This question is one that clients and prospects ask us regularly.

We recently attended the Freddie Awards in Ft. Lauderdale.  The Freddies have been going on for 21 years now, thanks to Randy Petersen, aka the GFOFFP (with apologies to James Brown, RIP).  It was great to see a lot of old friends and familiar faces, and it also kept this burning question above top of mind.

While we think about this question a lot, it's tough to answer, because we don't honestly believe there are a lot of great loyalty programs out there.  There are some well designed programs and there are also some well executed programs.  However, they are not always one and the same. 

The Freddies reinforce these observations.  The Best Program winners in their respective category were not the ones that also scored Best Award (overall), but rather the ones that won for Best Member Communications and Best Customer Service - dimensions focused on program execution not program design..  The categories related to program design (e.g., Best Award) went to hotels and airlines that did not win Best Program.

 Loyalty program shortcomings, especially those in the travel space, are due in part to the fact that they are all basically constructed from the same model:  Transact, accrue points, redeem for awards.  Transact enough and you can accrue at a higher rate and get a bunch of nice, soft benefits.  (And please, use our credit card, because that's the real measure of success because it brings in so much non-core revenue for us!)

Ok, enough of the cynicism.

The real value of loyalty programs lies in their ability to engage customers and enable relationship marketing.  This is where executing marketing activities based on customer data creates marketing excellence, not simply program excellence. Loyalty program success is not just about fulfilling rewards, but about continually raising the bar in terms of meaningful (relevant) communications with customers.

The stakes here are being raised. 

Customers are increasingly sophisticated in terms of their expectation of companies to properly (and intelligently) use customer data.  In order for loyalty programs to engage members, customers are requiring that brands address their individual needs and make it easier to do business with them. Again, to illustrate, the real Freddie winners took home trophies for Best Member Communications, Best Website and Best Customer Service.

 A great loyalty program is perhaps less about the program and more about how the program is used - internally and by the customer.  Providing better service to customers and more relevant communications nets a win-win for everybody

For the 2010 Freddies, we hope that   a much-needed new category at the will be added: one for the best use of social media.

Social media is requiring companies to manage far more than their brand advertising and direct customer communications like email and newsletters. Customers are in the social media space, talking about brands and sometimes even their loyalty programs.  Consider the numbers: nearly 200 people million on Facebook, soon to be (according to TechCrunch) 50 million on Twitter. The mandate to add social media participation to other behavioral customer data is beyond compelling.

Unfortunately, this year there was no mention of social media participation from the airlines, hotels and other travel-related companies at the Freddies. 

Of course, the travel companies are not alone.  Many, if not most, loyalty marketers are not keeping up with these opportunities.  Bill Hanifin made this point clear in a recent post worth reading.  Of course, it's not just social media, this includes traditional channels like email and postal mail that so many marketers, even those with loyalty programs (i.e., those that have the data!).

Those brands and loyalty marketers ready to innovate and change are the ones who will be the clear winners.  For some the innovation will be about fundamentals like relationship marketing.  The leaders, however, are and will be focused on the cutting edge of communication - to include social media and whatever new modes of information exchange evolve in the future to increase brand relevancy and customer engagement.

Recently at CRMA Atlanta (founding chapter of CRMA), we held a panel discussion on "Creating a Customer-Focused Culture through Process Improvements" featuring three Atlanta-based practitioners representing a cross section of industries and sectors. 

The three panelists were:

Joe Doyle, Administrator of the Governor's Office of Consumer Affairs for the state of Georgia

Michael La Kier, Director of My Coke Rewards at The Coca-Cola Company; and

Terry Trout, Vice President Customer Experience at Cbeyond

As you might imagine, there was a wide range of perspectives given the differing nature of these organizations and the customers they serve.  Being customer centric means different things for different companies, underscoring the idea that a company's customer strategy should be tailored specifically to that company, its customers, operations, economics and its competition.

For Cbeyond, it means refining and further developing its core competency of listening to its customers.  Cbeyond's business of serving small businesses and providing advanced telecommunications solutions is wrought with technical challenges.  

Listening to customers has enabled Cbeyond to create a culture of referrals, making it no surprise that their net customer growth was well over 20% last year.  After all, how many companies try to actually listen to customers as opposed to telling them what they "should" do? (Answer to that rhetorical question:  some do, most don't; social media makes this easier yet even then, most companies still don't actually listen.)

At The Coca-Cola Company, My Coke Rewards "is about putting a smile on customers' faces"...and being a "consumer's intuitive friend."  A brand wanting to be friends with consumers?  Smells like relationship marketing.

Part of the Coke customer strategy is, obviously, mass:  it's not about awareness it's about impressions and lots of them.  They deliver 2 billion (yes, with a B) consumer impressions on a daily basis.  If you're skeptical about that, think trucks, vending machines, signs, cups and, of course, advertising.  All of these impressions translate into customer opportunities, which is part of the company's current and ongoing challenge.

If there was a surprise during the discussion, however, it was the story that Joe Doyle told about the work he's led with the State of Georgia.  For all the hoopla about what President Obama is trying to do about making the federal government more transparent and "constituent-friendly," the real success story is right here in Georgia.

Joe Doyle, at the request of Governor Sonny Perdue, has transformed everything from the DMV to voter registration and made it all consumer friendly.  And easy.  He has taken the previously impossible task of getting a live human being on the phone to answer a question related to the State of GA and made it work to the point where Georgia's service quality is approaching levels seen by Nordstrom.

Importantly, he did this with a fairly simple strategy, starting with a top-down mandate from the Governor, illustrating the importance of top-down leadership in making progress on customer centricity.  With this mandate, Joe focused on three priorities, including being:

1. Principle centered
2. Customer focused
3. Results driven

For each of these, his approach was inside out, recognizing that it takes employees, and the right ones, to lead the effort to make things happen.  One of the common fallacies about customer loyalty is that it's not connected with employee loyalty.  WRONG.  Read Reicheld's The Loyalty Effect or Danny Meyer's Setting the Table and you'll see the clear, powerful correlation.   

Last, perhaps the most interesting anecdote came from Joe, who shared that before they got started with their work, employees at the DMV did not want to go out to lunch in their uniforms.  These employees were afraid of other diners knowing they worked at the DMV and what they might think (or do!).  This shows how acute the problem, and the opportunity were.

If you (or your employees) worry about running into your customers in a Waffle House, you'd better get to work.

While many managers and executives find the idea of CRM, customer loyalty and customer centricity a daunting challenge, the takeaways from this discussion were invaluable, if nothing else, because of their simplistic nature.  Putting customers at the proverbial "center of the page" is not rocket science.  As we learned from these successful practitioners, it starts with the basics and builds from there.

Back at it.

Happy New Year, belatedly.

Apologies to anyone (anyone, anyone?) who missed reading musings here but it's been kind of busy, thankfully.

Interesting things going on in the world though today we'll keep focused on the business of marketing and specifically the idea of connecting with customers.  And prospects.  And those who will never be either customers or prospects.

For those of you thinking ahead, yes, this is about the Super Bowl, among other things.  Oops. I mean the "big game" or hereafter TBG.  Sorry NFL.  

Throughout the buildup ahead of TBG there was the usual hype about who was breaking what campaign, how many units were sold, how much inventory was available, etc., for as much as $3 million for :30 or $100,000 per second.

The big question after TBG is who really got their money's worth?  Or perhaps a bigger and equally relevant question is whether anyone who did or did not get their money's worth even knows whether they did (or not).

Did anyone's advertising cause a conscious change in purchasing behavior, or a behavior at all?

From a sheer production investment, the guys who created the Doritos spot certainly did, much to the dismay and simultaneous celebration of the advertising world.  These guys spent $998,000 less than a typical Super Bowl spot and created one as good as anything that ran.  Whether it sold any bags of Doritos who knows, but people have at least talked and written about it.

The more interesting spot was Denny's offer of a free Grand Slam breakfast the following Tuesday at any Denny's across the U.S..  They actually tied their TV spot with a promotional offer and an in-store experience to generate trial from prospects, lapsed customers and current customers.  Meaning they generated trial, repeat business and yes, some dilution.  They still came out ahead.

Denny's hit a literal and figurative Grand Slam, especially relative to any other advertiser in TBG.  They got a few million customers into their restaurants yesterday, many of which were not regulars.  Hopefully those people were delivered an experience at or above their expectations and they will return.

However, as someone more left-brained than I said, "hope is not a strategy."  Ideally -- and we are idealists when it comes to customer marketing - Denny's would have an idea of who those people are and thus be able to gently and relevantly remind them to come back in and pay for a Grand Slam breakfast.

AdAge was being tongue-in-cheek calling Denny's campaign "beginner's luck".  We applaud their efforts to make a $3 million ad buy pay back but want to point out that the payback could have been even greater (and more measurable) had they given customers a bounce back offer, a way to opt-in for email, and a clear reason to do so.

So maybe not a total grand slam, but at least they did get around all the bases.

While you might not appreciate or agree with James Carville, when he essentially coined the phrase, "It's the Economy, Stupid" for then Governor Bill Clinton, he was stating the obvious.  (And with the approach of Election Day, I really just wanted to use that headline.)  It sums up the essence of customer loyalty and relationship marketing as a strategy to grow a business.

While the global markets and economies tank and (hopefully) find a bottom, we are seeing many companies taking not-so-smart approach, best illustrated by a recent quote from a retail CEO:  "Given the business climate we are trying to cut costs and grow sales."  Last time we checked, hope was not a strategy.

Smart companies will turn to their existing customers as a way to achieve growth, or at least stability. Unfortunately, too many will try and find their way out of the financial morass through "me too" loyalty programs, an approach likened to "lemmings off a cliff" by a leading industry analyst. They are choosing tactics over strategy, replicating competitive programs and probably not doing the math.

If companies are to grow their business in this climate, they have to invest in those customers that present the best potential to give them more business.  Yet too much of "loyalty marketing" is about best customers, top brand promoters, etc., making many of the initiatives in the market misguided. 

The opportunity however is in the middle. 

It is very easy to overinvest in your best customers and in some cases, it is reasonable to do this.  Where you have high value but vulnerable customers and intense competition, there is a lot to lose at the high end.

But in order to justify the investment in preserving these customers, there should be offsetting gains to fund these losses.

Here it is worth taking a look at the Presidential campaigns.  One key lesson can be taken from how both candidates are solely focused on the so-called swing states.  These states are up for grabs and this is where the candidates' are investing their marketing dollars.

In fact, if you look at www.fivethirtyeight.com, you'll see how they have nicely calculated an ROI index for the election:

Here the tipping point states are clearly "the middle" - the states that will decide the outcome and can swing in favor or either candidate and drive the victory or defeat.  They are also highly correlated with providing the highest potential ROI for the candidates' campaigns.

Although elections are more lasting than customer relationships for many companies, they always provide great marketing lessons.

Happy Halloween.

In case you missed it this past weekend, check out Ron Lieber's piece in The New York Times titled "Gauging the Worth of A Frequent Flyer Credit Card."  It echoes the sentiments and perspective we posted a few weeks ago and makes the case that if you're carrying around (and using) a credit card from a frequent flyer program, you might want to re-evaluate its value proposition.

While we do not espouse the virtues of coalition loyalty programs, the more that bedrock frequent flyer programs devalue their miles, the more they open the door for coalitions and other "synthetic" currencies.  More importantly, the devaluation of frequent flyer miles makes it even more important that companies figure out the best loyalty proposition for their brand, their customers and their business.  Not for the airlines.

"I DON'T WANT TO BELONG TO ANY CLUB THAT WILL ACCEPT ME AS A MEMBER."   -- Groucho Marx

Given our obsession with how companies market to customers, it's pretty easy to write about examples of companies doing things poorly.  So we're going to try and point to some companies doing just the opposite - doing smart things to connect their brand with their customers.

One strategy that we steadfastly support is exclusivity.  In terms of a loyalty program, this can mean members-only offers and it can also mean an entirely unpublished program.  Given the preponderance of programs, especially ones with flimsy value propositions (or other weaknesses...wait - we committed to staying positive), we expect to see more and more unpublished programs.  It's sort of the loyalty marketing equivalent to "double secret probation."

Unpublished programs and other marketing strategies based on exclusivity allow customers to feel genuinely different and more special than non-customers, or even "other" customers who might not be quite so intimate with the brand or company.

Two brands worth noting here are Jack Daniels and Gilt.

Not long ago, I was invited to be a Tennessee Squire, an unpublished program called the Tennessee Squires Association that was started in 1956 to "honor special friends of Jack Daniels Distillery" according to Wikipedia.

While there are many spirits brands spending large sums of money doing things not so well, Jack Daniels does a positively brilliant job of using this program to build its brand and its brand ambassadors.  If you're interested send me an email and who knows, you could end up a fellow Squire. 

Another great example is Gilt Groupe, which per the public portion of its website, explains that it "is a private online community, which is dedicated to providing its members with access to coveted fashion and luxury lifestyle brands at sample sale prices."  Again, you need to be invited to join and only members can do the inviting. (yes, send an email and I'm glad to refer you!).

There are many other reasons for exclusivity and unpublished programs, not the least of which are the ability to better control costs and program size.  Even better, however, is the ability to test, innovate and ultimately create more meaningful, productive and sustainable relationships between your customers and your brand.

With all the new fees and frequent flyer program changes going on, it's refreshing to see an airline doing the right thing and communicating directly with its customers rather than relying on the media.  Today Frontier Airlines sent an email to its Early Returns members from their President and CEO, Sean Menke.  It is a good but all too uncommon example of an airline thinking about and communicating with its customers.

The timing is pretty good, as in USA Today there was a big story on the increasing financial pain being shared with (inflicted on) passengers by the airlines.