Customer Loyalty and Frequency Marketing

Customer Loyalty and Frequency Marketing
Stowe Shoemaker, PhD Cornell University Executive Education Faculty University of Houston Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Whom Am I, and Why I am Teaching This Course?
Current Position Academic Background Research Background Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Class Times To be addressed Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Who Are You, and Why Are You Taking This Course?
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Goals For Class - (or, what you will know by end of class)
Difference between frequency and loyalty Customer Relationship Management and loyalty Why loyalty is important How to calculate life-time value of a customer How to create customer loyalty within your organization Technology and customer loyalty Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Goals For Class - (or, what you will know by end of class)
How to create value Metrics to use to evaluate a loyalty program Complaint management and service recovery Case studies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Group Project Develop a loyalty program for Cabo San Viejo (case study) Program can be anything you want it to be Can or cannot be a points based program Hotels and airlines have Freddie Awards, we have Hotelie Award Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

not at all 1 2 3 4 5 6 7 does extremely well
#1 #2 #3 #4 #5 #6 Creativity Originality Incorporates class material This group had fun The customer will want to belong to this program It is feasible TOTAL

Questions to motivate discussion
Name two products or services to which you consider yourself extremely loyal. What has produced that loyalty? How frequently do you buy this product or service? What do you tell your friends about this product or service? What do you tell your family? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Consumer Buying Process WOM Brand Advocate Repeat Purchase Loyalty Circle Components Satisfaction Trial (Initial Purchase) Pre arrival contact Dissatisfaction Barriers Switching costs Perceived risks Lack of information Why Switch? pricing inconvenience core service failure service encounter failure response to service failure competition ethical problems involuntary switching (customer moved) Complain Need Recognition Switch Awareness/ Search/Evoked Set Why Switch? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Evolution of How Marketing Defined
4 P’s 7 P’s 14 C’s Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Four P’s of Product Marketing?

Seven P’s of Services Marketing?

Fourteen C’s of Marketing – help create value
Customer Categories of offerings Capabilities of firm Cost, profitability and value Control of process Collaboration within firm Cost to the customer Customization Communications Customer measurement Customer care Chain of relationships Competition Capacity Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Customer Loyalty/Relationship Marketing Does Not Equal Frequency Marketing Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Frequency . . . Focusing on Behavior
When customers give you a greater share of their transactions than they might have without the program, usually in exchange for accumulating miles, points, or other surrogate discounts. You ask: Aren’t we quibbling here, isn’t that loyalty?

Commercial on Frequency

Drawbacks of Frequency
Exclusive focus on behavior ignores the emotional and psychological factors that build real commitment. Without that commitment the customer focuses on “the deal,” not the brand or product relevance. A behavior focus makes bribing the customer irresistible. Erodes the brand and diminishing product differentiation. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Commercial on Loyalty Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Loyalty . . . Focusing on Emotion
When the customer feels so strongly that you can best meet his or her relevant needs, your competition is virtually excluded from the considered set, and the customer buys almost exclusively from you — referring to you as “their restaurant” or “their hotel.” Winning maximum share of heart, mind and wallet. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Like a Marriage “The sale merely consummates the courtship. Then the marriage begins. How good the marriage is depends on how well the relationship is managed by the seller. It is more a matter of what the buyer wants. He wants a vendor who will keep his promises, who'll keep supplying and stand behind what he promised. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How It Plays Out Objectives Strategy Focus Traditional Frequency Real
Loyalty How It Plays Out Build traffic, sales and profits. Build sales, profits and the brand. Objectives Incentive repeat transactions. Build personal brand relationship. Strategy An individual’s emotional and rational needs, and their value. A segment’s behavior and profitability. Focus

Objectives Real Traditional Frequency Loyalty How It Plays Out
Segmented rewards: Customized recognition: • Transaction status • Free/discounted product • Collateral product discounts • Rational rewards: points, miles • Rewards “menu” • Individual value, tenure • Preferred access, service, “inside information” • Value-added upgrades, add-ons • Emotional, “trophy” rewards • Tailored offers/messages Tactics • Transactions • Sales growth • Cost structure • Individual LTV • Attitudinal change • Emotional response Measurement

The Benefits of Real Loyalty
“Loyal customers tend to maintain their positive expectations relatively longer than low-loyalty consumers, so they are not likely to adjust expectations based on episodic factors” “Loyal customers tend to show: a special preference, attachment, commitment, positive WOM, low switching to competitive brands, willingness to pay premium price” (Youjae and Suna, 2004). Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Benefits of Real Loyalty
The customer focuses on your brand, offers and messages to the exclusion of the competition. Price is no longer the dominant consideration, but one component in the larger value proposition. Loyalty provides critical inoculation. Competitive offers face a higher hurdle. The customer becomes more forgiving — goodwill equity. Loyalty begets loyalty. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Why Hotels Should Be Concerned about Customer Loyalty
Customer loyalty leads to increased profit Customer loyalty leads to increased partnership Lower marketing and sales costs Lower transaction costs Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D 2

Lessons Learned From Research in Hotels
Loyal customers are less likely to ask about price when making a reservation Loyal customers are willing to serve on advisory panels Loyal customers claim they will use purchase other offered services Loyal customers more likely to report service failures Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D 2

Lessons Learned From Research in Hotels Restaurants and WOM
A loyal customer in a restaurant tells a median of 10 people A loyal customer in a luxury hotel tells a median of 12 people 52.3% claimed that they would go out of their way to mention restaurant when the topic of restaurants comes up 19.3% claimed that they would go out of their way to mention hotel when the topic of hotels comes up Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D 2

Lessons Learned From Research in Restaurants
69% read the communication (letters, s, promotional material) they receive from the restaurant to which they are loyal (8,9,10 rating) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D 2

Lessons Learned From Research in Restaurants - tipping
1 to 10 scale, with 1 being “I tip much less” to 10 “I tip much more,” 47.2% among the total sample chose the top three boxes. Ten or more visits in the past three months, 56.1% chose the top three boxes Five to nine times (49.1%) Three to four times (41.5%) Less than three times (43.1%) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D 2

Partnership Activities in Restaurants

Partnership Activities in Restaurant

What Impacts Loyalty in Hotels

Loyalty Steps (McKinsey & Company)
Value of the customer Advocate Repurchase Select Use Depth of relationship Indifference Satisfaction Preference Loyalty “I’m resigned- I don’t have any choice “I choose to buy” “I would gladly repurchase” “I buy repeatedly and Encourage others to do so too”

Customer Relationship Management (CRM)
Is a strategic approach that is concerned with creating improved shareholder value through the development of appropriate relationships with key customers and customer segments. CRM unites the potential of relationship marketing strategies and IT to create profitable, long-term relationships with customers and other key stakeholders Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Customer Relationship Management (CRM)
CRM provides enhanced opportunities to use data and information to both understand customers and co-create value with them. This requires a cross-functional integration of processes, people, operations, and marketing capabilities that is enabled through information, technology, and application. Adrian Payne and Pennie Frow Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

What Is CRM? “Customer Relationship Management should us to contact and treat customers better than anyone else -- establish, strengthen, and convert relationships” CRM entails the following: Customer-centric marketing and operations approach Technology-enabled, automated business processes Consistent brand experience across all touch points

What Is CRM? CRM entails the following:
Real-time response to customer stimuli Every customer interaction begins where the last one left off Tight integration between marketing and operations Understanding customer-level profitability Having an overall vision and building the solution in stages Anticipatory as opposed to reactive

CRM versus Traditional Marketing

Traditional Marketing Vs. CRM
“The purpose of business is to create and keep customers” New “The business of business is to generate value for and from customers” Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Key Business Issues Where a company’s future value will come from How much it will cost to generate it How company should allocate resources to generate it most efficiently How company should measure progress to make sure it’s on the right track from: John E. Groman Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Not All Customers Are Equal
B profitable now profitable future profitable now unprofitable future Customers - Current Unprofitable Profitable D C unprofitable now unprofitable future unprofitable now profitable future Unprofitable Profitable Customers - Future

HP = high profit; LP= low profit; ST =short term; LT= long term
Types of Loyalty LT ST Butterflies True Friends Good fit between company’s offerings and customers’ needs; High profit potential Actions: Aim to achieve transactional satisfaction, not attitudinal loyalty Milk the accounts as long as they are active Key challenge is to cease investing soon enough Good fit between company’s offerings and customers’ needs; Highest profit potential Actions: Communicate consistently, but not too often Build both attitudinal and behavioral loyalty Delight to nurture, defend, and retain them HP Strangers Barnacles Limited fit between company’s offerings and customers’ needs; Low profit potential Actions: Measure the size and share of wallet; if low focus on up and cross-selling If size of wallet small, impose strict cost controls Little fit between company’s offerings and customers’ needs; Lowest profit potential Actions: Make no investments in these relationships Make profit on every transaction LP From Reinartz and Kumar 2002 Harvard Business Review HP = high profit; LP= low profit; ST =short term; LT= long term

Traditional (Conquest) Marketing vs. CRM
intermediate function between company and customer goal is to create more and more customers 4 P’s product; 7 P’s service CRM relationship is the center of all functions of organization focus is on customer retention 14C’s Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Evolution of Building Loyalty
Knowledge Relationships Profitability Relationships Brand Frequency Programs Targeted Promotions Sales Strategic Tactic Push traffic, no targeting, discounts, little measurement. Still push, discounts, some measurement. “Price” driven, segmented, transaction based. Added value to product, support price, customized, strengthen brand. Knowledge, Help support VAR in loyalty

Exercise Develop a list of activities that Cabo San Viejo illustrates each of the 14 Cs could do to increase the customer experience Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Satisfaction and Loyalty Are Not the Same
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D Adapted from Oliver, 1999, p. 34

Notes From Previous Figure
Oliver (1999) suggests that the first five models are not correct illustrations of the relationship between loyalty and satisfaction; Notice how satisfaction can spiral or build into loyalty and that once loyalty is achieved, it is separated from satisfaction, so that episodic dissatisfactions will not negatively affect loyalty. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions regarding Customer Satisfaction Measurement
Does your company measure customer satisfaction? How often? How do you measure satisfaction? What do you do with the results? How would you interpret diagram on the next slide Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Satisfaction 10 Satisfaction 1 - 7 Satisfaction 8 - 9 Satis 8 - 9 Satis1 - 7 Satis 8 - 9 Satis 1 - 7 Satis 10 Satis 10 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Why Satisfaction May Not Lead To Customer Loyalty
Some customers never return to an area Some customers shop for the best price Some customers like to stay at different luxury hotels, thus they stay at different hotels when in same city Lack of distribution Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D 2

Brands and CRM go Hand-in-Hand

Brand An orange …. is an orange. Unless, of course, that orange happens to be a Sunkist, a name eighty percent of consumers know and trust. Russell L. Hanlin CEO Sunkist Growers Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

From: David A. Aaker Building Strong Brands; New York: The Free Press page 7-8 Brand Equity Brand equity is a set of assets (and liabilities) linked to a brand’s name and symbol that adds to (or subtracts from) the value provided by a product or service to a firm and/or that firm’s customers. The major asset categories are: Brand name and awareness Brand loyalty Perceived quality Brand associations Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Brands and Branding Branding is a strategic point of view, not a select set of activities Critical to creating customer value Critical to creating and maintaining a competitive advantage Are cultures that circulate in society as conventional stories Is more than a product Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Hamburgers Ronald McDonald Dolls/Toys Breakfast Brands Products Fun Kids Family Big Mac Salads Shakes Birthday Parties French Fries Egg McMuffin Meals Play- ground Friendly/Warm McDonald’s Golden Arches Fresh Size Promotions Quality Hot Value Good Tasting Portion Size Consistent McDonald’s Charities Consistent Hassle- Free Service Clean Social Involvement Convenient Fast Ronald McDonald House A Mental Network Minority/Inner City Programs From: David A. Aaker Building Strong Brands; New York: The Free Press page 94 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Four Authors The Firms Popular Culture Influencers Customers
From Duane E. Knapp: The Brand Mindset: McGraw-Hill: New York The Four Authors The Firms Shape the brand through activities that “touch” customers; e.g., 13 C’s of marketing all use to “tell stories” Popular Culture Used as props in entertainment such as films Public relations manage perceptions Influencers Trade magazines, reviews (Zagat), opinions of friends Customers Consumption stories

Popular Culture Brand Personality The Firm Organizational Associations Symbols Product Scope Attributes Quality Uses Country of Origin Brand-Customer Relationships User Imagery Influencers Emotional Benefits Customers Self-Expressive Benefits The Brand Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Brands and Competitive Advantage
Brand provides leverage with partners Brand cultures are “sticky” Cognitive misers Culture is shared by many people and expressed in a variety of contexts Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Brand as a Mental Box
A brand such as Mr. Goodwrench is much like a “box” in someone’s head. As information about GM service programs is received, a person will file it away in the box labeled Mr. Goodwrench. After time passes, little in the box may be retrievable. The person knows, however, if it is heavy or light. He or she also knows in which room it is stored – the room with the positive boxes or the one with negative boxes. From: David A. Aaker Building Strong Brands; New York: The Free Press page 10 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Brand as a Ship A brand can be likened to a ship in a fleet facing an upcoming battle. The brand manager is the captain of the ship, who must know where his or her ship is going and keep it on course. The other brands in the firm, like other ships in the fleet, need to be coordinated to achieve maximum effectiveness. From: David A. Aaker Building Strong Brands; New York: The Free Press page 10 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Brand as a Ship Competitors correspond to enemy ships; knowing their location, direction, and strength is critical to achieving strategic and tactic success. The perceptions and motivations of customers are like the winds: It is important to know their direction, their strength, and possible changes. From: David A. Aaker Building Strong Brands; New York: The Free Press page 10 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ten Guidelines for Building Strong Brands
Brand Identity Brand as a person; brand as organization; brand as product; brand as symbol Value Proposition Emotional and self-expressive as well as functional; understand brand customer relationship Brand Position Easily communicated and believable Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Execution Deliver the brand promise Consistency over time Maintain symbols, imagery, and metaphors that work Brand System Make sure the brands in the portfolio are consistent and synergistic Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Brand Leverage Extend brands and develop co-branding programs Tracking Brand Equity Track over time, including awareness, perceived quality, brand loyalty Brand Responsibility Someone needs to ensure brand is being properly managed Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Invest in brands Continue investing in the brand Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Case study on Brands: Rosewood Hotels
Why is Rosewood considering a new brand strategy? What are the pros and cons of moving from individual brands to a corporate brand? Will the move to corporate branding maximize lifetime value? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Rosewood Spread Sheet Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Word of Mouth Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Word of Mouth The One Number Firms Should Be Concerned About Critical in services because of variability and heterogeneity – customers discount advertising, PR, and the like WOM comes from friend, associate, family member Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Word of Mouth - continues
Questions to ask: How likely is it that you would recommend _______ to a friend or colleague? use a 0 to 10 scale Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Word of Mouth - continues
Net Promoter: calculate % of people who respond with a 9 or 10 (promoters) % of people who respond with a 0 – 6 (detractors) Net Promoter Score = Promoters – Detractors (E-Bay, Amazon, USAA 75% - 80% Median 400 firms in 28 industries was 16%) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How to Create WOM Encouraging communications Giving people something to talk about Creating communities and connecting people Working with influential communities Creating evangelist or advocate programs Researching and listening to customer feedback Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How to Create WOM Engaging in transparent conversation Co-creation and information sharing Blogs Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Blog Word of the year in 2004 Defined by Merriam-Webster as “a web-site that contains an online personal journal with reflections, comments, and other hyperlinks.” Survey by the Pew Internet and American Life Project revealed that 27 percent of adults who go online in the United States read blogs. Janet Johnson, Vice President of Communications, Marqui, Inc. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Blog More than 28% of journalists now rely on blogs for reporting and research, according to a survey by EURO RSCG Magnet and Columbia University, with 53% of surveyed journalists revealing they gleaned story ideas from blogs and 36% saying they used blogs to locate sources Janet Johnson, Vice President of Communications, Marqui, Inc. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

What a blog should be used for
Provide product or service information, talk about your market, explore the vision of your management or leadership team, provide opportunity for customers to share their stories Janet Johnson, Vice President of Communications, Marqui, Inc. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Examples of Blogs www.thelobby.com http://www.blogs.marriott.com/
Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008

Lifetime Value of the Customer

Life-Time Value Definition: The net profit you will receive from transactions with a given customer during the time this customer continues to buy from you In today’s dollars/Euro/Yen Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Life-Time Value - continued
Life-time value of a customer increases as defections decrease Life-time value needs to be calculated for each market segment Should be used in marketing strategy Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Life-Time Value - continued
ROI Example: invest $40,000 in a mailing of 100,000 piece promotion 2% response rate sell 2,000 items at $100 each with net profit of $50 each Gross profit = 2,000*$50 = $100,000 Net profit = $60,000 ROI=60,000/40,000 = 1.5% Judges marketing effort on a one time investment Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Assignment Complete information on next set of tables and answer question, should property have a loyalty program? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Control Group: No Loyalty Program: (complete this table)
Year 1 Year 2 Year 3 5,000 3,650 2,884 Retention Rate NA Spending Rate $148 $159 $165 TOTAL REVENUE Variable Costs % 45% Variable Costs $ GROSS PROFIT Discount rate (15%) D=(1+i)n NPV Profit Cumulative NPV Profit Lifetime Value Customers

Lifetime Value of Test Group: Enrolled in Loyalty Program
Year 1 Year 2 Year 3 Referral Rate 6% 8% NA Referred Customers 300 340 Retained Customers 3950 3570 Customers 5000 4250 Retention Rate Spending Rate $162 $175 $182 TOTAL REVENUE Variable Cost % 45% Variable Cost $ Program Costs $12 PM $60000 Referred Incentives $15 TOTAL COSTS GROSS PROFIT Discount rate NVP Cumulative NPV Lifetime Value

Payback Comparison – complete table
Year 1 Year 2 Year 3 Control Group LTV Test Group LTV Difference With 200,000 customers Annual loyalty program costs ROI initial investment $12PM Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Club Med Case Study Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions In what areas has Club Med developed a competitive advantage? How defensible are they? How serious a threat is the new competition? What is the expected value of a new customer? What is the company’s culture and what is its impact on the firm’s performance? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions What impact on sales would an increase in service quality have (i.e., what are the “external” economics of quality)? What opportunity actually exists for Club Med to increase service quality? What are the relative costs of its options? What areas should Jacques Giraud be most concerned about, areas that he should put on his strategic agenda? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions What are the nonfinancial measures of the company’s performance, and what do you conclude from them? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Firms with Following Characteristics Should Improve Customer Satisfaction, as will Influence Profitability High rate of customer repurchase Heavy customer word of mouth Large share of market needed High level of customer expertise in judging quality High level of perceived financial risk High level of ego intensity Low customer price-sensitivity High degree of operating leverage

Price of Non-Conformance
Model provides a basis for evaluating the impact of a change of service quality on customer satisfaction Illustrates the impact of a new customer’s service experience on the rate of repurchase and generation of new customers

Data to Illustrate Information
60% or 200,000 GMs are new (p.8) 80% satisfaction (not given in case) Of the satisfied GMs, 30% could be expected to become repeat buyers of Club Med vacations. (On an overall basis approximately 25% of all GMs become repeat purchasers.) (p.8) The repeat GMs could be expected to purchase four additional Club Med vacations (p.8) Contribution margin of extra guests is valued at 60% (p.8).

Data to Illustrate Information
65% of Club Med’s new GMs are influenced to purchase primarily from positive word of mouth (p.8); Assume that all positive word of mouth is generated in the year the vacation occurs, and its effect – the generation of new GMs – takes place the following year; examine 1985 from 1986

New Questions Based on Previous Two Slides
What is financial impact of customer satisfaction of 80%? What is financial impact is this increased to 90%? What is financial impact of positive word of mouth?

How To Create Loyalty Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Creating Loyalty Process Exit Exit Exit Value (Added and Recovery) Communication Exit Static Fluid Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Value Seeks to create new value for customers and then share the value so created between producer and consumer. Value is created with customers, not for customers. Requires that a company design and align its business processes, communications, technology and people in support of the value individual customers want. Types of Value Value Added Value Recovery Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Process Focuses on the processes and whatever else is needed to advance the customer relationship. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

GAPS Model of Service Quality
CUSTOMER Expected Service GAP 5 Perceived Service External Communications to customers Service Delivery COMPANY GAP 4 GAP 1 GAP 3 Customer-driven service designs and standards GAP 2 Company perceptions of consumer expectations (from Zeithaml, A. Valerie and Mary Jo Bitner (1996). Services Marketing. New York: McGraw Hill p. 48.)

GAP Model of Service Quality
Performance > Expectation  Performance = Expectation  Performance < Expectation  Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Dimensions of Service Quality
Reliability Assurance Tangible Empathy Responsiveness Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Exercise Spend 10 minutes designing a room service script that uses each part of the RATER System Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Communication Sales force Outlets Reservations Direct Marketing Electronic Commerce Mobile Commerce Employees Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Information-Driven Marketing- The Complete Model
5 Degress of Customer Bonding Awareness Identity Relationship Community A dvocacy Marketing Strategy Publicity Relationship Programs Direct Marketing General Advertising Sales promotion Point-of- purchase Marketing Tactics InformationExchange Data Processing and Storage The Information Core -Datamotion- InformationExchange New Product Indcubator Life-time-Value Enhancer Crystal Ball Predictor New Customer Attractor Partnership Stimulator Information Accumulator Applications of Data Information from the information core feeds back to the tactical level of the system, providing guidance for future activities on new busienss opporetunities, partnering opportunities, routes for enhancing lifetime value, information acquisition, anbd market predicting

Individual Rights re: Database
Access to their data Correction/deletion Object to processing Automate decision Consent to transfer data to others Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Governing Laws European Convention on Human Rights Council of Europe Convention 108 {R85(20)-direct marketing} Data Protection Directive {95/46/EC} Telecommunications Directive {96/97/EC} E-Commerce Directive {00/31/EC} Privacy and Electronic Communications Directive {02/58/EC} Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Laws Regarding Databases
UK: 44 (0) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Laws Regarding Databases
European Union: Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic communications) Official Journal L 201 , 31/07/2002 P Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ways to Use Database Identify your best customers Develop new customers Deliver a Message Consistent with Product Usage Reinforce Consumer Purchase Decisions Cross-Sell and Complementary-Sell Products Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ways to Use Database - continued
Improve Delivery of Sales Promotion Refine the Marketing Process Increase the Effectiveness of Distribution Channels Maintain Brand Equity Take Advantage of Stealth Communications Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Conduct Customer, Product, and Marketing Research Develop Personal Profiles of Guests Create RFM Codes Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

RFM Codes Same procedure for each code 1. Put in _____ for each customer record 2. Sort database from highest to lowest 3. Divide into five exactly equal parts 4. Number the quintiles with 5 being the most recent 5. Put the quintile number into each record Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

5 4 3 2 1 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Example of RFM Table in Research
# of People R F M Test Control 90 5 1 45 2 106 3 53 123 4 62 61 281 140 141 105 52 135 67 68 139 70 69 154 77 167 84 83

Best Practice for Communication
Start off slow Show you are listening Offer value in return Not everyone wants dialogue Do not misuse the trust created Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Other Keys to Successful Communication via E-Mail*
Be selective as to who is added to your list or you will create more work for yourself; Use double op-in Make it easy for people to opt-out Put privacy statement on website and follow it Use HTML instead of text Make sure it can be easily read without graphics appearing as some graphics blocked and if read off-line graphics will not appear Give customer choice as to how they would like to receive information * From Right Now Technologies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph
Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008

Make s relevant and extremely valuable; 50% now spam From: represents your brand Subject: represents timely and relevant proposition Personalize Use past buyer behavior information to target offers Let customer choose how often they would like to hear from you See for their policy Do not send overnight so gets lost in morning clutter * From Right Now Technologies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Keep short and packed with value; Use bullets Use lots of space “come on, I am easy to read” Print out and see what it looks like, as many recipients will do that Make it distinctive and appear as if they cannot get anywhere else Subscribe to competitive lists to see what is being done Develop own voice and distinctive style * From Right Now Technologies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Do Not Make visual circus; Make focal point of obvious Many people do not scroll Design to be seen in preview pain Print out and see what it looks like, as many recipients will do that Test Everything Benchmark yourself Split test * From Right Now Technologies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Evaluation Metrics - continued
Basic Form of Pre-test Post-test with Control 01 Pre-test Test Group visits 5.3 02 Post-test Test Group visits 6.8 03 Pre-test Control Group visits 5.4 04 Post-test Control Group visits 5.6 TE Treatment Effect Mailing example: TE = ( ) - ( ) = ( ) = (1.3) increase in # of visits TE = ( ) - ( ) Question: Is this good? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Multimedia s; Know your audience Useful or just showing off? Do not assume audience wants multi media * From Right Now Technologies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Types of responses; Valid response Hard response ( no longer in existence or address error) Mail box full Spam filters Out of office replies * From Right Now Technologies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Create and Think Customer Experience; Make privacy part of brand promise * From Right Now Technologies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Four Components of the Process
Physical Product Whatever the organization transfers to the Customer that can be touched Must be Customer-Oriented (create value) Whatever the Organization Transfer to the Customer that can be Touched Tangible and Physically Real Examples: Pachinko Machine, Prizes, Pachi-Slo Machine Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Four Components of a Service
Process Process Service Product Physical Product Core performance purchased by the Customer Includes all interactions with the Customer “Plan Your Work” Incorporate RATER system into each plan; e.g. in-room dining Whatever the Organization Transfer to the Customer that can be Touched Tangible and Physically Real Examples: Pachinko Machine, Prizes, Pachi-Slo Machine

Plan Your Work Scripts for each service encounter Hostess:
“We will be asking you throughout your visit how we can do things better. Please be aware that our goal is to provide a wonderful dining experience; if we fall short of that goal, please do not hesitate to tell us.” Wait person: “We have great desserts here. They are made locally by a woman named Cynthia. Cynthia has lived in area for ages and follows a family recipe.”

Plan Your Work Scripts for each service encounter About Our Fish As you may know, one should not eat oysters in months that have an R. Therefore, we will not be serving oysters tonight as we only serve the freshest fish here. ” Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Four Components of a Service
Process People Service Product Service Delivery Physical Product Whatever the Organization Transfer to the Customer that can be Touched Tangible and Physically Real Examples: Pachinko Machine, Prizes, Pachi-Slo Machine Refers to what happens when your Customer interacts with employee “Work Your Plan” Example: What is said to the customer

Work Your Plan Goal is to incorporate some aspect of the RATER system in each interaction Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

The Four Components of the Process
Service Product Service Delivery Physical Product Service Environment The physical backdrop that surrounds the service 3 Elements: ambient conditions; spatial layout; and signs, symbols, & artifacts Whatever the Organization Transfer to the Customer that can be Touched Tangible and Physically Real Examples: Pachinko Machine, Prizes, Pachi-Slo Machine Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

More on the Service Environment (Servicescape)
Customers rely on tangible cues, or physical evidence, to evaluate the service Idea of experience space How does this space make me feel? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Symbols Symbols as visible, physical manifestations of organizations and indicators of organizational life. are things that can be experienced with the senses and used by organization members to make meaning noticed through sight, sound, touch, and smell experienced as real, and their impact has significant organizational consequences. things such as organizational layout, organizational landscape, or organizational dress are examples

Four Functions of Symbols in Organizational Culture
Symbols provide a tangible expression of this shared reality enable us to take aim directly at the heart of culture” because they represent and reveal that which is tacitly known and yet unable to be communicated by an organization’s members Examples? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Symbol as a trigger of internalized values and norms; people often act out the roles in which they are placed Now put on your managerial hat and take off your engineering hat. We need to make a managerial decision (Timmons, 1991). the facade of a restaurant evokes in customers a particular pattern of emotions and behaviors with respect to that restaurant.

People navigated their way through the organization using dress. This navigation included placing themselves within and distinguishing between hierarchical levels, distinguishing functional areas, and interpreting relevant organizational events by learning about and complying with appropriate organizational dress codes. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Symbol as a frame for conversations about experience Money functions as a symbol to allow conversation about abstract notions such as organizational identity, values, priorities, and beliefs; e.g., budgets design of the logo Coca-Cola in multiple languages around the world maintains an identical physical appearance Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Symbol as an integrator of organizational systems of meaning Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Four Seasons Video Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Expected Service GAP 5 Perceived Service External Communications to customers Service Delivery COMPANY GAP 4 GAP 3 GAP 1 Customer-driven service designs and standards GAP 2 Company perceptions of consumer expectations Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Expected Service COMPANY GAP 1 Company perceptions of consumer expectations Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

“A guest sees more in an hour that the host sees in a year.”

Reasons for GAP # 1 Inadequate marketing research Lack of upward communication Insufficient relationship focus Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ways to Close GAP # 1 first four ways
Transactional surveys Market-wide surveys Employee Field Reporting Mystery shopping Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods for Understanding Customers - Transactional Surveys
Occur at time of transaction or immediately after Asks the following questions: Likes and dislikes Overall satisfaction and intent to return Importance versus performance Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods for Understanding Customers - Market-wide Study
Includes customers and potential customers Investigates competitive positions perceptual maps Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Examples of Questionnaire Wording to Help Close Gap 1

Next please think for a moment about the reason for visiting a specific legalized gambling establishment in Las Vegas. Please tell me how important each reason is for you in your decision to visit one specific property over another. Please use a 1 to 10 scale where a "1" means the reason is not at all important and a "10" means the reason is very important in your decision to choose one legalized gambling establishment over another. You may use any number on this 1 to 10 scale. Do you understand how this 1 to 10 scale works? (IF NOT REPEAT SCALE) [ASK QUESTIONS IN RANDOM ORDER How important is....____________________... in your decision to chose one place to visit over another? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Now I am going to read you a list of features that may or may not describe some of the casinos in the Las Vegas area. We'll use a 1 to 10 scale where 1 means it "does not describe the casino at all" 10 means it "describes the casino perfectly" If you have not been to the casino personally, please base your answers on what you have heard, or what you believe to be true. The first feature is: Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

I am going to read you a list of features. For each feature, first tell me how Important the feature is in your decision to actively participate in a hotel frequent guest program? Then, please tell me how well that feature describes the brand. For the importance rating, please use a 1 to 9 scale where 1 means “not at all important” in your decision to actively participate in a hotel frequent guest program and 9 means “very important” in your decision. In rating how well the feature describes each of the brands, please use a 1 to 9 scale where a 1 means the feature “does not describe that brands program at all” and 9 means the feature “describes that brands program perfectly.” Do you understand how these two scales work? The first feature is: ________ How important is this feature in your decision to actively participate in a hotel frequent guest program? How does this feature describe BRAND 1? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods for Understanding Customers – Employee Field Reporting
Customer Feedback Form. When you have feedback from any customer – good and bad – please complete and return form to _______________ Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods for Understanding Customers – Employee Field Reporting - continued This is what the customer says he or she likes This is what the customer says he or she does not like These are the reasons the customer gives for discounting business or considering discontinuing business with us This is the evidence I have These are the impressions I have These are my suggestions for keeping/bringing back the customer Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods for Understanding Customers - Mystery Shopping
Employees act like customers Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ways to Close GAP # 1 second 3 ways
Service reviews/ Customer advisory panels Employee Research Focus groups Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods for Understanding Customers - Advisory Panels/Service Reviews
What is the most/least beneficial part of the service Personnel questions How can we improve customer service Would you recommend us to a friend What other promotions have you seen etc. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods for Understanding Customers -continued
Talk to at least 3 customers a week: one happy, one unhappy, and one indifferent to learn what each wants Call or meet with at least three supervisors who deal directly with customers each week to find out how their week has gone Give everyone in your organization some experience with dealing with customers Invite customers in for a thorough look at your operation. Debrief them while they are there and listen to what they have to say Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods for Understanding Customers -continued
Get feedback from customers. Feedback includes both formal and informal methods Evaluate your last three products or services. How many of them are from customers’ ideas? How do these compare to new ideas not inspired by the customer? Institute a specific system for learning and acting on customers’ wants and needs. Reward people for passing ideas along. Reward managers, in part, on the basis of how in touch they and their people are with customers Share all customer insight and feedback with all employees From: Joan Koob Cannie: Turning Customers into Gold. NY: American Management Association Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Employee Research Ask employees the previous questions Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Focus Groups What Are They Why Use What They are Good For/Not Good For Visual Stimuli in Focus Groups Guidelines for Selecting Moderators Focus Group Bill of Rights Recruiting Focus Group Respondents Moderator’s Guide Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

See article on buying and using marketing research

COMPANY Customer-driven service designs and standards GAP 2 Company perceptions of consumer expectations Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Reasons for GAP # 2 No customer-driven standards Inadequate service leadership Poor service design Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Reasons for GAP # 2 Complete exercise starting on next page: Use following scale: 1 Very True 2 Somewhat True 3 Not applicable 4 Somewhat untrue 5 Very untrue Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions We do not know what our customers require of us ______ Policies exist for the convenience of the organization, not the customer ____ Everyone has a specialized job function and is not allowed to intrude in others’ areas___ Customer contact people do not have the power to make decisions ______ Service polices are arbitrary ______ We are more interested in making a profit than in building a loyal customer base _______ Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions continued Employees are not trained in people skills____ Management does not solve problems creatively _____ Employees do not seem to realize that customers want to be treated well ____ The organization is focused on solving problems rather than preventing them We know how to handle complaints, but not how to serve the customer The organization does not formally value and reward employees _____ Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Transfer scores to here
____ TOTAL _______ Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Interpretation Your organization does not seem concerned with customers Your organization seems to regard customers as an after thought 32-41 Your organization seems about average in thinking about customers Your organization seems concerned with customers, but could improve its system with dealing with them Your organization seems very customer friendly From: Joan Koob Cannie: Turning Customers into Gold. NY: American Management Association Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Service Blueprinting Visually displays the service by simultaneously showing the processes of: Service delivery Roles of customers and employees Visible elements of the service Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Steps in Building a Service Blueprint
Identify the process to be blueprinted: The basic business concept, or A service within a family of services, or A specific service component Map the process from the customer’s point of view Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Steps in Building a Service Blueprint, cont.
Draw the line of interaction. Draw the line of visibility. Map the process from the customer contact person’s point of view, distinguishing on-stage from backstage actions. Draw the line of internal interaction. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Steps in Building a Service Blueprint, cont.
Link customer and contact person activities to needed support functions. Add evidence of service at each customer action step. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

SERVICE BLUEPRINT COMPONENTS (Part of Service Product)
Customer Actions Line of Interaction “Onstage “ Contact Employee Actions Line of Visibility “Backstage“ Contact Employee Actions Line of Internal Interaction Support Processes

Service Delivery COMPANY GAP 3 Customer-driven service designs and standards Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Reasons for GAP 3 Deficiencies in human resources Failure to match supply and demand Customers not fulfilling roles Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ways to Provide Customer Oriented Service Delivery
from Zeithaml, Valerie A. and Mary Jo Bitner (1996). Services Marketing. New York: McGraw Hill: 312 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions Mangers who Participate in Hiring Should Ask Themselves Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

EMPLOYEE BILL OF RIGHTS
What is expected of them and how they will be rewarded for meeting those expectations. Quote From: Alex Brennan-Martin Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

They want to know the role they play in the company’s success and why what they are doing is important Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

They want management to stop saying what it is going to do and do it.
EMPLOYEE BILL OF RIGHTS They want management to stop saying what it is going to do and do it. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

They want to be told the truth and have access to relevant information. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

They want to opportunity to get ahead.
EMPLOYEE BILL OF RIGHTS They want to opportunity to get ahead. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

External Communications to customers Service Delivery COMPANY GAP 4 GAPS Model of Service Quality (from Zeithaml, A. Valarie and Mary Jo Bitner (1996). Services Marketing. New York: McGraw Hill p. 48.) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Reasons for GAP 4 Ineffective management of customer expectations Over-promising Inadequate horizontal communications Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Expected Service GAP 5 Perceived Service COMPANY Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Reason for GAP 5 Service has not managed GAPS 1-4 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Reliability Assurance Tangibles Empathy Responsiveness Interaction Quality Situational Factors Service Quality Reliability Assurance Tangibles Empathy Responsiveness Physical Environment Quality Customer Satisfaction Product Quality Price Reliability Assurance Tangibles Empathy Responsiveness Personal Factors Outcome Quality Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Case Study: Measuring Quality at Disneyland Paris
See page 10 of the case Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Understanding Value Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Value Added: Goal Increase Rewards current transaction future transaction Reduced Costs Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Understanding and quantifying value-to-customer is the foundation of effective product-/service development. Value-to-Customer Features Service Quality Product Added Value Price Customer Sacrifice Value-to- Customer From Stephan Butcher: Simon-Kutcher and Partners

Question to ID Benefits
“Next, please think about what a restaurant, in general, might offer you to develop feelings of loyalty to that restaurant.” They were asked to rate several statements from 1, “Would have no effect on loyalty” to 10 “Would have great effect on loyalty.” They could choose any number on this ten point scale. The statements they were asked to rate were: Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Attributes The restaurant uses information from my prior visits to customize services for me. I can make reservations at a time that suits me. I can request a specific table. The restaurant honors special requests for food or drinks. The staff recognizes me by name while I am in the restaurant. The staff recognizes me by name when I arrive. If I am a member of their frequent diner program, I am recognized as such during my visit. I would not have to pay up front to join their frequent diner program. Employees communicate the attitude that your problems are important to them. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Attributes The restaurant provides me with occasional free food or drinks. The restaurant has a children’s menu. The restaurant has a frequent diner program that allows me to earn rewards towards complimentary meals at that restaurant. The restaurant sends out newsletters that keeps me abreast of happenings at the restaurant. If I am a member of their frequent diner program, I receive communication informing me about opportunities to earn additional discounts or points. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Attributes If I am a member of their frequent diner program, I can earn/spend rewards at a variety of different restaurants not owned by the same company. I am able to make priority reservations. If I am a member of their frequent diner program, there are a variety of locations owned by the same company where I can earn/spend rewards. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Lessons Learned From Research in Restaurants
When asked to choose the top three benefits respondents would like to receive as part of a loyalty/frequency program, the benefits that received more than 20.0% are: Complimentary Meals (55.4%) Coupons/ Discounts (45.5%) Reward Certificates (37.5%) Gift Cards (24.8%) Call-ahead seating (for restaurants that do not accept reservations) (20.9%) Complimentary Appetizers (20.3%) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D 2

Cluster One. Points collectors
Consists of 201 respondents, which represents 9.38% of the total sample Several statements that were rated significantly higher by Cluster I respondents exhibit this cluster’s focus on points collection, such as: If I am a member of their frequent diner program, there are a variety of locations owned by the same company where I can earn/ spend rewards (7.93D). The restaurant has a frequent diner program that allows me to earn rewards towards complimentary meals at that restaurant (7.77D). If I am a member of their frequent diner program, I receive communication informing me about opportunities to earn additional discounts or rewards (7.62D). If I am a member of their frequent diner program, I can earn/ spend rewards at a variety of different restaurants not owned by the same company (6.68CD). Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Cluster Two. Wants everything
Cluster II consists of 631 respondents, which represents 29.44% of the total sample. This group is called “Wants Everything,” because they rate significantly higher almost all of the components of the model (see Table 3) used to determine the four clusters, including: Can spend points anywhere (.618ACD) Free program (.288AD) Earn extra points (.273AD) Special requests (.195ACD) Problems are important (.191B) Recognition (.178AD) Child’s menu (.141ACD) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Cluster Three. Tangible recognition
Cluster III consists of 355 respondents, which represents 16.57% of the total sample Cluster III respondents exhibit this cluster’s focus on tangible benefits, such as: The restaurant has a frequent diner program that allows me to earn rewards towards complimentary meals at that restaurant (9.29AD). If I am a member of their frequent diner program, I receive communication informing me about opportunities to earn additional discounts or rewards (8.85AD). The restaurant provides me with occasional complimentary food or drinks (7.63AD). I can make reservations at a time that suits me (8.44AD) If I am a member of their frequent diner program, there are a variety of locations owned by the same company where I can earn/ spend rewards (8.32D). I would not have to pay up front to join their frequent diner program (8.22AD) I am able to make priority reservations (8.19AD) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Cluster Four. Intangible recognition
Cluster IV consists of 192 respondents, which represents 8.96% of the total sample Cluster IV respondents exhibit this cluster’s focus on intangible benefits, such as: Employees communicate the attitude that my problems are important to them (8.56B). The restaurant honors special requests for food or drinks (7.66B). The staff recognizes me by name while I am in the restaurant (6.05B). The staff recognizes me by name when I arrive (5.97B). Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

IV II 45.8%; N=631 III 25.7%; N=355 I14.6% From restaurant study
Problems are important Free program IV 13.9%; N=192 Four Market Segments I versus II II 45.8%; N=631 Can spend points anywhere Recognition Special requests Reservations Has a children’s menu III 25.7%; N=355 Free food and drinks From restaurant study May 2006 Earn extra points I14.6% N=201 I

II 45.8%; N=631 III 25.7%; N=355 I IV From restaurant study May 2006
Can spend points anywhere Earn extra points II 45.8%; N=631 Free program Four Market Segments I versus III Recognition Has a children’s menu Free food and drinks Problems are important Special requests III 25.7%; N=355 Reservations From restaurant study May 2006 I 14.6% N=201 IV 13.9%; N=192 I

II 45.8%; N=631 III 25.7%; N=355 I IV From restaurant study May 2006
Earn extra points Can spend points anywhere Free program Four Market Segments II versus III II 45.8%; N=631 Has a children’s menu Recognition Problems are important Free food and drinks Special requests III 25.7%; N=355 Reservations From restaurant study May 2006 I 14.6% N=201 IV 13.9%; N=192 I

Perceived Benefits Perceived Price Perceived Value = Perceived Price = total cost to buyer: purchase price+startup (e.g., acquisition, transportation, etc.)+post- purchase (e.g., risk of poor performance) Perceived Benefits = some combination of physical attributes, service attributes, ease of use, etc. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Components of Perceived Value
Cost: the sum of all costs required to acquire and use the product or service Exchange: the perceived value of the brand where item is sold Aesthetics: the value that customers place on the properties or attractiveness of the product Relative Use: the way the product is used Exchange: can include purchase simplicity, safety, prestige, and fairness Aesthetics: desire to impress others Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Components of Value -continued
Financial Temporal Functional Emotional/Psychological Experiential Social Trust Identification with organization Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Factors that Impact Financial Value
Perceived substitute effect buyers are more price sensitive the higher the product’s price relative to prices of perceived substitutes Unique value effect buyers are less sensitive to a product’s price the more they value any unique attributes that differentiate the offering from competing products Switching cost effect the greater the product-specific investment that a buyer must make to switch suppliers, the less price sensitive that buyer is Substitute: What alternatives are buyers typically aware of when making purchase. To what extent are they aware of the prices of those substitutes? To what extent can buyers’ price expectations be influenced by positioning? Unique Value: Does the product have any unique attributes that differentiate it from competing products; What attributes do customers believe are important when choosing a supplier? How much do buyers value unique, differentiating attributes? Switching costs: What sort of investments - both contractually and emotionally to buyers have? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Difficult comparison effect buyers are less price sensitive to the price of a known or reputable supplier when they have difficulty comparing alternatives Price quality effect buyers are less sensitive to a product’s price to the extent that a higher price signals better quality Expenditure effect buyers are more price sensitive when the expenditure is larger, either in dollar terms or a a percentage of household income Comparison: How difficult is it for buyers to compare the offers of different suppliers? Can the attributes of a product be determined by observation, or must the product be purchased and consumed to learn what it offers? What portion of the market has positive past experience with your product? With the competition? Price-Quality: Is a prestige image an important attribute of the product? Is the product enhanced in value when price excludes some consumers? Is the product of unknown quality and are there reliable cues for ascertaining quality before purchase? Expenditure: How significant are buyer’s expenditures for the product in absolute $ terms and as a portion of income Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

End-benefit effect broken into two parts: derived demand (relationship between the desired end benefit and buyers’ price sensitivity for something that contributes to achieving that benefit) + share of total cost (cost of the specific item to total cost of the product) Shared-cost effect impact of partial or complete reimbursement on price sensitivity Fairness effect based on price previously paid, prices of similar products (includes location or situation), and if item is to avoid a loss versus achieve a gain End Benefit: What end-benefit do buyers seek from the product; How price sensitive are buyers to the cost of the end-benefit; What portion of the end-benefit does the price of the product account for? Can the end-benefit be repositioned to make buyer’s less price sensitive? Shared-Cost: Does the buyer pay the full cost of the product? What portion of the cost does the buyer pay? Fairness: comparison to past prices? Similar prices? Gains or loses? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Value Added - continued
How much is one hour of your customer’s time worth? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Temporal Time is money Advertisement Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Functional Does the product or service do what is suppose to do? Do we convey the functional value to the consumer? RATER SYSTEM Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Dimensions of Service Quality
Reliability Assurance Tangible Empathy Responsiveness Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Emotional/Psychological
Need for recognition Staff have your best interest in mind Feeling of safety Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Experiential Guests active participants in the experience versus passive observers Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Social Similar to experiential Pricing of friends (e.g., Southwest promotes friends fly free, free birthday entrees) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Experiential Guests active participants in the experience versus passive observers Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Manchester United People here work all week just to come here on Saturday. They don't work all week for something else," says Howard. "They work hard, so they can come here for 90 minutes, and give everything they have." Game day in Manchester is a tribal experience, a sea of red jerseys flowing towards the old Trafford Stadium on a river of beer. And, as Tim Howard is finding out, keeping the goal for Manchester United is not a job for the faint of heart. He is protecting the dreams of an entire football nation. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Social Similar to experiential Pricing of friends (e.g., Southwest promotes friends fly free, free birthday entrees) Memories of getting engaged at a particular restaurant Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Social Consumers dine out to celebrate: Birthdays Their own (54%); Spouses (37%); their child (28%) Mother’s Day (38%) Father’s Day (22%) Valentine’s Day (28%) New Year’s Eve (13%) Easter (13%) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Trust: Integrity Security
34.1% claimed that “If I ask management or an employee a question, I feel they will be truthful with me.” Security 37.8% claimed that “I feel comfortable leaving business papers and valuables in my room at this hotel.”

Identification with Organization (from article on theater goers)
Dedication to the customer Customer support groups HOGS Seattle Mariners Manchester United Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Identification with Organization
Opportunities for public displays of association Seattle Mariners Manchester United Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Section E: Customer Loyalty and Value Identification with Organization Active alignment with and support of social causes Ronald McDonald House BA Change for the Good Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Provide opportunities for contact Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Fox Theater Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Dedication to the customer Customer support groups Opportunities for public displays of association Active alignment with and support of social causes Provide opportunities for contact Distinctive human resource policies Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How To Create Great Value

Understanding Value: Critical Questions
Need to ask following questions: What customers do business with us (directly or indirectly)? What do they buy or use and what actions must they take to do so? What are the best alternatives they perceive? If they did not do business with this organization, what would they likely do instead? What is the overall value of my offer to the customer?

Understanding Value: Critical Questions -
What is the value of a specific product feature and is the willingness to pay for it higher than its cost? Which product attributes have the biggest potential to increase the value? Where do I really increase value by increasing performance and which improvements are simply “nice to have”? Where would a reduction of performance lead to the smallest loss of value-to-customer?

Understanding the Experience
Think about the check-in experience. What is it that the customer is buying? What makes it good? What makes it bad? What is his or her frame of reference? How to tie in RATER system? Consider the questions on the next two slides; break into groups and answer questions as they relate to check-in or some other guest interaction Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

1. Understand the Resulting Experience
An event (or sequences of events), physical and/or mental, which happens in the customer’s life as a result of doing what some business proposes The end-result consequence of this event for the customer In comparison to a customer’s alternative experience, either superior, equal, or inferior The value for the customer of this experience Specific and measurable: one can objectively determine if the customer experienced the events, consequences, and value compared to alternatives Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How To Use the Resulting Experience to Create Value
Understand and critique the customer’s experience Understand their objectives in each scene: what did they hope or intent to accomplish, why or for what purpose Discover imperfections in the customer’s pursuit of these objectives Analysis the imperfections in the customer’s pursuit of these objectives Invent an improved scenario Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Theory of Understanding the Experience
1. Measure consumers’ schemas and scripts Definitions of schemas: “spatially and/or temporally organized knowledge structures in which the parts are connected on the basis of contiguities that have been experienced in space or time “general knowledge structures used for understanding” Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

1. Example of schemas: “If you have a schema for ice cream buying, this schema may include much knowledge that comes from your buying in general (e.g., what money is) and some that is applicable only to ice cream buying (e.g., pictures of menu with different ice creams available) Think of “room schema” then “kitchen schema” then “French Provincial Kitchen” then “own kitchen” Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

1. Measure consumers’ schemas and scripts Definitions of scripts: Are a type of schema “predetermined, stereotyped sequence of actions that define a well-know situation” “temporally organized sequences that specify the actions, actors, and props most likely and least likely to occur during any given instantiation of an event Includes: activities, actions, objects, and actors Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ways To Determine Resulting Experience
Measure scripts and schemas Write a list of actions describing what you do when you check into a hotel. We are interested in the common actions of a routine check in. Start the list with arriving at the hotel and end it with leaving after you leave the hotel. Include about 30 actions and put them in the order in which they occur. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Measuring Scripts - Exercise
Write list of script actions you went through in the decision to take an executive education class Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ways To Determine Resulting Experience - continued
2. In-depth Interview can delve much deeper into a topic allow more candid discussion – especially topics related to personal information eliminate negative group influences essential for situations where it might be possible to put competitors in the same room Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

3. Anthropological research – the why as well as the what Natural environment Examines emotions/feelings Helps find “hidden” dimensions Track behaviors See external visible dimensions Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

3. Anthropological research – study by Campbell-Ewald Advertising Question: How are work and its reward acted out every day? Work hard …….fly first class Work hard …….have a good dinner out Work hard……..stay in a comfortable room Work hard……..use your miles to buy your family a vacation Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

3. Anthropological research – study by Campbell-Ewald Advertising Question: How are work and its reward acted out every day? Why? Because we worked hard! We deserve it! Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

3. Study by Campbell-Ewald Advertising continued; Two types of markets identified: Willie Loman Gordon Gecko Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Study by Campbell-Ewald
Willie Loman At home on the road Master of the travel universe Anonymous in corporate setting Gordon Geck At home in the office Victim of the travel experience Master of the corporate setting Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Traditional Surveys Just ask customers what they do in a hotel room (e.g., Marriott and Bass Hotels) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How To Determine Resulting Experience - continued
Understand and critique the customer’s experience relative to best alternative propositions Consider the most important experiences and determine the competing alternatives that could potentially deliver such experiences to the customer For competitors estimate the potential ability, cost, and inclination of competitors to deliver such experiences Determine how fast competing alternatives could match or surpass delivery of these experiences Examine the price differences competitors could charge to get your customers to switch Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Index of Competitive Strength
The competitive advantages and disadvantages which are shown in the matrix of competitive advantages can be condensed into one single index, the index of competitive strength. All relative performances of the product on the individual factors are weighted with their importance and summed up. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Matrix of Competitive Advantages
Example: Casino 10 high Slot Club Friendly Staff Value of Promotions Brand Feel Safe Service Package 5 Level of Importance Price Good Entertainment Non Smoking low high Relative Performance Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Examine the price differences competitors could charge to get your customers to switch Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Examples of Question Wording
For 50% of the surveys: Next, I am going to read you a list of possible promotions a hotel chain could offer. For each promotion, please indicate how likely you would be to stay at that chain instead of the chain you normally stay at most often to take advantage of the promotion. A 1 means “not at all likely” and 9 means “very likely.” Assume the chains are similar in terms of quality, consistency and price but the chain offering a promotion is slightly less convenient. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions continued For 50% of the surveys: Next, I am going to read you a list of possible promotions a hotel chain could offer. For each promotion, please indicate how many more dollars would you be willing to pay to take advantage of this promotion. Assume the chains are similar in terms of quality, consistency and convenience but the chain offering a promotion has a rate premium. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

7. ZMET Approach to Consumer Knowledge (Zaltman Metaphor Elicitation Technique) This technique elicits metaphors from consumers that represent their deep meanings about a topic Basically, consumers find pictures that express their thoughts and feelings Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

7. ZMET Steps: Pre-interview: participants told to select 8-10 pictures that represent their thoughts and feelings about an issue or topic Story telling: participants tell stories about each picture; this helps explain the affective and cognitive meanings of the visual metaphor Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

7. ZMET Steps: Expand the frame: Participants asked: “what things might come into the picture that might help me explain your thoughts and feelings about ____ Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

7. ZMET Steps: Sensory Images: Participants asked to describe scent, sound, and touch that would express their thoughts and feelings about ______ Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

7. ZMET Steps: Vignette: Participants asked to create a short movie or play that expresses their thoughts and feelings about the topic. Participants told to make a character in the story Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

7. ZMET Steps: Digital Imagery: create a summary collage of the most meaningful pictures they brought to interview; when done participant narrates a detailed description of the image and its meaning Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

After Understanding the Experience Determine What Benefits to Offer

Key Elements High Value meet expectations of the target group have certain exclusiveness “stand out in a crowd” high value relative to other benefits Perceived Value Customer must see feature has value Customer’s Point of View Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How To Determine Benefits to Offer
Internal brainstorming and research to put together a list of potential benefits (independent of cost and feasibility) Whom to include? Why? Interviews with members of the target audience Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Small pre-study with potential members to determine least interesting and most interesting Large study to identify the main value drivers within the group of most interesting Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Laddering: Based on Belief that: Consumers buy products to do something Consumers’ product knowledge is organized in terms of what products do -- e.g., their consequences Product attributes per se have little relevance, it is the consequences of the attributes; attributes can be concrete or abstract Consequences: both positive and negative Consequences can be functional or psychosocial Consequences involve outcomes-- called values Values can be instrumental or terminal Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Laddering- continued Exercise: Assume that you are trying to decide in which hotel loyalty program to be involved . What features to you especially look for? Then Ask: Which two features are most important to you in making your decision? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Laddering- continued For each of two factors, do laddering: Why is _____ important to you? Or, Why is _____ important? Or, “what does _____ give you?” Continue this process for each factor until consumer cannot go on Draw out the means-end chains Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

An Example of a Laddering Interview Researcher: “You said that a shoe’s lacing pattern is important to you in deciding what brand to buy. Why is that? Consumer: “A staggered lacing pattern makes the shoe fit more snugly on my foot.” (physical attribute and functional consequence) Researcher: “Why is it important that the shoe fit more snugly on your foot?” Consumer: “Because it gives me better support.” (functional consequence) Researcher: “Why is better support important to you?” Consumer: “So I can run without worrying about injuring my feet.” (psychosocial consequence) Researcher: “Why is it important for you not to worry while running?” Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Consumer: “So I can relax and enjoy the run
Consumer: “So I can relax and enjoy the run.” (psychosocial consequence) Researcher: “Why is it important that you can relax and enjoy your run?” Consumer: “Because it gets rid of tension I have built up at work.” (psychosocial consequence) Researcher: “Why is it important for you to get rid of tension from work?” Consumer: “So when I go back to work in the afternoon, I can perform better.” (instrumental value – high performance) Researcher: “Why is it important that you perform better?” Consumer: “I feel better about myself.” (terminal value – self-esteem) Researcher: “Why is it important that you feel better about yourself?” Consumer: “It just is!” (the end)

Interviews with Potential Members : In-depth Interviews
Advantages Can acquire great information, as shown with ZMET Disadvantages typically more expensive than groups, if hired out if one looks at the cost per interview; time consuming; Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Methods of Value Measure
Traditional Methods Ranking Scales Constant Sum Scales Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Traditional Methods Likert-type scales: “Below are a list of benefits that a luxury hotel could offer to entice you to be loyal to that hotel. For each benefit listed, please indicate the impact that feature would have on your loyalty. Use a 1 to 7 scale where “1” means feature will have no impact on your loyalty and “7” means the feature will have a great impact on your loyalty. Use any number 1 to 7” Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Problems with Traditional Methods
Which scale range to use Everything may be rated important Does not measure “trade-offs” Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ranking Methods Interviewees rate a limited number of benefits Usually have respondent first split into two groups - “those they really like” “those indifferent towards” Respondents then rank each in terms of impact on loyalty Note: Do not ask: which do you prefer Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Example of Rank Ordering
Below are a list of benefits that a luxury hotel could offer to entice you to be loyal to that hotel. Please rank order the benefits listed from 1 to X, were “1” is the most important benefit that will make you loyal to the hotel, “2” is the 2nd most important benefits, and so forth. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Problems with Ranking Methods
Do not know relative degree of difference between benefits; e.g., difference between 1 and 2 may be different than 2 and 3 Benefits not of interest will still receive rank orders; this may be done somewhat arbitrarily. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Example of Constant Sum
Below are a list of benefits that a luxury hotel could offer to entice you to be loyal to that hotel. Please divide 100 points between these benefits based on how much a particular benefit would increase your likelihood of being loyal to a hotel that offered this benefit. The more points you assign, the more important the benefit. Benefits of no value may be left blank. You must use all 100 points. Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Constant Sum Interviewee is asked to divide 100 points between a limited number of benefits Advantage: get ranking, plus you get relative ratings Benefit Points A ____ B ____ C ____ D ____ Total Points

Loyalty Circle Process Exit Exit Exit Value (Added and Recovery) Communication Exit Fluid Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Value Recovery Complaint Management Complaints Define What Customers Want Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

From: A Complaint is a Gift No Product or Service Failure No Product or Service Failure Customer does not say anything Customer dissatisfied and speaks up Proactive Customer Education/Research Celebration Product or Service Failure Product or Service Failure Customer does not say anything Customer dissatisfied and speaks up Encourage Complaints Service Recovery Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Levels of Complaint (from A Complaint is a Gift) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Response to Value Recovery Depends Upon:
Ability to give customer’s opportunity to present their point of view and express their feelings (procedural fairness) Ability of firm to present a convincing apology (inter-action fairness) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

From: A Complaint Is A Gift Questions: Do your staff understand that when a service failure occurs, your organization has a chance to retain customer loyalty by satisfying the customer’s needs? What does your organization do to get the Passives to speak up? Does your organization have any cases of Activist behavior? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

From: A Complaint Is A Gift Questions: What are the worst names you call your complaining customers? Under what circumstances do you consider your customers’ complaints to be unreasonable? How do you suppose your customers feel about these complaints? Does your company have examples where service or product breakdowns have lead to stronger ties with the customer? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

From: A Complaint Is A Gift Questions: What information do you need from your customers to help them with their problems? How frequently do you check back with your customers who have complained? How do you ensure that complaints are made known through-out your organization? Do you keep track of what happens to the information you learn from customers’ complaints? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions about Written Complaints
What is your rate of response to complaint letters? How quickly does your organization respond? Do you use form letters? Under what circumstances do your customers write complaint letters? Who responds to your customer complaint letters? From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions about Written Complaints
Do your response letters specifically speak to the customers’ needs? What do you do to exceed customer expectations when they write complaint letters? From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How Well Are You Doing? 1 = Not using strategy at all 2 = Using the strategy but have had problems implementing it 3 = Using the strategy but with no noticeable results 4 = Using the strategy and have noticed positive results 5 = Using the strategy and judge it as a highly effective tactic for maintaining ongoing communication with customers From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Strategies 1. Train staff to view complaints as a gift ___ 2. Market the fact that you are looking for complaints ____ 3. Evaluate your internal complaint structure ___ 4. Set up listening posts ___ 5. Make customer comment forms available ___ 6. Create staff comment forms to capture customer complaints ___ From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Strategies 7. Let customers complain in private ___ 8. Set up customer confidants ___ 9. Do not be satisfied with the first response your customers give you ___ 10. Go after the ones that do not respond to your customer surveys ___ 11. Randomly ask for feedback ___ 12. Ask for value and quality ratings ___ 13. Hang out with your customers ___ From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Scores 1. ____ 2. ____ 3. ____ 4. ____ 5. ____ 6. ____ 7. ____ 8. ____ 9. ____ 10. ____ 11. ____ 12. ____ 13. ____ TOTAL ______ Your Total/65 = _________ Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Why Customers Do Not Complain
It wasn’t worthwhile. No one would listen to me anyway. It would have cost more money to complain. I would have had to call long distance. I didn’t know to whom I could complain. I needed all my original documents, and I’m not sure where they are. I threw away the receipt From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Why Customers Do Not Complain
I had a problem last week; they would think I am picky or a whiner? The last time I complained, nothing happened. I’d rather just leave, never come back, and not say anything. It’s easier that way. It wasn’t that bad. From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

How Complaint Handlers Tell Customers Not to Complain
Apologize and nothing more Rejection Promises that are not delivered No response at all Rude treatment Being passed on to someone else From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Strategies to Handle Complaints

Formula for Written Complaints
1. Thank the customer; explain why you appreciate the complaint and apologize 2. Let the customer know what you have done 3. Admit the customer is right 4. Personalize your reply From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Formula for Written Complaints
5. Be simple, but specific 6. Exceed the customer’s expectations 7. Check customer satisfaction From: A Complaint is a Gift Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Problem Impact Tree Please indicate if you reported any problems during your visit and how they were resolved. No problems experienced SKIP X Problems reported and were resolved in a friendly effective manner Experienced problems, but didn’t report to staff . … 3 Problems reported and were not resolved in a friendly, effective manner Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

FIGURE II: TOTAL SAMPLE (n=4259, 100%) No Problems Experienced (n=3576, 84%) Experienced Problems (n=683, 16%) Problems Not Reported (n=262, 38.4%) Problems Reported (n=421, 61.6%) Problems resolved in a friendly and effective manner (n=295, 70.1%) Problems not resolved in a friendly effective manner (n= 126, 29.9%) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

FIGURE III: IMPACT ON LIKELIHOOD TO FLY AIRLINE AGAIN No Problems Experienced (n=3547) Percent Rating Likelihood to Fly Again a “5”=53.3% Experienced Problems (n= 677) Percent Rating Likelihood to Fly Again a “5”= 26.6% Problems Not Reported (N=260) Percent Rating Likelihood to Fly Again a “5”= 18.1% Problems Reported (n=417) Percent Rating Likelihood to Fly Again a “5”= 31.9% Problems resolved in a friendly and effective manner (n=293) Percent Rating Likelihood to Fly Again a “5”= 40.3% Problems not resolved in a friendly effective manner (n=124) Percent Rating Likelihood to Fly Again a “5”= 12.1% Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

FIGURE IV: IMPACT ON OVERALL EXPERIENCE Experienced Problems (n= 658) Percent Rating Overall Experience a “5” = 14.8% No Problems Experienced (n=3435) Percent Rating Overall Experience a “5” = 38.0% Problems Not Reported (N=253) Percent Rating Overall Experience a “5” = 9.9% Problems Reported (n=405) Percent Rating Overall Experience a “5” = 18.0%) Problems resolved in a friendly and effective manner (n=284) Percent Rating Overall Experience a “5” = 22.5% Problems not resolved in a friendly effective manner (n=121) Percent Rating Overall Experience a “5” = 7.4% Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Case Study: Hilton HHonors
Questions for case Hotels are an unusual kind of product. Consumers buy a branded experience, but the experience is delivered far from corporate scrutiny, under various kinds of control - a manager, a franchisee or a property operator. How can a loyalty program help the property operator and brand owner manage the relationship with the customers better? How can it help with the overall service experience? How can it help create loyalty? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Can you quantify the value of the HHonors program to Hilton? How does the value generated by the program compare to the program's cost? Now look at the program from the perspective of a franchisee. If the franchisee had the choice of putting the Hilton brand or one of the Starwood brands onto its property, how would they assess the value of doing so? What is the impact of the program to the brand Hilton? What should Hilton do in response to Starwood? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Cheat Sheet to Help Answer the Above Questions: What is the occupancy rate? What percent of all nights were my members of Hilton’s Program? What percent of all member stays are due directly to the program? Assume break-even occupancy of 68%. Without the program, what would occupancy be? What does this mean? What is the incremental room nights sold? If contribution is 80%, how much less would they have earned in contribution if they did not have the program? Assume the average cost of advertising, selling, and other marketing costs is $750 per room, is a frequency program cheaper? If one thinks an 80% contribution is too high, at what point would the contribution have to be to break even (hint: they would have come anyway analysis) How does program relate to the loyalty circle? (Complete table) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Reasons for Frequency Programs Process Value Added Value Recovery Communication Aid in revenue management Collaboration with partners Encourage franchisee or management contract relationships Improving relationship with guest Customizing a guest’s experience Helping corporate travel managers gain compliance Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Ways to Capture Customer Information
Frequency Programs Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

What Frequency Programs Cannot Do
Fix an essential problem Show a profit in the short run Function as a promotion Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Mistakes to Avoid with Program
Treat frequency marketing like a promotion Focus excessively on rewards Short-change the communication plan Underestimate the importance of internal support for the program Pretend to care more than you do From Dick Dunn Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

What Frequency Programs Can Do
Increase customer retention Increase share of customer Give you a means to listen to your customer and respond with what they want Help with revenue management Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

What Frequency Programs Can Do
Collaborate with partners Work with franchisees Help travel managers gain compliance Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Why Do Them Build a database which can be used to facilitate precisely targeted marketing If run properly, creates long term, measurable, conscious changes in desirable consumer behaviors Create on going communication with your customers Can be highly cost effective compared with other strategies From: ICLP presentation Europe Direct 2003

What Makes A Frequency Program Work? (Carlson Marketing)
Vital database Targeted communication Meaningful rewards Simplicity Attainability Measurability Manageability Profitability Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Customer Company Sales Channels Strategic Partners Relevant Effort Required Worthwhile Payout Aspiration Appeal Reward Variety Results Sustainability Value

Definitions Share of Customer Average # of New Customers Per Month Purchase Frequency Attrition Rate Rewards/Recognition (see next slide) Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Definitions - continued
Breakage Client Base New Customer Retention Rate Client Retention Rate Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Rewards Understood Message: Prove to me you are a good customer Focus: Redistributing offers so that your better customer segments get the incremental discounts Essentially a discounting strategy Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Rewards - continued When to Use Re-channel volume discounting more productively Tract purchase behavior Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Recognition Understood Message: You are a valued customer Focus: Tailor benefits to specific customers based on their achieved or expected value Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Recognition - continued
When to Use Build or reinforce a high quality service image Add value to your customer relationship beyond discounting Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Recognition vs. Rewards
“You are a valued customer” When to Use build or reinforce high-quality service image add value beyond discounting gain a competitive advantage by offering something not easily copied Rewards “Prove to me you are a good customer” When to Use Re channel volume discounting more productively tract detailed customer purchase behavior to build transactional marketing database Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Recognition vs. Rewards
Affinity Cards (cards issued by clothing stores) infuse more value-added benefits provide monthly communication vehicle keep track of customer purchase data Rewards Partnership Rewards limit liability gain access to partner’s database Co-Branded Cards overcome infrequent purchase constraints provide monthly communication vehicle Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Soft vs. Hard Benefits Soft intangible (thus, make invisible to the competition) value-added services, the special treatment, the recognition and reward the customer is looking for hard to copy Hard tangible benefits which are immediately recognizable by all members usually financial benefits easy to copy Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Necessity Goods versus Luxury Goods

A Template for Program Design
Identify and qualify the customer Track purchase behavior based on profit Track other Behavior (e.g., F&B) Relevant Benefits Motivating Rewards Involving Communication Build scoring model based on profitable behavior Database to support relationship marketing activity From: ICLP presentation Europe Direct 2003

Process of Setting Up a Frequency Program

# 2: Management Commitment
Long-term business growth vs. short-term costs Reallocation of resources Need a champion Need to get all areas of the company sold on the idea Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

# 3: Set Objectives To solve a business problem? Capitalize on an opportunity? Try to avoid being left behind? Program objectives must support strategic goals Objectives must be measurable Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

# 4: Design Program To be discussed in more detail later Focus on the customer Vision of relationship with the customer What do customers want Simple and understandable Consider the competition Point of difference Difficult to copy Create reluctance to defect Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

# 4: Design Program - continued
Consider program structure Promotional currency Plateaus Qualifications to play Lifetime of rewards (e.g., expiration dates) Fee or free? Voluntary enrollment or automatic? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

# 4: Design Program - continued
Provide an exit strategy Consider measures to evaluate Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

TYPICAL FLOW OF “POINTS” IN RESTAURANT BASED LOYALTY PROGRAMS
Buy Debit Card Gift Certificate Points Deducted Points Deducted Corporate Data Base (either inside or outside) Target communications to members based on past behavior (RFM) e.g., reactivation of “lost” members (no visits 90 days) incentive rewards to increase frequency special surprise rewards Gift awarded and printed on receipt Use Discount (usually 10% of total spent) Record of points sent via POS system Unit A Corporate gives 1 point per $1 to customer Diner Card Gift Cerificate Management uses card to recognize guest prior to guest eating meal; guest may then get certain benefits Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

TYPICAL FLOW OF “POINTS” IN HOTEL BASED LOYALTY PROGRAMS Merchandise Property 2 or merchandiser exchanges vouchure for cash (X-Y) per $1 Property # 2 Works with airline to process miles for Guest B Airline Miles Gives Vouchure (X-Z) per $1 for hotel stay or merchandise Corporate Headquarters Point /Miles Bank (H pts, A miles) Vouchure Guest A Sell A Miles at X per $1 Exchange H points for vouchure (X-Z) per $1 Sells A Miles (X-Y) miles per $1) Tells corporate Guest B earns miles Miles Added to Guest B’s Account Give H Points (X-Y) per $1 Sell H Points (X points per $1) Property # 3 Property # 1 Qualifies to earn (X-Z) miles when stays in property Guest B Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D A = airline miles rewards ; H=hotel point rewards Z > Y

# 5: Examine Logistics and Accounting
Enrollment Rewards delivered Customers questions Start and end dates Tracking performance Reporting Liability reporting Renewals Measurement

LIABILITY ANALYSIS Depends Upon: Participation forecast Number of redemption levels Pay-outs Average customer spending Appeal of the rewards Churn behavior Bonus offer plan Market segment Applying Liability: Accrual Based Accounting: Liability and expense for points is recognized in the month points are issued using expected overall program redemption. The breakage assumption is an agreed upon figure Cash Flow Analysis Expense is recognized in the months points are redeemed Example: Program member base ,049 Average monthly spend $131.79 Total Spend $49,032,338 Points Issued ($1=10pts) Point Value $0.003 Total Value of Points $1,470,970 Est. Redemption % Monthly liability $588,388 Need to do similar calculation for each segment

# 6: Issue of Partnerships
Number of partners Types of partners Partner management Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

# 8: Decision to Test Program Prior to Roll Out
Strengths of pre-test Weaknesses of pre-test Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Partnership Decisions
Scope of partnership Reputation Price of miles/kms Number, quality, type and cost of communications and database opportunities offered Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Partnership Decisions - continued
Competitors who are also partners in other's programs of partnership Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

# 7: Budget Calculations
Cost of administrative Cost of communication Point value (buy and sell) Breakage Payment to hotels (restaurants) for redeemable stays Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Next Series of Steps # 9: Finalize Program # 10: Train Employees # 11: Program Launch and Enrollment Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Typical Time Frame and Costs Once Program Launched
NEW MEMBER ACTIVITIES GENERAL MEMBER ACTIVITIES PRODUCTIVITY ACTIVITIES INVESTMENT Heaviest for first 6 months Key Financial Measures: Volume of New Members Cost/New Member PAYBACK Becomes increasingly trackable after a “cycle” Volume of Members Cost/Member Incremental Margin/ROI After months Eliminated Members Cost/Reactivation Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

GENERAL ACTIVITIES Program NEW MEMBER ACTIVITIES
GENERAL MEMBER ACTIVITIES PRODUCTIVITY ACTIVITIES 1. ENROLL-MENT 2. ACTIVA-TION 3. QUALIFI-CATION 4. USAGE 5. STIMULA-TION 6. SEGMEN-TATION 7. TARGET-ING 8. REACTI-VATION 9. PURGE COMMUNICATIONS STRATEGY DATABASE STRATEGY REWARD STRATEGY Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

OVERVIEW OF NEW MEMBER ACTIVITIES
Program NEW MEMBER ACTIVITIES 1. ENROLLMENT “Get” and “Yes” Get New Member Name & Address Get New Member Approval 2. ACTIVATION “Match” and “Train” Get New Member Profile Matched Up Get New Member Behavior Trained 3. QUALIFICATION “Identify” and “Welcome” Identify Qualifying Members Send Welcome Kit to Qualifiers Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

NEW MEMBERS Program 1. ENROLLMENT CURRENT RRI GUESTS NON-RRI GUESTS
CONVERSION RRI guests who are cu 2. CAPTURE REGULAR RRI guests who are not currently Redi members – Existing Inns Volume Time 3. CAPTURE GROWTH RRI guests who are not currently Redi members – New Inns 4. ATTRACTED REGULAR Non-RRI guests attracted to RRI program – Current Market 5. ATTRACTED GROWTH Non-RRI guests attracted to RRI program – Market Change 6. ACQUISITION Non-RRI guests targeted to RRI program ROI Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

NEW MEMBERS Program 2. ACTIVATION
Behavior Reinforced Name/Address Matched Behavior Tracked Qualified Profile Member Suppressed Match % and time to Match Average time to Qualification How well filter identifies best customers Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Time from Qualification
NEW MEMBERS Program 3. QUALIFICATION Behavior Reinforced Behavior Tracked Qualified Welcome New Benefits Member Suppressed Time from Qualification Cost of Welcome Number of Qualifiers Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Loyalty Program Overview
NEW MEMBER ACTIVITIES GENERAL MEMBER ACTIVITIES PRODUCTIVITY ACTIVITIES 1. ENROLL-MENT 2. ACTIVA-TION 3. QUALIFI-CATION 4. USAGE 5. STIMULA-TION 6. SEGMEN-TATION 7. TARGET-ING 8. REACTI-VATION 9. PURGE COMMUNICATIONS STRATEGY DATABASE STRATEGY REWARD STRATEGY Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

GENERAL MEMBER ACTIVITIES
GENERAL MEMBERS Program GENERAL MEMBER ACTIVITIES 4. USAGE Regular Behavior RETENTION INCREMENTAL MARGIN COST/MEMBER 5. STIMULATION Whole base encouraged to do increased behavior for specific period ROI 6. SEGMENTATION On basis of “Value” members are given different communication and/or special rewards 7. TARGETING On basis of common characteristics certain members are given a special communication and/or rewards Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Loyalty Program Overview Activities
NEW MEMBER ACTIVITIES GENERAL MEMBER ACTIVITIES PRODUCTIVITY ACTIVITIES 1. ENROLL-MENT 2. ACTIVA-TION 3. QUALIFI-CATION 4. USAGE 5. STIMULA-TION 6. SEGMEN-TATION 7. TARGET-ING 8. REACTI-VATION 9. PURGE COMMUNICATIONS STRATEGY DATABASE STRATEGY REWARD STRATEGY Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D Customer Loyalty and Frequency Marketing, July © Stowe Shoemaker, Ph.D.

Loyalty Program Overview Activities
PRODUCTIVITY ACTIVITIES 8. REACTIVATION Efforts to revive an inactive member REACTIVATION RATE ROI 9. PURGE The removal of a member from regular status COST SAVINGS Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Next Series of Steps # 12: Collect and Manage Data # 13: Clean Data # 14: Mining Data # 15: Communication Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Next Series of Steps # 16: Member Services # 17: Evaluation Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Evaluation Metrics “While we try to do all we can to objectively and accurately measure the sales generated by a frequent diner program, no analysis can provide absolute evidence that any program produces a definitive amount of incremental sales. Therefore, the best we can do is make some subjective assumptions, temper them with common sense and good business judgement, and reach a “comfort zone” regarding what portion of sales were generated as a direct result of the program versus guest patronage that would have occurred anyway.” The Customer Connection Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Evaluation Metrics Test and control group control group is non-members from the same target group as members measure changes not absolute figures (e.g., increase in purchase volume was 10% higher than non-members; satisfaction index increase 5% compared to 2% decrease for non members) Pretest-Post-test with no control group Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Basic Form of Pre-test Post-test with No Control 01 Pre-test Test Group visits 0 visits 02 Post-test Test Group visits 1,638 visits TE Treatment Effect Mailing TE = ( ) example: TE = increase in 1,638 visits Question: Is this good? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Pre-test Post-test with control group Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Basic Form of Pre-test Post-test with Control (see 37e) 01 Pre-test Test Group visits 5.3 02 Post-test Test Group visits 6.8 03 Pre-test Control Group visits 5.4 04 Post-test Control Group visits 5.6 TE Treatment Effect Mailing example: TE = ( ) - ( ) = ( ) = (1.3) increase in # of visits TE = ( ) - ( ) Question: Is this good? Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Life-time value Would Have Come Anyway Analysis Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Example: “They Would Have Come Anyway”
Card-swipe Frequent Diner Transactions: $1,329,150 Birthday Card Redemption without Using Frequent Diner Card ,258 TOTAL SALES (1997) $1,394,408 TOTAL COST OF PROGRAM $ 61,000 Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

% Come Sales Incremental
Anyway Anyway Amount Less $61,000 5% $69,720 $1,263,688 (.05*1,394,408) (1,394, , ,000) 10% $139,441 $1,193,967 15% $209,161 $1,124,247 20% $278,882 $1,054,526 25% $348,602 $984,806 50% $697,204 $636,204 75% $1,045,806 $287,602 90% $1,254,967 $78,441 95% $1,324,688 $8,720 100% $1,394,408 $-61,000 Note: can calculate for all possible percentages

Evaluation of Metrics - Rules
Measure Relevant Factors For Members and Non-Members; must be measured from very beginning and same situation customer growth compared to industry at large cost per sale for members and non-members fluctuation of customers with and without club membership satisfaction / retention scores Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

“No substitute for sitting across the table from a selected cross section of the club members and asking them how they really feel about your products, your company, and of course your program” Mike Ashton All activities (special mailings, complaints, etc.) should be coded so one can measure response rates Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Examine cost savings: If you use club members to research ideas normally do not have to pay them Use test and control groups Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Questions About Anything Discussed in Class

Presentations for Hotelie Award

How to judge Team with highest average score wins Complete table on next page Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

not at all 1 2 3 4 5 6 7 does extremely well
#1 #2 #3 #4 #5 #6 Creativity Originality Incorporates class material This group had fun The customer will want to belong to this program It is feasible TOTAL

Customer Loyalty and Frequency Marketing

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Customer Loyalty and Frequency Marketing

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