2 Customer Loyalty Question: What is customer loyalty ? Customer LoyaltyTo gain and improve customer loyalty and satisfaction, many companies have developed different strategies.Question:What is customer loyalty ?Is this really profitable for us? For customer?
3 Why Do You Want Loyal Customers? Exercise?(brainstorming)
4 What does loyalty mean to businesses ? Repeat Purchases ?Retention of Customers ?Create Profitable Customers ?Acquisition of Customers ?More Information on Customers ?Reward Loyal Customers ?Just Another Marketing Program ?Reality …….….could be all of the above !!!!
5 Customer hopes & asks but doesn’t expect; if met then delighted Customer hopes & asks but doesn’t expect; if met then delighted. Unlikely to cause dissatisfaction. Build customer loyaltyCustomer tells what is important; satisfaction vs. dissatisfaction if metBenefits above & beyond expectations; identify and suggest innovations with new productsMeeting basic respect & courtesy needs; dissatisfaction if not met; indifference if met
6 Some key points on developing loyalty Since what was once unexpected/unstated becomes expected/stated, you must keep innovatingPerformance excellence occurs by design, not defaultAll parts of the organization are part of creating customer loyaltyReliability: Keeping your promise, doing what you said you will do. Doing things right the first time.Assurance: Making the customer feel safe in their dealings with you, being thoroughly professional and ethical.Tangibles: How the product/service looks to the client, the appearance of personnel and equipment, etc.Empathy: The degree to which the organization and service personnel understand the individual client and their needs, the ability to adapt the service to each client, the willingness to 'go the extra' for the client.Responsiveness: The availability, accessibility and timeliness of the service. The ability to respond to enquiries and complaints in a timely fashion.
8 Four different reasons for loyalty should be promoted psychological;economic;technical/functional;contractual.
9 How did it all start – the Loyalty Program way Trading stampsAccumulate stamps every time you shop for groceries, petrol, etcRedeem them for “ free “ giftsAirline Frequent Flyer ProgramsFly and earn pointsRedeem points for free flightsPlethora of loyalty programs in different forms across industriesFrequent buyer, frequent flyer, frequent player, frequent dining, points-at-pumpsInteresting though not surprisingly……..Initial objective was to collect data on customer purchase patternsSimple proposition – Earn Points for future value hence loyalty
10 What’s the Good News ? Loyalty programs are 90 % Americans are active participants in at least 1 program % have at least 1 loyalty card. Are Loyalty cards effective in Eastern Europe? If no, how do we adjust and adapt?82% customers think Loyalty program marketers are more in touch with their customers66% of Loyalty program members do not mind sharing extra information about themselvesUnconventional industries also bitten by loyalty bugStarbucks Card to store information of the Card members preferences.Nike Smart card allows them to design their own shoesLoyalty programs areKey drivers for enhancing customer experience.Active point of differentiationHelp pinpointing individual buying patterns and predicting future customer behavior.
11 What’s the Not-So-Good News ? Do customers perceive reward programs making a difference ?Some differenceA lot of differenceLittle differenceDon’t KnowDont make any difference at allDont make much difference12%23%13%24%16%11%48% customers did not have any serious intention of repurchasing the brand55% customers accumulate points because they anyway come along with their purchasesDo Loyalty Programs work -- Not as well as they are intended to
12 Some successful US programs – e-Bay Launched in in 2003,Teemed up with American Airlines,Hilton Hotels & eight other companies to offer called eBay Anything Points:Points can be earned from one business & swap them for points at eBay.e Bay has more than 135 million registered members across the globeProgram has 44 mln items listed for sale with 4 mln added daily.Success of e Bay Anything points is attributed toLinking online purchases with Travel & Airlines purchase.Enabling customers to redeem high ticket size points against lower value purchasesChoice of redemption options.
13 Some successful UK programs – Nectar Coalition & database-driven loyalty program --- launched in Sept 2002.UK's largest Customer Reward Program -- > 50% of all UK households participating in the program.Launched with 4 partners, today it has 17 & Over 6,000 retail locationsNectar customers can earn points on 40% of their household expenditure.It has given back over 450m pounds worth of rewards since launch.Sainsbury's, Barclaycard, BP and Debenhams, Thresher Group, Vodafone, Adams, Ford, e-Energy, all:Sports, Winemark, Hertz, Magnet, Brewsters, Brewers Fayre, ebookers UK, and Beefeater.Success of Nectar is attributed toAvailability & Wider choice for redeeming points across relevant segments.Enabling customers to earn rewards more quicklyAt higher value than if they collected points from only one company.
14 Some insights --- Customer & Company perspective Customers new perspective of Rewards ( Loyalty )Cash valueRedemption optionsAspirational valueRelevanceConvenience---- Immediate gratification---- More Choice---- Feel Good factor---- Does it make sense---- Ease of availing rewardLoyalty initiatives are not short term marketing tools. They shoulddeliver tangible value in proportion to the value the customer brings to the companyoffer right mix of Product, Price, Service Delivery & Relationship benefitsCommunication to be transparent, timely and focussedConsistent across all customer touch pointsLoyalty initiatives must also be profitableTreat profitable and unprofitable customers differentlyGet your metrics in place ---- measure costs & returns
15 What does loyalty mean to the customer today ? Complete Customer“ Relationship” ExperienceCustomerPerceived valueCustomer cost ofusing your productPricePrimary driversProduct / service*Brand**RelationshipPurchase priceEffortTimePhysical productService productService deliveryService environmentEthicsImageReputationPositioningLoyalty ProgramsCo BrandsAlliancesSpecial treatmentAffinityCustomer communityCustomers want an end-to-end relationship experience
16 Customer Relationship experience – Banking illustration Customer Value PerceptionLife Time FreeTransparency in chargesValue for moneyEase of availabilityRelevant FeaturesWide service rangeEasy accessibilitySpeedy serviceCustomer empathyResolution of query the first timeUnderstanding needsProcesses & Service KnowledgePreferential offersAspirational valueFlash ValueInspires confidencePriceProduct /QualityCustomer ServiceBrandRelationship% returns /cancellations# service calls/repairs# customer inquiries# billing queriesFee IncomeSimplified product offeringBottom lineOne stop Shop for all financial needsNetworkavailabilityBest in classStrengthening Brand imageAdvertising costsCustomer touch timeNo. of product training hoursOrganization’s translation of Value
17 Ask yourselves…..are you truly Customer Centric? Do you measure your customers ……Lifetime Value & Cost to the businessPreferences, Dislikes, Usage PatternsSatisfaction levelsCan your Products & Delivery systems provide …..End to end solutions / Address future needsCompetitive & flexible pricing plansEase of access / acquisition --- Options to use most appropriate services / channelsAre your business processes geared up for …..Settling customer issues, with 1 phone call or web-site visit?Responding immediately & appropriately to "moments of truth" when customers' business is on the line?These are just a few of the questions that manufacturers need to ask themselves and shown here to give you some idea to what the study is about.Do you monitor your Loyalty programs to see …….Address the right customersIf they are profitable?
18 Enterprise approach to Loyalty 1st : Have a clear articulated Customer Loyalty StrategyCovers the entire customer experience during his lifecycleCovers all customer touch pointsAddresses his existing / potential relationship with the company2nd : Must be in sync with Business ObjectivesCustomer / Segment profitabilityCustomer Contact strategy3rd : Business Process to be customer centricRisk, Underwriting, Operational processesAcquisition, Customer service, Marketing4th : Design Customer centric & Profitable Loyalty programs
19 How do you do it ……. Business Objectives Process Changes Lifecycle Experience Define value proposition to customer segmentsDynamic Ability to react to changing customer needs and behaviorsTargets Program objectives clearly communicatedMetrics Measurement capability in line with objectivesBusiness ObjectivesProcess ChangesSeamless --- across all Channels, Business Functions and touch pointsFlexible Ability to accommodate changes without compromiseLoyalty ProgramsValue & Choice ---- Value based on Customer Profitability & offering relevant choice ( Bought-out or Co- Branded )Personalised to the customer’s unique profile based on AnalyticsBranded ---- Bought-out or Co-branded to address emotional needs
20 Role of Partnering & Co Branded Programs Addresses the new customer need ofOffering wider choice of involvement platformsAccrual / Redemption of Rewards across several relevant involvement categoriesFaster value accumulation compared to stand-alone programsBranding association to address aspirational & emotional needsAddresses the companies need toLower costs of loyalty through sharingAccess partner customer touch pointsAccess additional customer databasesImprove Brand image
21 Partnering or Co branding --- which option to choose ? Success in Co-Brand partnership is higher, ifCore value of the two partnering brands are related.Partner Co brand objectives are in congruenceEach activity has consequent benefit to both partnersAvailability of PartnersBought out approach works whenNo feasible Co Brand partners are availableFeature / Service is commoditisedCost of feature lowPartner not interested in Co branding
22 Co-Branding in Credit Cards – Is it Profitable? Same64%Less9%4%Purchasemore23%Purchase amount from Co-Brand PartnerDont knowFrequency of using CoBranded-PartnerSame59%More often31%Dont know2%Less often8%Yes …… by a factor of 1.2 – 1.5 timesYes …… If you can get customers to aggregate all their usage on the co branded programYes …… If you can the relationship needs of the customer and show value
23 To summariseLoyalty is’nt created by a program……it can at best strengthen it.Loyalty is not about short term rewards…….it is about end-to-end customer experience with your products / servicesCompanies need to have a enterprise wide loyalty strategy backed by customer centric processes to deliver valueCo branded programs work --- Ensure you get the value proposition rightLoyalty has to be earned…..its hard work….but at the end you have a profitable customer
24 Measuring Customer Profitability Measuring Customer ProfitabilityActivity-based costing (ABC) is a technique that allocates the cost of performing various services to each customer (customer-specific costing).Through Customer Relations Management (CRM) programs, one can relate revenues and costs to each and every activity.
25 Activity-Based Costing Activity-Based CostingEmploying an activity-based costing (ABC) process, one can accurately assess the cost and profitability of each customer.By linking financial information with transactional data created in CRM programs, companies are able to accurately calculate “cost-to-service” components to yield customer profitability.
26 Figure 3.3 The Whale Curve of Cumulative Profitability
27 Whale Curve & Profitability Whale Curve & Profitability20/80 Rule says “20% of customer provide 80% of salesWhale Curve reveals:20% of customers generate 150–300% of total profits70% of customers break even10% of customers lose from % of total profitsLeaving company with 100% of total profits
28 High- vs. Low-Cost-to-Serve Customers High-Cost-to-Serve CustomersOrder custom productsOrder small quantitiesUnpredictable order arrivalsCustomized deliveryFrequent changes in delivery requirementsManual processingLarge amounts of presales support(i.e., marketing, technical, and sales resources)Large amounts of post-sales support(i.e., installation, training, warranty, field service)Require company to hold inventoryPay slowly (i.e., high accounts receivable)Low-Cost-to-Serve CustomersOrder standard productsOrder large quantitiesPredictable order arrivalsStandard deliveryNo changes in delivery requirementsElectronic processing (EDI)(i.e., zero defects)Little to no presales support(i.e., standard pricing and ordering)No post-sales supportReplenish as producedPay on timeSource: Robert S. Kaplan and V.G. Narayanan, “p. 8. Measuring and Managing Customer Profitability,” Journal of Cost Management 15, No. 5 (September/October 2001):
29 Customer ProfitablyAs mentioned previously, some customers are profitable and some aren’t. To determine this, we look at the cost/profitability structure with the plan to:Keep profitable customersConvert unprofitable ones to profitabilityFire those who are not profitable
30 Managing loyalty and profitability Source: Hadson & Hadson . Customer service for Hospitality & Tourism . Chapter 7. Building and Maintaining Customer Relashionship. (Adapted from Kumar and Rajan, 2009, p. 5)
31 Managing Unprofitable Customers Managing Unprofitable CustomersLow margin / high cost customers offer the most challenge for marketing mangers.Start with ways to reduce costsNext, work with customers to possibly change their actions resulting in lowering costs or increasing profitability
32 Firing the CustomerWe must try everything to make a customer profitable before firing them.If after trying, and the customer continues to be reluctant to change, and the relationship remains unprofitable, we can say outright, “YOU’RE FIRED!” but…There are better approaches. We can let customers ‘fire themselves’ by raising our prices, reducing or charging more for services, eliminating discounts, etc., until they become profitable or find another distributor.
33 Useful linksFostering Loyal Customer Relationships. Duarte B. Morais, Ph.D.Assistant Prof. of Recreation, Park and TourismManage Customers for Profits (Not Just Sales)” B.P. Shapiro et al.,September-October 1987, p. 104, Harvard Business Review.B.P.Shapiro