Engagement is the New Loyalty

Historically, loyalty has been the “get more” industry, offering customers a reward for purchases – more purchases generate more discounts, points or other rewards. All the effort has focused on motivating a purchase, and on the person making the purchase.

A recent Financial Times story is the latest in a series of wake-up calls for discount-driven, points-based loyalty programs and the retailers that promote them. The CMO Council study found that:

Big brands' best customers have been defecting in droves since the beginning of the US recession. By this year, more than half of a typical US brand's most loyal shoppers in 2007 had switched to rival products. A two-year analysis of 685 grocery and pharmacy-stocked brands, using data from 32m consumers’ supermarket loyalty cards, found that in 2008 the average brand lost a third of its formerly highly loyal customers.

If points are out, what’s in? To earn customer loyalty, smart brands are becoming engaging, immersive, interactive and fun. One example is a unique promotion by Hyatt featuring, 'random acts of kindness' like unexpectedly paying a customer's bar tab. The point is to maximize surprise by having no apparent program or pattern. This approach can do more to delight customers and build buzz and goodwill than another 100 points in any traditional loyalty program.

Fun also works for engaging employees. The VP of Brand Experience for a national retail chain we know tried something fun after attempts to get her store teams involved in a new promotion by offering them points and coupons fell flat. She offered to have the VP of Store Operations wash cars for the winning store team. The promotion took off by tapping into the team's sense of humor.

The message to CMO’s is clear: In the new world of frugality, where conspicuous consumption is "out," marketers need to move beyond consumption- based programs to engage and even entertain us.

Points are out. Bring on the fun!

Making Mobile Work for Marketers

While pundits debate mobile’s uses as an marketing medium, examples are all around us of brands experimenting with this new medium. New to the fray is General Growth Properties, a mall developer and owner of Water Tower Place in Chicago, Fashion Show at Tyson's Galleria outside Washington and South Street Seaport in New York. According to a recent story in Mobile Marketer Daily, the mall operator partnered with Mobisix to extend its email-based The Club program to include The Club Mobile, an alerts service that relies on SMS.

These are clearly early days for what’s being billed as the nation’s first national mall-based mobile advertising network. And it’s understandable that General Growth would follow its retail customers’ embrace of offer-driven loyalty. Here’s how the program currently works:

Consumers who sign up online with mobile number and other preference data at http://www.theclubmobile.com will receive discounts and offers via regularly scheduled text messages. Those who sign up stand a chance to win a $1,000 shopping spree.

The loyalty business is waking up to the fact that earning loyalty requires more than offering customers deals. At Loyalty EXPO earlier this month, there was lots of discussion about the shortcomings of across-the-board discount oriented programs and the need for a more nuanced approach.

Here are a three ideas for General Growth and others like them to harness the unique opportunity that mobile affords them to drive profitable business to their tenants and provide real value to end users:

1. School’s out, and moms are looking for low cost things to do with the kids. Mobile alerts about local mall activities like face painting, story telling, and other goings-on would be welcome news and smart uses of SMS for moms on the go.
   
   
2. People are looking for value, and stores are offering all kinds of discounts and deals on services like gift wrapping, not just merchandise. Marketing these service type deals in advance of a shopping trip may fall on deaf ears as they really become relevant once the shopper is at the mall. Mobile alerts about tenants offering free gift wrapping, or other services would be useful and again, don’t require any additional spend or discounts beyond what the retailer is already offering.
   
   
3. Shoppers at high-end properties like General Growth’s are tuned into good-works and brands with a social conscience. Malls are a great venue for supporting those good works. Whether it’s hosting a local area clean up that gets the locals involved or a pancake breakfast honoring the local fire department, the mall is a gathering place and natural community venue. General Growth could use other media to promote these events in advance and mobile to promote them the day they’re occurring to drive participation.

General Growth is in deep trouble. So are malls in general. As CB Whittemore suggests in her recent blogpost “Rethinking the Mall & Uncovering Retail Creativity” the next stage for retail is socializing the retail environment – and I would argue, that extends to the mall experience.

Increasingly, community is where we make it…and that includes the mall.

The Art of Serving Customers

I spent part of last week at Loyalty EXPO in Hollywood, Florida with smart people from retail, consumer packaged goods, and banking, and vendors to those industries to talk about the business of creating loyal customers.

Perhaps as many as half the people there were all about points programs - from the card issuers and payment solutions to the brands that participate in redemption programs. These programs, once approved (which can take time), are a fast way to roll out a consumer benefit without involving many people inside the organization. Bypassing employees on the front lines – whether in the bank, the store or the call center, there are lots and lots of them – makes implementation easier.

Plenty of speakers have run the numbers and vouched for the ROI on these points-based programs. A few were emphatic about the importance of making programs multi-channel, the most important channel being the store. All were adamant that the name of the game is to segment customers, and make different offers to different folks based on their profile and what you want them to do.

I didn’t hear anyone talk about pulling the idea of segmentation through to the in-person experience – so, we’re left treating all walk-ins the same because we haven’t taught employees in the stores or branches how to tell customers apart or how to serve them distinctly. However, by leaving front-line employees out of the story, points and other rewards programs miss the point (pun intended).

Customers have multiple channels for accessing brands today. They go to the store or branch for a few basic reasons. They are in a hurry or need help. They want personal attention and interaction. They want to “kick the tires” literally or figuratively, or they want reassurance that you know what you’re talking about or that your offer is a good one.

These moments of in-person interaction can be a brand’s best loyalty builders. Talbots rolled out its Classic Awards program about six months ago and was one of the featured speakers at the conference last week. According to CRM Manager Lisa Chalmers, the company recognized the opportunity to drive program enrollment by training associates to have a dialog with customers on the selling floor about it.

“Our point of view is that the rewards program provides something outside of the merchandise to create a relationship and dialog with our customer when she’s in the store. We want our associates to interact with the customer earlier in her store visit, and not wait until checkout. So, we created talking points for them to intercept the customer, and send emails to the stores with scripts for how they can engage the customer.”

The near-in opportunity is for retailers or banks to use their sales associates to help drive enrollment and redemptions in traditional card-based points and awards programs. The bigger idea is to turn this around and view loyalty programs as just one more topic associates can use to engage customers in a relevant conversation that deepens their relationship with the brand.

Here’s a new idea for building loyalty and boosting sales: think about redirecting some of the money spent promoting points programs to training the front line in how to serve distinct customers the way they want to be served.

Leaders Build Loyalty Into Their Business Model

As growth becomes elusive, retailers are hunkering down to hold onto the customers they have. A recent Aberdeen Group report shows that "customer loyalty programs and similar relationship marketing initiatives are some of the most critical factors that are impacting retailers’ sales and customer retention performance under these current difficult market conditions."

Many store-based retailers have bolted loyalty programs onto their businesses, using points based systems, discounting and giveaways to drive repeat business. Meanwhile, leading e-tailers have created business models that make it so appealing to do business with them that it is too hard or too much bother for customers to go elsewhere. By offering extraordinary service, convenience, quality, or value, these brands have found compelling ways to cement their relationship with their customers and overcome purely price-based competition.

Zappos is a great example I wrote about earlier this week.

Amazon Prime is another great example of an e-tailer achieving loyalty without points or merchandise discounts. In fact, customers pay Amazon $79/year to enjoy unlimited "free" 2-day shipping, discounted upgrades to 1-day shipping and no minimum order size. We buy more from Amazon than any other ecommerce site, and Amazon Prime is the reason. That’s loyalty!

Shutterfly is attempting to increase customer retention by capitalizing on recent decisions by competitors, land-based operators Snapfish and Kodak. Both have announced they will no longer store pictures for customers who have not purchased merchandise from their sites recently. Shutterfly’s CEO, Jeffrey Housenbold, used those announcements as an opportunity to reach out to customers past and present with albums stored on the Shutterfly site and reassure us via email that there will be no forced deletion on his site. Our photos are safe, regardless of what or when we buy. Of course, the hope is that the convenience of having digital photos all in once place will lead to reliance on that site for prints, cards, etc.

Is it a coincidence that all of these examples are e-tailers? I don’t think so. The Aberdeen report points out that brick and mortar retailers are still worried about getting the plumbing right — only 37 percent of store-based retailers surveyed reported that customers can join their loyalty program via the POS system in stores. Meanwhile, e-tailers are free to innovate their business — and loyalty — models.

5 Must-Do’s in Building Customer Loyalty

Many executives use loyalty programs to buy customer loyalty, offering discounts and giving away products or services, in the hope that they will make it up on volume. That said, success in implementing these programs and integrating the systems that support them has been somewhat limited.

According to an April 9, 2009, Aberdeen Group report: “Even though 53% of retailers surveyed indicate that customers can join their loyalty program on the retail website, the same is not true at the store POS. Despite the growth in online retail sales, store sales account for bulk of retail revenue and customer traffic. A mere 37% of all retail respondents reported that customers can join their loyalty program via the POS system in stores. This gap between the POS capabilities the retailers possess and POS processes that enable loyalty program implementation show that retailers are not taking advantage of the technology afforded to them."

Given the systems and other challenges in implementing “traditional” loyalty programs where customers earn points and redeem them for products or services, program design deserves careful thought. Here are 5 steps every executive team should take to ensure customer loyalty (and loyalty program success):

1. Know whose loyalty you want
   
   
2. Identify what you can do that will be motivating to them, as well as differentiating
   
   
3. Get clear on internal expectations, roles and responsibilities
   
   
4. Test and learn
   
   
5. Rollout and measure

It’s probably not surprising that e-tailers are the innovators on this front. They tend to have newer systems, integrated databases, and more business model flexibility. Zappos is a great example of a leader and loyalty innovator. Founded in 1999, the shoe e-tailer has 7.4 million total customers, and 3.3 million of them have made a purchase in the last 12 months.

What do they do that’s so special? Zappos has a huge assortment – 230,000 SKUs of branded footwear – and offers free shipping in both directions. That means they have eliminated the downside to buying shoes (or apparel) online — i.e., the fit issue. At Zappos, there is no added cost to ordering multiple sizes of multiple styles and returning the ones that don’t fit. That’s standard for everyone.

What earns Zappos rave reviews and WOM is the way it consistently surprises customers with free shipping upgrades so their shoes arrive sooner than expected. Our work with women shows that shoes are one the fastest ways to her heart, It’s not only the free shipping and surprise upgrades that make customers rave about Zappos.

Employees are clear on the importance of building lasting customer relationships and on their roles in the process. Lots has been written about Zappos culture and the emphasis on delivering a WOW experience. One of the best descriptions is from an interview of Zappos CEO Tony Hsieh that Bruce Temkin of Forrester did last year.

The company has a clear focus on its target customer, knows what motivates her and appeals to that clearly and convincingly. They have employees on board, and use data to improve the customer experience. Delighting customers clearly pays Zappos dividends: Over 75% of purchases come from returning customers, and the company reached $1 billion in sales, generating over 30% comps the last two years, alone!

Loyalty pays. Doing loyalty right pays more.

Drugstores Innovate to Increase Loyalty

Recent conversations with senior executives highlight a huge range of interpretations of customer loyalty and how to get and keep it. For some, it’s about offering discounts or rewarding customers with points toward discounts. For others, it’s about offering free stuff customers may or may not want.

The airlines popularized the the discount version of loyalty programs. American Airlines launched its AAdvantage loyalty program in 1981 and cards and points became the status symbols of the new loyalty. I know people who jump through hoops to fly enough segments to qualify for specific airline bonus programs.

While the programs arguably generate incremental bookings, building positive feelings toward the brand is a big part of the point. So, to see how well these programs have worked, regard for airline brands has to be considered.

Turns out the airline industry as a whole scored the lowest of all 43 industries tracked by the American Customer Satisfaction Index for 2008. In contrast, cigarette companies, wireless service providers, and banks -- not exactly topping anyone's list of favorite industries -- ranked higher than airlines, and were not even in the bottom 3! And airline tickets are a commodity, as the ever-growing number of web tools for finding the best fare demonstrate. So, overall, it's hard to say these programs have worked as intended.

Making it easy to join, and offering discounts for “members” like the airlines and grocery stores do, is one approach to loyalty. Recently, two drug store chains took a different approach by strategically selecting which relationships to invest in. Both have launched new programs that will help promote customer loyalty, even though they aren’t officially “loyalty programs.”

Walgreens just announced that it is offering free visits to its TakeCare in-store clinics for the rest of the year for workers who are laid off and have no health insurance. The assumption is that these workers will find new jobs, and when they do, they will continue shopping (and start paying) Walgreens.

CVS is also investing in a strategic group of customers. Though its partnership with Google, CVS pharmacy customers can now download their prescription and medication histories to Google Health accounts. Like downloads into Quickbooks, the ability to download into Google Health accounts may become standard. Google certainly hopes so. For now, CVS is the only drugstore to offer these downloads, and is betting the early adopters it appeals to are upscale customers who value the opportunity to manage their health-related information themselves, and will consolidate their prescriptions (and other purchases) at the drugstore that enables them to do so.

The urgency surrounding health care cost management and health insurance coverage is becoming a potent source of innovation and potentially of loyalty for retailers. Hopefully, health care providers and insurers will be similarly inspired!

The Calculus of Loyalty

Many consumers, including me, have a tall stack of cards from the various loyalty programs they belong to. Between the cards for hotels, airlines, and car rental companies, I got so tired of the bulge they caused in my wallet that I bought a separate zippered pouch to carry them all. The one card that I still keep in my wallet is my grocery store loyalty card because I use it so often.

Loyalty programs aim to get consumers to buy one brand instead of another, or shop at one store instead of another, not just once, but over and over. They are one input into the price-quality-value calculus that consumers do in their heads every time they decide where to shop or what to buy. Different customers do the math differently, and even now, price alone does not always win, even in low-involvement categories.

In recent research with consumers about their preferred brand of canned goods, we saw the price-quality-value equation at work. Canned goods are far from the most innovative or exciting part of a grocery store’s offering. They pretty much define low-involvement in groceries. That said, consumers told us that the graphics on the can, the logo, the colors, all set quality expectations about the product inside and the experience of using or consuming it. Our research showed that the brand they preferred was the one they perceived as most expensive and highest quality. Why? They saw it as the best value.

Our findings are consistent with the just-released 2009 Brand Key Customer Loyalty Engagement Index. Based on research conducted earlier this year, they found that “consumers are not buying based on price alone. Instead, they are relying more on their perception of value when deciding which brands to stay loyal to during the recession.”

Despite the current economy, or because of it, some consumers still prefer (and pay more for) brand-name canned goods and other seemingly low involvement categories. Their loyalty stems from their own sense of what’s the best value for the money.

Store brands compete with branded goods manufacturers for consumers’ attention. Recently, Walmart announced plans to up its game, aggressively expanding and enhancing its own brands in quality and appeal. ALDI did, too.

Retailers have store loyalty programs to help with customer retention. Manufacturers have to find ways to engage customers and make them feel a connection to their brands and products – their own form of loyalty programs. Tools like social media offer an unparalleled platform on which to build customer connections that build loyalty.

Who do you think is doing a good job creating loyalty, and how are they doing it?

Increasing Loyalty at the Grocery Store

These days, businesses need to hold onto every customer they can get their hands on. Cutbacks in discretionary spending are keeping consumers out of whole categories of stores and malls. Lucky for grocery stores, people still need to eat.

There’s lots of press about how grocery retailers are improving the quality of their store brands. Whether it’s Rancher’s Reserve, Eating Right, Organics, or even Safeway Select, the packaging and products are clearly moving up market. But I would argue those brands are still not loyalty drivers. I don’t go to Safeway to get them, though I do buy them when I’m at the store,a and they do help build perceptions of quality and variety. (In contrast, Costco does actually have store brands that we make a special trip to pick up – like their Sparkling Ice Talking Rain drinks).

In our town, there are three choices of grocery stores. There’s the local, independent market whose owners are deeply involved in the town. We have a cramped Whole Foods with inadequate parking but the best butcher shop. And there is a Safeway across the street from the high school, where most kids eat at least one meal a day (and no adults want to be when the high schoolers take over the place). There are more choices farther away, but these are the store we shop at day in, day out.

I’ve preferred Safeway for years, because of the free and ample parking, the deals, and its broad assortment which makes it a one-stop-shop. Safeway is also the only store of the three with a loyalty program. And today, I experienced the real value of my loyalty to Safeway for the first time. In the past, Safeway has included coupons for Safeway Gas Stations among the receipts the cashier hands customers at checkout. Since there are no Safeway gas stations near us, I had no use for the coupons (I can’t keep track of paper coupons, anyway).

However, Safeway recently launched PowerPump Rewards – a cobranded program with BP, which owns ARCO as well as BP stations across the country. For every $100 I spend at Safeway, I receive $1.50 toward a fill up at an ARCO or BP station. Sounds small. But without even trying, I earned a $10.50 debit card last month that I used today to buy gas. So, now, in addition to saving money on most of what I buy at Safeway, I also save money on gas. And while I occasionally go to ARCO to fill up, with PowerPump Rewards I make a point of it. Apparently, I'm not alone. Convenience Store News reported today that according to Safeway Chief Marketing Officer, Diane Dietz, "The customer response to PowerPump has been tremendous."

For me, the customer, it’s double savings. For Safeway and ARCO, they’ve given me a more powerful reason to be/stay loyal. That’s a win-win-win for them.