
3. Iteration

 

Integration means aligning as many activities as possible, certainly marketing but also operations and measurement, so that the customer is the focus.  It means not making decisions in a vacuum and likewise, executing a consistent strategy across all areas of a business.

 

This is another area where Amazon excels, as evidenced by the financial challenge of giving free shipping for orders over $25, but the payoff coming from the customers increasing their average purchase to take advantage of the offer.

 

Calibration means measuring things so that you can support decisions like free shipping.  Calibration also means testing things before rolling them out so that you can maximize the probability of success.  Clearly Bezos was comfortable rolling out free shipping, and newer services like Prime, because their impacts were measured used to support the decisions.

 

Last, iteration is important because there isn't usually a straight line.   Things change, both internally and externally.  Customers don't always act the way we think they will, competitors react in a like manner, and sometimes ideas are just wrong or poorly executed.  Flexibility is one of the most underrated strategies in business and one of the most powerful.

 

Resolution #3:  Remember the Brand

 

We often cite a mantra that goes "Customers have relationships with brands, not with marketing programs."  It's contradictory for so many focused on loyalty marketing, especially those with pure direct marketing backgrounds.

 

Especially with companies still spending heavily on brand awareness building activities (i.e., advertising), when desperation presents itself people promote and often in an irresponsible, or at least aggressive way.

There is certainly a time and a place for promotion, but it should be done in character of one's brand.  And loyalty initiatives, connecting brand support and promotion, are no exception.

 

Ultimately, loyalty is about trust, and this is where Amazon's activities are ultimately brand-relevant.

 

Resolution #4:  Stop Mass Marketing via Email

 

Send less email but make it more relevant to both your business and your customers.

Content, storytelling and experience is important.  Quantity is absolutely not quality, especially when people are increasingly connected and opt-in and open rates for email continue their decline.

 

Further, understand and treat different segments of customers (and especially non-customers) differently.

 

It was pathetic to see the volume of mass emails "spewing" as the economy softened in Q4 last year and especially Holiday.  Marketers just blasted and blasted away at customers, opting for frequency over relevance.  Based on the results being released, it didn't work.

 

Open rates and levels of engagement will continue to decline in lieu of irrelevant dialogue and marketers desperately trying to realize sales by increasing the frequency (and telegraphing their desperation) of their email.

 

Resolution #5:  More Experience, Less Rewards

 

Loyalty marketing is still too closely connected to Rewards programs.  We are increasingly biased away from Rewards, especially when those "rewards" are things.  People have lots of things and those things have increasingly less meaning and, especially in most loyalty programs, declining in value.

 

Connecting the experience to any kind of loyalty proposition is increasingly the winning strategy, both for products and services.  And experiences that are brand-centric are not easily matched by competitors yet, done right, can create emotional bonds that transcend the idea of transactional loyalty.

 

 

Here's to all the best for you and your business in 2008.

 

The airlines and large hotel chains, especially the US-based ones, have become increasingly vested in partnership marketing, to the point where today a majority of their profits come from this activity rather than from selling tickets and rooms to their own customers.  The airline partners buy miles to use as incentives and rewards for their own customers (and prospects). 

 

While airlines often lose money in less than stellar economic times, these partner programs generate large profits for the carriers.  This has led to the airlines to consider spinning off their loyalty programs and in some cases even taking them public.  This will be a disaster for the members, as the goals, objectives and strategies of the programs will be increasingly decoupled with the idea of creating customer loyalty. 

 

Airline miles and hotel frequent guest points will be increasingly devalued.  Miles are barely worth $0.01 each at this point, notwithstanding new capacity controls instituted on reward travel just recently announced.  The combination of fewer award seats and hotel rooms coupled with an increasing supply of miles and points is surely a deflationary combination!

 

As the airlines all figured out how much money they could make doing partner deals, more and more of their frequent flyer programs ended up with virtually the same partner offerings.  Thus, the partnerships programs have become increasingly undifferentiated and irrelevant to the majority of frequent flyers. 

 

In one recent example, I recently received the exact same Hyatt offer from two different airlines, Delta and Northwest, who even happen to be alliance and code-share partners!  From Delta, Northwest and Hyatt's perspective, little is gained by blasting out "me-too" offers over and over to the same customers.

 

As we approach the holidays, there will be numerous, similar emails advocating doing your holiday shopping so as to earn as many miles or points as possible.  While that's a great idea, as every program will be doing it, what's the big deal?

 

At a minimum, the large travel loyalty programs should challenge themselves to look at partnerships as a tool to help them go beyond selling miles and generating accruals through partner transactions.

 

What if they figured out how to generate incremental trips via partners? What if they found new partnership categories, providing incentives beyond just another way to earn bonus miles.  What if they created a specific product and/or service related offering?  A tie-in with an innovative new travel company like I'm In?  (For those who don't already know, I'm In is a website that helps you organize group travel with friends.    Kind of like evite but for travel.)

 

Creating value for customers beyond points and miles can leverage partnership opportunities in a whole new way, not just for airlines but for other industries as well.  Partnership marketing should not only be about bonus miles and points, it should be about creating new touch points, adding tangible, unique benefits (hard and soft), and it should be about sharing insights.  Only with the latter will partnerships become more relevant.

There are limitless opportunities for innovation in partnership marketing...it only takes a willingness look for new partnership opportunities to compete, differentiate themselves, and succeed.

 

 

A few weeks ago, I attended a family event in New Orleans (NOLA), just after the 2^nd Anniversary of Katrina.  After growing up and attending grad school there, each trip "home" is filled with mixed emotions.  This trip saw an equal mix of both optimism and depression.

 

On the positive side, much of the downtown, uptown and French Quarter areas were doing better than in previous trips.  More stores and restaurants were open and there were some signs of life as it was (pre-Katrina).  The vibe from people on the street, particularly those for whom "hospitality" is their business, was more warm and welcoming than ever.  Couple this with an optimistic football outlook (at least for LSU, who for now is #1 in college football) and cooling temperatures and you have the right ingredients for a great year-end and outlook for 2008.

But something was and still is missing.  New Orleans needs more of a hook to get people to visit in the first place and to bring them back. 

 

The reason is simple:  The place is still suffering from the devastation of Katrina, rampant corruption and crime.  The question of investment, both from the private and public sectors, still hinges on the perceived viability of the area.  That aside, New Orleans still has all the ingredients to turn the corner and be a first-choice domestic (and international) cultural tourism destination.

 

Meanwhile, there will continue to be a lot of discussion in the coming months, especially in an election year, about how and what to invest in the re-building of NOLA.  There has been talk of making it another Las Vegas and there have been other (better) ideas about how to reposition the city.  At its core, its brand truth, New Orleans has a unique and globally attractive culture like no other.

 

In order to expand support beyond the locals and die-hard NOLA-lovers (whether from government, organizations, corporations or individuals), NOLA has to do more in terms of building direct relationships with people who visit and can credibly spread a positive, first-hand message about the place.  If there is going to be a sustainable and viable rebuilding effort, the post-Katrina perceptions and realities must be overcome and its image rebuilt. 

 

While the New Orleans Convention and Visitor's Bureau and others have been investing millions on advertising and PR (and doing some great work), making NOLA more appealing as a place to visit, meet and even live will require first hand advocacy and grass roots support.  This is the only way to make the positioning credible and not just a marketing promise.

 

So why not start with current visitors?  Like most destinations, and most companies for that matter, New Orleans and Louisiana spend nearly all of their budgets attracting new visitors rather than investing in the hundreds and thousands that arrive each day at Louis Armstrong International Airport.

 

There is no better way to build a database of prospective visitors, and advocates, than from those already visiting and on the ground there.  There are millions of dollars being spent through organizations like the CVB (New Orleans Convention and Visitor's Bureau), New Orleans Tourism Marketing, and the state department of Culture, Recreation and Tourism.  None of these dollars are being used to build a database and do relationship marketing.

 

Through a concerted effort by all of the tourism organizations, the private sector and other local organizations, New Orleans can build a sustainable dialogue with many more people by including a more significant focus on current visitors.  These visitors need to be identified, engaged and romanced by their trip so that they leave excited about returning and ready to spread that feeling.

 

Beyond and included in the visitors are the tens and hundreds of thousands of people like me who are expatriates, still possessing a love for the area.  What an opportunity to build a multi-faceted base of support for the city!  These people can be mobilized not only to visit but to advocate.  And over time, New Orleans can be rebuilt as it should be.