Wednesday, 31 December 2008

2009 – Year of loyalty?

Well it seems customary at this time of year to look forward into the next to think about what may be round the corner. 2009 promises to be a good year for loyalty marketing as now is most definitely the time to be concentrating on existing customers. That said, it will also be a year of increased focus on marketing budgets and all marketing disciplines will need to deliver the goods - loyalty will be no exception.

#1 – Loyalty marketing will become more accountable

2009 will be the year of accountable marketing - Group M, the media buying subsidiary of WPP is projecting that traditional above the line advertising will be down 9% in 2009 and Business Week reported just last week that US advertising spend is projected to be down 10%. This is not in itself unexpected, as the President and CEO of the Interactive Advertising Bureau (IAB) said recently "It's a normal recession trend: Above-the-line dollars are moving below-the-line".

As the blog Note to CMO puts it "What happens to a poorly led company when the economy goes south? The marketing budget gets cut. What happens to a well led company when the economy goes south? The marketing budget gets cut, as well; but in a well led company, the budget doesn't just get axed -- it gets reallocated…You see more channel promotion, more marketing development funding, more sales incentives."

When times are hard, marketers will be expected to get the best value for every pound spent, as a Marketing Week survey showed, 71% of UK marketers said they felt more pressurised than usual to demonstrate the impact of every marketing activity. This means all forms of accountable marketing will benefit, with online marketing projected to grow by 6%-10% but I'd also expect most below the line disciplines to benefit including loyalty marketing.

Loyalty programmes will have to work harder though – moving from a "points = prizes" mentality to one which looks to utilise all available behavioural information to target customers at every point with relevant messages and offers – recognising and rewarding the interaction not just the transaction.

#2 – Coalition schemes will expand

Coalition programmes will have an increased focus in 2009.

The coalition programme makes sense for many companies – not only are costs shared but companies that don't have enough frequency or margin to make a compelling programme can still participate and benefit from loyalty within the programme as a whole. I think we'll see more emphasis in 2009 from coalition programme providers such as Nectar and Airmiles as well the widening of existing standalone programmes and the creation of new programmes containing a number of partners. This makes sense as loyalty is going to be the watch word in 2009 and with more companies wanting to have the benefits of a loyalty scheme without the cost or long lead times of establishing one - any way of short cutting this will be taken.

Coalition programmes also make a lot of sense for consumers as it allows them to accumulate points from a larger share of their spend with a single provider. Airmiles are already reporting increases recently in new members and increased usage of the programme and have recently launched a £3.5m TV campaign to drive awareness.

#3 – Physical rewards will be back in vogue

I think rewards requirements may be a little different in 2009. Recent changes in the strength of the Pound versus the Dollar and Euro have made international travel more expensive at a time when people are also watching their spending. Vouchers or gift certificates, another popular reward choice have also taken a knock recently - with retailers such as Woolworths and Zavvi going into administration many of the vouchers issued cannot be used and also weren't being accepted by the other solvent partners such as Comet and B&Q. With predications of 10-15 other UK retailers going to the wall in 2009, people will be wary of choosing a voucher which may not be worth the paper it's printed on. Merchandise including durables such as home-wares and electrical goods as well as entertainment products like downloads, CDs/DVDs will become more popular as people stop spending money easily and so items that were simply purchased on a whim are now saved for or put off.

It's also in the programme operators interest to move rewards towards merchandise as there is very little margin in either travel of voucher based rewards and with many companies looking to reign in their marketing budgets, one simple way to do this is to offer merchandise rewards. When introducing rewards though it will be key that these don't cheapen the programme through the introduction of low value brands and items – instead as Rachel Deacon, Client Partner as Carlson Marketing puts it "With house prices deflating, people are not so interested in moving and are starting to put down roots - this is reflected in more colour being used in houses and more furnishings rather than just stark, basic furnishing. This focus on and pride in the home means people will put more premium on quality items than has been the case in the Ikea world of the past decade."

#4 – Loyalty will get more social

I've written previously about how I feel loyalty and social media can work together well – however convincing many brands of the value this could bring to their loyalty programmes has been more challenging. Social media can provide customers with reassurance that they have made the right choice through recommendations and reviews – whether this is the choice of their purchase or the choice of their loyalty redemption. It can also make it easier to sell additional products and services to other customers, once the relationships between them is understood as friends of friends are up to 3-5 times more likely to purchase a service that a friend already has.

It has however been seen as a new, disruptive technology – something that is hard to control once the genie is out of the bottle. 2009 though may be the year when we see its use within loyalty programmes as marketers look for more creative ways to utilise their budget. As Ann Handley, blogger and Chief Content Office of MarketingProfs puts it, "Dwindling budgets suddenly make low-cost social media look like the pretty girl at the ball".

#5 – Consistency

The final prediction is simply more of the same - consistency – don't rock the boat too much and make sure that any changes made work well within existing marketing efforts. Doug Burton says in Progressive Marketer "When faced with an economic downturn, some companies shoot from the hip, jumping into new mediums with no real plan for integrating their brand message or measuring the return on the investment..As consumers become more cautious and contemplative with regards to their spending, it's simply going to require a more consistency and persistence to move the needle"

Well those are my thoughts – feel free to chip in with your own thoughts and suggestions and have a Happy New Year!

Sunday, 21 December 2008

Christmas is a time for giving

As the saying goes it is better to give than it is to receive. At this time of year when we're buying gifts for others, thoughts also tend to turn to charitable giving and the trend in recent years has been to give charitable gifts, with more and more charities packaging up their services as items which can be bought and given.

This year though has seen a marked change. Charitable donations have been heavily hit as people start to reign in their budgets by dispensing with any non-essential expenditure. Charitable donations are reportedly down 20%, but for many charities this is much higher; both Shelter and Oxfam are said to be laying off staff and the NSPCC has said it's making 150 of its 2,500 employees redundant. This is not unexpected but it obviously comes at a bad time with more and more people requiring the services of these charities. So desperate is the situation for many charities that the UK government is even considering some form of emergency loan to help charities ride out the crisis.

Charities are essentially like any other business in that they are looking to maximise income and minimise costs, and like any other business they are probably going to have to change how they go to market in the next year or so to become more nimble and proactive. Even in the largest corporate, marketing budgets are being reviewed and people want to make sure they get the best return on investment. There has been an increased focus recently on targeted marketing, sending communications to the right people at the right time to maximise responses and minimise costs. This is not a recent innovation, many programmes have been doing it for years and it's the main theme behind 1-2-1 marketing; however it has always been easier to do mass communications – they take less planning and less thought and provide "known" results.

With tighter budgets and tougher targets though, companies are looking for their loyalty programmes to work harder, using the detailed information they contain to target the customer segments with the most potential. I've no doubt many of the larger charities also have very sophisticated CRM solutions but they too are going to have to become smarter with how they utilise them. The balance from acquisition with blanket mailings may have to shift towards more retention mailings; these retention mailings may also have to change to ensure that they are sent to maximise responses. This may mean having to gather additional information to understand when donors want to be spoken to and what kind of information they want to receive – essentially tailoring the charitable experience and making it more personal and relevant.

In one example of where a small local charity changed its approach to a more targeted campaign to existing donors they saw an ROI of over 900%. After asking donors when they wanted to be communicated to and how often the charity ended up with a loyal customer database with over 50% indicating they wanted to be communicated to just once at Christmas. This saved a significant amount of money on sending mailings that were not wanted and when they did then send mailings, these were personalised to specific donor segments and communication preferences and saw a response rate of over 35%.

All of us, whether charities, businesses or individuals are going to have to think about how to get more value for our money in the near future – increasing income may not always be possible but reducing costs certainly is.

In the short term however what charities really need is our money…

Have a great Christmas and if you feel the need and don't have a preference, try Shelter or Salvation Army to make someone else's Christmas.

Thursday, 18 December 2008

T'ain't What You Do (It's the Way That You Do It)

I know I've spoken about this before but I'm intrigued by how many FMCG brands count success based simply on the number of baskets their product is in within a 52 week period. It's even more surprising when you consider that for many brands, increasing this penetration is accomplished through free product such as buy one get one free – essentially paying customers to purchase the product. I wasn't expecting however a brand to actually pay customers to buy their product but this is exactly what General Mills are doing in the US with its latest campaign, providing gift cards in denominations of $5, $10 and $25 for 1 in 20 purchases.

Now this is pure play sales promotion and although the prize is instant win cash it could easily be any kind of prize draw item. Sales promotion by its very nature is there to promote sales and the brand will know exactly what will happen – there will be a spike in purchases as new consumers are attracted to the offer, existing consumers bring forward purchases and competitor consumers switch – all for the chance of winning something. The hope – and it's normally a slim one – is that a small percentage of the customers who purchase the product because of the offer will enjoy the product and stay with the brand.

The American poet and physician Oliver Wendell Holmes once said "The main part of intellectual education is not the acquisition of facts but learning how to make facts live" – essentially not acquiring something simply for the sake of it without due consideration as to how it can be "brought to life". This is however what many marketers do today with their acquisition campaigns – looking to acquire as many sales as possible without thinking about how the customers behind these can then be retained.

As a loyalty marketer it's easy to point the finger and say you'd be better off spending the money on your existing customers and retaining them – going on to then spout some facts and figures about how much cheaper it is to retain a customer than to acquire one. However, a dogged focus on just retention is almost as dangerous as a single focus on acquisition. All customers will churn at some point – whether this is because of the tactics of another brand, a maturing/changing of tastes or just because the reaper has "come a knockin" – you can't keep a customer forever.

An alternative approach though is what we term "Acquisition for Retention" – this is a focus on acquiring customers which you are looking to retain. This doesn't change the techniques used to acquire customers - sales promotion is still an important tool in supporting this – but what it does is ensure that the type of customers you acquire are the ones which are likely to want to continue buying your brand.

For example, if you have a large promotion with a prize such as "win a holiday to the Caribbean", the type of customer you will attract is someone who wants to go to the Caribbean. If the offer is rich enough and compelling enough they may not actually want your product at all – just the chance to win the prize. The General Mills promotion will fit into this type of offer – customers attracted to it will simply like the idea of winning cash.

In order to create promotions that attract the right kind of customers you need to keep in mind three golden rules:-

  • Desirability – Understand your customers and what motivates them – select rewards which resonate well with your core customer segments and are a little less ordinary
  • Achievability – Ensure rewards are achievable for different customer segments – whether this is an on-pack collection programme or a sales promotion prize draw, customers will tune out quickly if they feel the effort doesn't justify the reward
  • Brandability – Ensure any rewards reflect and deliver upon the brand promise – the rewards are an extension of your brand so choose carefully who and what you want to be associated with

Walkers Crisps in the UK ran a campaign recently called "Brit Trips" that fits these rules perfectly. The campaign allowed consumers to collect on-packs codes from promotional packs and to enter these within a website to build up a points balance. These points could then be exchanged for a range of UK based activities including ½ price entry to attractions like Sea Life or theme parks as well as hotels and holiday parks. The campaign aligned well to the three golden rules with:-

  • Desirability - The promotion worked well with its core customer base of families – providing family orientated rewards

  • Achievability- The promotion fitted the economic climate well – allowing families to save money during school holidays with just 2-3 purchases providing a reward

  • Brandability - Walkers has picked up on the recent trends for locally sourced food and has played to the fact that it uses 100% British sourced potatoes. The "Brit Trips" campaign helped to re-enforce this brand positioning by focusing on rewards which are local and British - helping to drive this point home with its consumers.

The success of this campaign can be easily seen from its online usage - visitors to the Walker Crisps brand sites peaked at 575,000 in April 2008 (source: Nielsen NetRatings April 2008) and year on year grew from 17,000 in June 2007 to 444,000 in June 2008 – an increase of 2,575%! Although Walkers spent a lot on media to promote the campaign, reportedly over £5m, what really worked well was a promotion that was targeted to their core audience with a selection of rewards that resonated well.

So that's the acquisition part of "Acquisition for Retention" sorted, what about the retention part?

Stay tuned for a subsequent post when I'll discuss what to do with the customers once you have them…

(Post title: "T'ain't What You Do (It's the Way That You Do It)" is a song written by jazz musicians Melvin "Sy" Oliver and James "Trummy" Young. It was first recorded in 1939 by both Jimmie Lunceford and Ella Fitzgerald)

Saturday, 13 December 2008

Make the easy things easy and the hard things possible

I was reading a recent post from the blog brandgym about blyk, the new mobile phone operator who provides a "free" mobile service to 16-24 year olds, funded by advertising revenue. Although this is an interesting proposition and I have to admit, one I thought would fail quite quickly when I first heard of its launch, what struck me most was how it came about. Apparently the founder of blyk, Antti Ohrling got the idea from the free morning newspaper, Metro and thought if it can work for papers why can't it work for mobile.

The mobile sector is however well known for commercial innovation – from the creation of pre-pay mobile in the mid-90's to the emergence of mobile virtual network operators (MVNO) like Virgin Mobile.

Looking at the recent headlines I thought how this contrasted with the automotive industry which is obviously struggling at the moment in the wake of people pulling in on their purse strings, with new car sales down almost 40% - the commercial model for selling cars seems to have changed little over the years with car dealerships affiliated with a car manufacturers.

Whatever the business, one of the fundamental aspects of gaining a sale is to make the purchase process as simple as possible – removing or reducing any barriers that may exist. When purchasing a new car there are a number of "barriers" to overcome. The most obvious is liquidity – does the customer have the cash or access to the cash to purchase the vehicle - if the customer can't raise the funds then there is little possibility of a sale. Increasingly though another barrier is depreciation – with new cars typically losing 40% of their value in the first 3 years and up to 25% of their value when driven off the forecourt, the decision of new car versus used car is increasingly difficult.

Buying a new car is essentially an emotional decision – it makes no sense rationally as the only advantage over a used car is the "factory fresh smell" and the knowledge that no one else has driven it. In the current economic climate, emotional decisions are going to be much harder to come by with customers instead thinking about every pound they spend. What is interesting though is that odds are someone working today will still be working when the current slowdown is over – so money isn't really the issue – for many people it's the commitment. Not knowing what may happen in the next 12 months means people will be less likely to want to commit themselves financially.

So if car manufactures want to sell cars they need to address two issues – managing depreciation - so new cars don't look so irrational when compared to used cars – and facilitating purchase. I'm not suggesting these are necessarily easy things to answer (or the only things) and obviously car leasing and loans help to address the issue of having upfront cash. However they do little to address depreciation or commitment issues and finance brings its own issue; anyone who has insured a newly financed car will have thought about "gap insurance" – that product which covers the shortfall between what you owe for your car and what the insurance company actually pays out.

There is however some recent commercial innovation in the car industry. Hertz announced this week that it was entering into the car sharing market in London; providing cars for as little as £4 per hour – it isn't the first to do this, but it is probably one of the biggest brands. For many, this can be a great way of having access to a car without the cost or hassle of owning it. In fact physically "owning" things is becoming increasingly less of a requirement – whether its on-demand services like BT Vision for films or Napster for music, people are getting used to having access to something rather than actually owning it and websites like Zilok are now making it possible to rent things when you actually want them, from drills to drums. Car sharing may not be practical for many people but the ability to simply have access to a vehicle with minimum commitment and no associated ownership issues like depreciation could be offered through more flexible forms of financing.

So what has all this got to do with retaining customers? Well over the last decade or so, for many industries retaining customers has consisted of providing better services than your competitor – the customer was always going to buy, they just needed help in deciding from whom. Now things have changed however - the customer may not be buying at all!

For many companies what's required is a review of how you go to market to ensure that you make it as easy as possible for customers to do business with you – both existing and new - looking outside of your own industry could be a great place to start; who knows, the morning news paper could just provide that inspiration.

Wednesday, 10 December 2008

A distribution of surplus in proportion to trade

The Co-operative Group in the UK announced recently that its interim dividend payment for the first 6 months of 2008 was to be £8.9m, this is £2m more than the interim payment for 2007 and comes on top of a full year dividend payment of £38.1m in June.

For those that don't know the Co-operative Dividend programme was re-launched in 2006 and essentially awards points to members based on their spend within the group of companies – these points are then assigned a value every 6 months as an interim and full year dividend, based on the profits of the group. In this way the programme pays out a true dividend or share of profits based on the contribution the customers make to the group as a whole. Since its re-launch the Dividend programme has recruited over 500k new members, taking the Co-operative membership to 3.1m.

Although the programme has recently been re-launched and replaced a previous "standard style" retail loyalty programme it is essentially nothing new. The founding members of the current Co-Operative movement, the Rochdale Pioneers Society were established in 1844 and within their original eight 'Rochdale rules' was the inclusion of a requirement for the "distribution of surplus in proportion to trade" which became known as 'the divi' - this was probably one of the first "loyalty" programmes in the UK.

The Co-Op aren't the only organisation to support loyalty through a share of profits. The Britannia Building society in the UK has been running a whole of bank style loyalty solution called Britannia Membership Rewards (BMR) for over 10 years. This scheme rewards customers with points based on their financial product holding and value within those products. On an annual basis the points are converted to a cash value based on a proportion of the society's profits and are then paid out to its members.

Although these businesses as co-operatives and mutual societies are built around ownership by their members and the return of excess profits as either a dividend or competitive pricing, there is probably a lesson here for all businesses.

The recent financial crisis highlighted the unhealthy focus some companies have on either their employees (and associated bonuses) or on shareholders and their requirement for ever increasing profits – sometimes at the expense of long term growth and stability. Badly sold mortgage products to customers who clearly had no ability to pay or would struggle to pay in the future were sold by financial institutions who were thinking more about short term gain than a long term relationship. The other banks and investors buying these badly sold mortgages up as packaged portfolios or Collateralised Debt Obligations (CDOs) weren't thinking of the customers either – they were all just looking at the profits to be made. You could argue that for these businesses the customers were almost an inconvenience, with the focus simply on making money for stakeholders rather than thinking about delivering benefits to their customers.

A sustainable business however is based on both acquiring and retaining profitable customers - this doesn't mean a business has to be owned by its customers but it does need to recognise that customers are the lifeblood of the business and it needs to acquire them with a view to retention - providing great products, customer service and recognition of their loyalty from day one. In their book "Return on Customer" Don and Martha suggest that "the only value your company will ever create is the value that comes from customers -- the ones you have now and the ones you will have in the future. Businesses succeed by getting, keeping, and growing customers."

They go on to put it succinctly saying "Without customers, you don't have a business. You have a hobby". You could probably spin this around a little and say "Without focusing on customers, you don't have a business. Period."

Whether the Co-Operative Groups recent renewed success is a result of the re-launched dividend programme, their group wide rebranding or their increased focus on ethical investments and fair-trade products is difficult to tell – what isn't hard to tell is that a business which is still growing after 160 years must be doing something right.

Sunday, 7 December 2008

Ask and you shall receive

One of the things I've noticed in the last couple of months is how worried people are about saying the wrong things. Robert Peston, the BBC Business News editor had covered the story of the credit crisis since the beginning and was credited with breaking the news of discussions between the banks and the government about a bailout which then resulted in the share prices of the banks in question free falling.

Over the following weeks it became difficult to tell if the media was reporting things they saw happening or causing things to happen. A number of commentators began to point the finger at Peston with some suggesting that he inflamed the situation rather than just reporting it.

When George Osborne, shadow chancellor discussed how the governments high borrowing could lead to a collapse of the pound he was accused of "talking down the pound" – so worried were people that simply saying it may be so might make it so.

In an article in the Telegraph the reporter denied that the media can cause a recession just by talking about it and then went on to say that what causes recessions is the relative optimism or pessimism within the economy – without seemingly connecting that peoples view of the economy is dictated by what they read in the press or see on the TV.

Whether the current slowdown is being influenced in any way simply by what the media say will always be hard to measure, but as any marketer knows, if you want someone to do something you simply have to ask them - unlike the media it seems, marketers do understand the power of suggestion.

Some quite scary research from Stanford University found that in tests with pre-school children, anything wrapped in a McDonalds label was rated as tasting better – even carrots and milk. Almost 77% of kids preferred the fries when wrapped in McDonalds packaging versus 13% when not. It would seem that telling kids McDonalds has great food repeatedly via TV advertising actually affects their ability to taste!

Looking at more direct suggestions, an incentive programme we ran a few years back for a credit card company was based around a simple statement – "can I put that on your <card name>". Just by asking the customer for a specific brand of card, we saw a huge lift in usage of that brand – for which the retail staff were rewarded. Card issuers spend a lot of money on direct marketing and loyalty programmes to encourage their card to be front of wallet and yet that can so easily be undone simply by getting the retailer to ask for a different card at the point of sale.

On the flip side I've seen marketing programmes which don't seem to be getting cut-through with customers. On one programme regular, glossy marketing materials were being sent to customers but there was no change in behaviour either within control groups or pre/post mailing. When reviewing the marketing materials it was clear to see why – there was no call to action – the customer didn't know what they were expected to do. The marketing materials were focusing on what the customer could get within the loyalty programme, without telling the customer what they needed to do in order to achieve it.

The call to action is the basis of direct marketing - if the communication asks the recipient to take a specific action, for instance calling a free phone number or visiting a website, then this is considered to be direct response advertising.

Whilst this is understood by direct marketers, it is sometimes overlooked by loyalty marketers. At all touch points within a loyalty programme the customer needs to understand what is expected and actually be asked to do it. Whether this is training the employee to say "do you have a loyalty card" to every customer so that the customer gets the card out of their wallet (or signs up), or sending communications with a clear call to action which maximises participation.

Having a clear call to action is probably even more essential in the current climate. With so many pessimistic messages being put forward by the media, anyone wanting a customer to actually make a purchase is going to have to be clear and concise about what the customer needs to do.

Being a little optimistic will probably help as well!

Thursday, 4 December 2008

Without losers where would the winners be?

We certainly do live in interesting times – interest rates at the lowest since 1951 and if they go down much more then the lowest rate since the formation of the Bank of England. As ever there are winners and losers – mainly borrowers and savers respectively.

What's also been interesting is how the banks have so far responded – some such as the Halifax are only passing on part of the rate cut, others such as LTSB and HSBC will be passing the rate cut on in full.

The news grabbing the headlines though is the so called "collar" which many tracking mortgages include within the small print and which prevent the tracker rate from dropping below a given level. Financial institutions such as the Nationwide Building Society which have decided to keep the collar in place, thus not passing on all of the rate cut have received the full blast from the media.

All businesses though at some time have to make decisions on what is considered profitable behaviour and have to take tough choices which may adversely affect one customer segment so as to benefit another. Whilst it would be great for a financial institution to pass on the rate cut in full, if this is done at the expense of savers who normally represent a much larger segment of customers or indeed at the expense of the overall stability of the bank then this may not be "fair" overall.

Even before the current financial crisis financial institutions have had to make unpopular decisions. Card issuer Egg was derided in the press when it decided to remove a segment of 161k customers from its card book back in February due to a "higher than acceptable risk profile" – probably a prudent move now in hindsight.

These are exceptional times however and this causes many businesses to have to make difficult decisions within challenging timescales. Looking slightly more long term though every business has customer segments which provide very little return or worse still cost more to service than they return in profits. Normally termed "BZs" or Below Zero customers, they are an obvious target to reduce or remove so as to lift overall profits and benefit other, more sustainable customer segments.

There tends to be two approaches "managing" this type of customer segment - carrot or stick.

You can either create losers by penalising the customers in some way - charging them a fee or reducing customer service channels - or you can create winners by rewarding and recognising profitable behaviour in the hope of encouraging these customers to change behaviour.

First Direct made the headlines in 2007 when it introduced a £10 fee to customers holding a single bank account and not paying in a given amount. This "stick" approach probably looked great on paper by reducing the number of these unprofitable customers, increasing revenues through fee collections or increasing individual product holding – however it caused a storm of bad PR with many customers considering moving their bank accounts despite not being in the segment affected. Fees can be an effective means of creating customer engagement, but these typically work better at the top end where customers pay them in order to access additional benefits rather than at the bottom end where customers are being penalised for "bad behaviour".

A different approach to the same problem was put in place by ADBC Bank in the UAE. Rather than penalise customers for not holding enough products, ADBC rewards customers for holding more products. Their "carrot" approach called TouchPoints provides recognition and rewards across a customers whole financial relationship, allowing a customer to earn more value as they increase their product holding or usage. At a recent conference I attended where they presented the results of their programme so far, they demonstrated an uplift across all products, with some seeing as much as a 600% increase in acquisitions!

Sometimes timescales force a business to make decisions tactically – having to reduce costs quickly through punitive measures – however where time allows it can be much better for overall customer engagement to provide positive measures that reward and recognise profitable behaviours, encouraging all customers to make decisions which reward both them and you – creating a real win-win.

(Title: Quote from Casey Stengel - American Baseball Player and Manager, 1891-1975)

Saturday, 29 November 2008

Woolworths is dead – long live Woolworths

I think the news of the demise of Woolworths is probably a little premature – there is no doubt it's in trouble and the Woolworths of the future may bear little resemblance to the current chain – however I don't think that this is the end. The Woolworths brand has strong affection with many people who may not have shopped there recently but certainly remember it from their formative years. It's always been a strange store, selling a variety of goods from the famous pick and mix, through children's clothing, stationary and music/films, however in some senses this is probably what's caused its demise. With the pound stores taking one audience and the supermarkets taking another, Woolworths has struggled to know what it stands for.

WH Smith was in a similar position 2003, having no real focus and being undercut on all sides by the supermarkets. This changed however when they started to focus on their core offering - their books, magazines, news and stationary - and reduced focus (and retail space) on entertainment products such as CDs and DVDs. Understanding what customers valued in the store allowed them to ensure that the stores stocked what they wanted and to concentrate on when customers wanted it - leading to an increase in their store locations at places like airports and train stations. These decisions have changed WH Smith's fortunes – it may still have some way to go and the current climate isn't going to help, however WH Smith chief executive Kate Swann was clear in her vision when she said in 2004 "I want people in the UK to get to the point where they say, 'Of course I go to Smith's for stationery; of course I go to Smith's for books; of course I go to Smith's for my magazines.' That's what I want Smith's to be for."

Starbucks is one company for which it's clear what they stand for and that's great coffee. Before Starbucks came along it was possible to buy a coffee in the high street, but Starbucks redefined what coffee stood for. They set a standard for it, built a business around it and were very clear that it was all about the coffee. Every decision they made whilst growing into a global brand was centred on their belief in their product and how it should be enjoyed. Whilst others for example were creating flavoured coffee beans, Starbucks refused to adulterate their product and stood firm by their beliefs in keeping the product pure. They didn't always get it right though and in their early days their stance on not using low-fat milk initially bemused customers who had to go elsewhere to enjoy their "skinny" latte.

They learned though that there is a balance to be struck between giving the customer what they want whilst ensuring the business is focused on what its core values are and what it stands for.

Woolworths on the other hand has lost its way – it doesn't seem to stand for anything in particular and is a jack of all trades – master of none.

It was once well known and well respected for its children's clothes. After securing rights to the Ladybird clothing brand in 1984, Woolworths went on to launch a hugely successful range of children's clothes in 1986 which was supported by PR, TV and press advertising. Despite going on to acquire this brand in 2000, Woolworths have never really leveraged it to the full. Rather than building on this they went on to launch Big W which further confused customers as to what they stood for and subsequently failed and was axed in 2004.

Customer loyalty cannot be bought – either through discounts or points – in all surveys on customer loyalty, top of the list after convenient location is that the retailer stocks what they want - if a brand gets this fundamental wrong, all other efforts will fail. Any new buyer of Woolworths will need to first take a step back to understand what Woolworths stands for, what its key values are and then build a business around this. Reducing or removing product lines which run counter to this and focusing on what the customers want within the context of these values.

Only in this way will Woolworths be able to set itself apart on the high street and reinstate itself as a brand that customers understand and say, "I go to Woolworths for…"

Tuesday, 25 November 2008

Without trust there is nothing

I was reading a new report this week from Forrester about how customers rate European banks. Across 7 different European countries, the UK stood out with the weakest scores to the question of whether customers felt their bank does what's best for them – with just 21% agreeing to this statement. Given the current credit crunch you could be forgiven for expecting this type of response as people lose faith in their banking institutions, however this is an annual survey and the results for 2008 are only marginally lower than for 2007. The report went on to discuss how customer advocacy improves a banks chances of winning new customers by word of mouth and that of those customers who think their main bank is a good customer advocate, the majority of these go on to be promoters.

Backing this research up, a recent study by Carlson Marketing of the financial services industry showed that customers with stronger relationships are 75% more likely to recommend to friends, 42% more likely to remain a customer and 57% more likely to buy additional products. As detailed within this study a key element of stronger relationships is trust which is defined as a belief that the company has the best interests of the customer at heart, and can be depended upon for respect, openness, tolerance and honesty.

Although many banks score badly in the area of trust, the UK based Nationwide Building Society has recognised this and actively looks to build trust with customers and potential customers. Its TV advertising highlights how other banks have preferential rates only for new customers – unlike Nationwide which has a fair pricing policy for all; it's ATMs highlight how there are no cash withdrawal fees and all its call centers are UK based. In 2001 the Nationwide launched an initiative to articulate the society's values to customers which included putting customers first, delivering best value and exceeding expectations. Since this time they have more than doubled their current account customers, tripled their credit card portfolio, significantly grown savings balances and doubled their annual profits. Not bad for a bank which is focusing on doing what's right for the customer, not just what's right for the bottom line.

The largest direct bank in the US, ING Direct announced recently that it will suspend foreclosure on all occupied family homes until March 2009 and suspend all evictions until January 15th. Their CEO, Arkadi Kuhlmann is quoted as saying "We help customers buy homes with mortgages only if we believe they are suitable and affordable. Consequently, once we get customers into a home, we work hard to help them stay there. We hope this foreclosure suspension will provide some relief during the holidays to those experiencing financial hardships. I call on others in the mortgage industry to step up and help homeowners with foreclosure relief during these difficult times". Now obviously banks are not charities and if someone cannot pay for their home the bank will have to take steps at some point to recover their investment – however what ING shows is that this can be done whilst also recognizing that these are real people with real lives – this is sure to build trust as ING stands out from the crowd.

Spanish Bank Caja Navarra takes this one step further with its Civic Banking product. Unlike any other bank I've come across, Civic Banking tells you exactly how much money they make from you. Customers understand that banks are businesses and that business are there to make profits, however most customers don't actually understand how a bank makes money. Providing this clarity allows the customer to enter into an agreement with their eyes wide open, understanding what the bank is giving them and conversely what the bank is getting back. This isn't simply done however to provide transparency, the bank donates a percentage of the profits on the customers behalf to social projects. This allows the customer to see not only how much the bank is making, but also how much it is then giving away. The projects that the bank donates a percentage of profits to are not simply large charities but instead can be very small, localised projects, nominated by the customer and setup by the community. In one example a water saving project had requested £7,000 and this had been donated by just 113 people. Caja Navarra really do engender trust by providing true transparency and showing a genuine corporate social responsibility.

Given the importance of trust within relationships and the rewards that can come from this for financial institutions, there has been a noticeable hush from almost all banks since the credit crunch. For many this is probably due to still being in a precarious position and as the old adage goes, "when you have nothing to say - say nothing". However for many banks things have changed with government support stabilising them and so now is really the time to begin rebuilding trust.

LTSB in the UK are the noticeable exception to this with much of their recent outdoor activity focused around the message of a "bank you can bank on". While many of the larger banks in the UK have been focusing their advertising on savings messages - promoting great rates in the hope of attracting much needed savings balances - LTSB has been focusing their message on one of trust, reassuring customers and prospects that they are a bank you can bank on. If LTSB get it right all indications are that the savings balances will follow naturally.

Trust is a key component of customer advocacy, the visible expression of customer loyalty. Banks have historically scored low compared to other industries when it comes to trust and so now is the time to really put the customer first and start to rebuild that trust – the much needed profits will follow.

Saturday, 22 November 2008

I am not a number - I am a free man (or woman)

Marketing to baby boomers is an interesting issue. Previously brands trying to attract an older audience could simply put an older person in the advert with an attractive pen or carriage clock and watch the customers pile in… well that was probably never true, but more recently the "older" generation has changed – it no longer considers itself "old" – age is just a number.

This really came home to me a couple of weeks ago when I was looking over some work we did for a financial services brand in the US. The brand had successfully communicated what it was about – telling people that it had products and services aimed at an older audience – the problem was its target audience of over 50's didn't consider themselves old and thought it was for someone "older".

This seems to be an increasing problem for brands looking to market to older customers, especially where these brands already have an established older customer base which they need to retain, but want to continue to attract new customers. A brand tackling this head-on is coffee & tea merchant Taylors of Harrogate - the ground coffee market has a skew to over 45's, so how do you make the brand relevant to new customers without alienating the existing customer base.

Taylors have done this with the introduction of new campaign, "The Coffee of Choice" which has a more edgy creative feel than the traditional corporate Taylors of Harrogate site and matches perfectly to their recent above the line creative. A tie up with Classic FM is helping to ensure the message reaches their target audience, but the creative is helping to make the brand stand-out and seem more relevant. This has been combined with a great selection of ground coffees which are packaged by occasion and blend – helping to appeal to both the new coffee consumer and the more established coffee connoisseur.

Nintendo has been targeting this market as well, but unlike Taylors who had an established audience; Nintendo was trying to create a market from the ground-up. Since the launch of the Wii and subsequently the Wii fit, demand has outstripped supply and the console has been propelled to pole position, with sales greater than both the XBOX360 and the PS3. This is largely down to the introduction of the gaming console to new segments – including the over 50's – or as Nintendo puts it "moving into the blue ocean", based on the book Blue Ocean Strategy. The advertising for the Wii isn't aimed at any particular age demographic and instead shows families interacting and playing with the console – something that is attractive to both parents and grandparents. The DS handheld console however has different celebrity endorsements to appeal to specific market segments, using Fern and Holly and Girls Aloud for the hard to reach younger female market and Nicole Kidman, Ronan Keating and Patrick Stewart for the older demographic with Brain Training.

With 80% of the UK's wealth and representing over 50% of the population by 2020, the over 50's are not a niche segment that can be communicated to using a one-size-fits-all approach. In fact, age based demographics are becoming increasingly less relevant – to create relevance a communication really needs to be personalised and to personalise something needs behaviours. Having communications based on how a customer behaves rather than when they were born will always create greater cut-through.

The brands that win here will be the ones that truly know their customers.

Friday, 14 November 2008

Weather the storm with your brand un-tarnished

Many brands and retailers who are feeling the pinch may be in a slight quandary – do we lower prices to retain more of our customer volume or keep things as they are and try to maintain more of our customer value – in fact is it possible to both maintain volume and value?

Brad Farrell, skincare brand manager for L'Oréal Paris answered the question about price quite succinctly when he said at a recent event "We don't want to see huge price cuts that will create a lower-priced brand, because you don't want to tarnish your brand. When this is all said and done, you still have your brand reputation to uphold."

Commenting in the early 90's in the wake of the coffee wars, Jeff Caso, director of Nestle's coffee business had a similar sentiment, but highlighted the struggle many brands wrestle with: ''If maintaining market share involves jumping off a bridge, I am not jumping off a bridge. But I am not sure the other guys see it that way."

So for many brands, overt price cutting cannot be high on the agenda – but maintaining the status quo in the face of increased price based competition is tough.

Knowing Brand Loyalists

Interestingly customer value is not always tied directly to customer volume. In most industries, a high percentage of revenue (70-80%) typically comes from a small percentage of customers (20-30%). For some brands like Prada this can be even more concentrated with a reported 50% of sales coming from just 5% of customers. With such a large percentage of customer value coming from so small of segment of customers, the most important question for both brands and retailers should be "who are these customers?".

Many successful retail loyalty schemes such as Tesco Clubcard are reported to be able to track 70% or more of their purchases to individual customers, providing real insight on who drives value and what products/services they purchase.

Focusing attention on these key customer segments with communications and non-price related offers can help to maintain revenue levels even when a larger number of less valuable customers may fall away.

Adding Brand Value

Customer volume is still important however – they contribute to fixed costs and ultimately will have more to give in the future. So is it possible to put in place strategies which retain more price sensitive customers?

One way to do this is to look back at the 4P's of marketing – Product, Price, Place, Promotion. The first thing that strikes you here is that there are three other "P's" apart from just Price.

Product – The product itself can be modified to make it less costly without cutting back on the quality. Many brands use size as a tactic here – making smaller versions of the same product so that it becomes more accessible. This can also have the positive effect of introducing new customers to the product who previously couldn't justify it as well as potentially allowing higher margin pound for pound than the larger version. More accessible brands may be able to also achieve this through a change of packaging – using different materials to lower production costs whilst not compromising on quality. As highlighted in brandgymblog, Hellmanns Mayonnaise did this in Canada by changing the packing from glass to plastic.

Place – Looking at other distribution channels, whether its online or different retail sectors can provide different cost models that allow the product to be made more accessible whilst not devaluing the brand within its heartland. This can be a double-edged sword though – witness brands such as Burberry and Cristal – which is why many premium cosmetics and clothing brands like Levi's have actively fought to keep them out of discounters.

Promotion – Adding additional value to a purchase rather than lowering the price of it can be enough for many customers to swing the purchase decision back from a rational one to an emotional one. The Anchor Make-A-Moo promotion is a very good example of this which has allowed the brand to maintain market share in what is seen to be a highly homogenous market.

Using both these techniques so that you know who buys your brand and can target the added value is by far the best approach. L'Oreal has been very successful in this area through the implementation of a company wide CRM system. Commenting on this in their white paper, Daniela Giacchetti, Head Customer Strategy Officer said "this has seen a 57% decrease in the volume of direct mail [and associated costs]. Through more accurate targeting a 62% response rate."

Having a customer retention focus that combines CRM and doesn't rely on price discounting activities is why companies as diverse as Anchor, Tesco and L'Oreal may be better able to weather the storm with their brands un-tarnished.

Thursday, 13 November 2008

Short term gain or long term relationship?

Abbey have recently launched a credit card providing 3% cash back for 6 months on card spend for groceries and petrol. The press release around this stated "The increasing cost of living, combined with the credit crunch, means families need all the help they can get to cover the cost of their weekly shopping essentials - which is why we developed this cash back card".

This card is interesting on a couple of fronts.

Firstly it is blatantly targeting everyday transactions – the holy grail of card spend. If a card issuer can get a card to be used in habit forming sectors such as supermarket and petrol, then it's more likely to be front of wallet for other purchases. All card issuers encourage this activity, but it's normally more subtle as part of a statement communication or targeted marketing. This is one of the first such cards to be rewarding just this form of spend and is being done at a time when consumers are much more aware of their spend within these categories due to rising food and fuel costs.

By excluding other categories such as travel and expenses, the proposition rules out many customers in the traditional cash back segment of travel and entertainment who use their card to pay for business expenses. This card is squarely aimed at families who would normally pay for groceries and fuel by other means such as cash and debit – a previously overlooked segment within cash back loyalty.

What is a little worrying however is the promotion.

Anyone working within the card industry will know that 3% cash back is not a proposition that can be supported within the normal economics of a credit card. All merchants pay a card issuer for spend taken on a credit card, but this is no where near 3%. For Abbey to fund this offer of 3% its either in for the long haul and is hoping to make back its investment through a long term relationship with the customer, or it is hoping to make back its investment in the shorter term through a large number of customers revolving a balance on the card, paying interest and hence offsetting the costs of 3% being paid to a smaller number of transactors – customers paying off in full every month.

I wouldn't like to suggest which business case is driving this proposition. However, in a mature market with customers an increasingly scarce resource, the best route to healthy, long term profits is through healthy long term customer relationships. A loyalty proposition which encourages the right behaviours for the card issuer, the merchant and the customer provides a long term win-win for all stakeholders.

I sincerely hope the new Abbey cash back card is such a product – with customers at the heart of the proposition and a continued focus on meeting their needs so as to reap the rewards of a long term relationship.

Monday, 10 November 2008

Retailers Need to Start Thinking Imaginatively

I was reading an interesting article today on retailers and their use of mobile within the buying process. I was quite surprised when it said that 40% of those surveyed said they already had an information-led mobile internet site or were considering building one – I'm guessing that there were more within that 40% that are considering it versus those doing it as the mobile channel is not something I've experienced in a major way from online retailers or any retailers for that matter. 30% of retailers questioned felt the use of mobile was unimportant and almost 50% didn't feel that the success of mobile and e-commerce are interlinked.

The article went on to say that the "survey showed the use of mobile among retailers is high but the benefits of having m-commerce capabilities are yet to be recognised"

Theodore Levitt said in his article "Marketing Myopia - Harvard Business Review" in 1960 that "Management must think of itself not as producing products but as providing customer value. It must push this idea into every nook and cranny of the organisation otherwise the company will be merely a series of pigeonholed parts, with no consolidating sense of purpose or direction". That statement is probably truer today than at any time before as customers are dealing with retailers across many more channels and are expecting the same level of service and recognition regardless. The buzz words in retail are "Multi-Channel Retailing" – having one cohesive customer centric experience across all channels rather than pigeonholed parts.

For many retailers though this is still a pipe dream – their e-commerce solution is completely separate to their EPOS solution, vouchers issued in one can't be redeemed in the other; customers (and hence purchases) in the online channel are known, customers in the offline channel are not. For some retailers there is almost a rivalry between online and offline with no real cross promotion of either channel, acting as if customers are either on or offline – but never both.

Retail loyalty programmes can help bridge the gap in this regard, acting as a centralised solution to bring together customers and transactions from all channels – providing a single customer view and a solution for creating and delivering relevant promotions back to all channels whether these are via email, SMS, direct mail or POS receipt. Even here though many retailers get it wrong – running a loyalty solution only for offline and ignoring online, or further muddying the water by running two loyalty solutions, one traditional and one via their store/credit card product – never the twain shall they meet.

In an ideal scenario I should be able to walk into a retailer and seeing something I like, text the product code to an SMS short code to get real time product reviews – if I like it I can order it there and then to be delivered, or pick it up and take it to the till. At the till I should be able to swipe my card and have the cashier know who I am, what I like to purchase and make a recommendation for something else I may like that is coming in next week. On my till receipt is an offer for something that I would like which I can go online to purchase. Going online I can see a history of all my purchases across all channels and can see items I've viewed before whether online or in-store via my mobile requests. If I choose I can post these to my social network profile so that my friends can see what I've purchased and react to this, comment on it and if they like it they can purchase it (and I may even earn some commission on the referral).

None of that is particularly hard to implement, but it's about putting the customer at the heart of the buying process.

Theodore Levitt went on to say that "the belief that profits are assured by an expanding and more affluent population is dear to the heart of every industry. If consumers are multiplying and also buying more of your product or service, you can face the future with considerably more comfort than if the market were shrinking. An expanding market keeps the [company] from having to think very hard or imaginatively."

Well we're not in an expanding market anymore – so retailers who continue to have expanding profits will probably be those who are thinking imaginatively and putting the customer at the heart of their organisation.

Sunday, 9 November 2008

A Tale of Two Budget Hotels

2008 it seems is an interesting year for budget hotels.

On the one hand there is Premier Inn which has just been ranked highest in the latest JD Power survey for the Economy Segment 2008, with an "among the best" score in Overall Satisfaction, Reservation, Check-in/Out and Cost. Not only did it out rank the other economy hotels, but it also out-ranked many mid-scale segment hotels including Express by Holiday Inn, Best Western, IBIS and Park Inn.

On the other hand its competitor Travelodge has announcements of a different kind – the fact that it is cutting prices, selling some rooms next year for just £9 and dropping prices by around 10% on average. In fact it sounds like it's trying to change the sector to one more akin to budget airlines.

Premier Inn has so far not been drawn into this price war with no announcement about price cuts. In fact I was at a conference early this year when Gerard Tempest, Marketing Director for Whitbread Hotels & Restaurants was there speaking about loyalty for Premier Inn. He was discussing why Premiere Inn had made a conscious decision not to create a traditional loyalty programme providing points for nights stayed. Instead he discussed that their customer retention programme is based on delighting the customer. By having a consistent level of quality across their rooms, customers know what to expect in every hotel they stop in and so they are not unpleasantly surprised. This is then backed up by great customer service and a money-back guarantee stating that if you don't get a good nights sleep then you'll get your money back.

Through personal experience I have seen first hand how this focus on the customer works. A female colleague of mine noted that if you're a lone female guest then they don't give out your room number verbally so that it can't be over-heard - it's only a little thing but it shows they are thinking all the time about their guests.

Once you've stopped at a Premier Inn they then send you a Guest Satisfaction Survey – on which they have a very high response rate despite its length.

I had reason to try out their customer service a few weeks back when I accidently managed to mis-book a room online – getting the date wrong and so not turning up for the date I'd booked and then having to re-book on the day I needed it when I realised the mistake. By the time I got to the hotel the manager had already made the decision to refund my mistaken no-show. No arguments despite it essentially being my fault – now with service like that who wouldn't recommend them.

It would seem there are two strategies going on here. Travelodge it would appear is hoping to attract customers on a budget – bringing in new customers who may be shifting from a family holiday to a weekend break or business customers downgrading from mid-scale hotels to budget. It would also appear to be working with a 45% increase in bookings for October compared to the same period last year.

Premiere Inn on the other hand is working hard to retain existing customers – providing quality and service for a competitive price. With their Good Night Guarantee they are also looking to reassure customers who may be looking to down-grade from the mid-scale hotels that they will not be compromising on the fundamentals. Premier Inn sales are 18% higher in the first 6 months of 2008/2009 fiscal year than last year so it would seem that their policy is also working.

What will be interesting is how these strategies fair in the longer term – with premium pricing and a focus on the retention of existing customers, Premier Inn may be in a better position as the economy starts to grow again – Travelodge on the other hand may find it hard to increase their prices once customers have become accustomed to them.

Friday, 7 November 2008

Boom and Bust Marketing

Despite assurances from Gordon Brown at the Labour conference in 2000 that we would not return to the days of boom and bust, here we are in 2008, tumbling out of a boom and right into a bust. There are probably many reasons for this that I'm not qualified to discuss, but it would appear one of the primary reasons is an overheated and overvalued housing market. A market which created a great amount of perceived wealth and was encouraged and hailed as an indicator of our successful economy.

There was no real recognition that it was essentially a bubble waiting to burst – like the internet bubble before it and the tulip market bubble way back in the 17th century. Opinions differ as to why they form – whether it's simply greed or herd mentality – but it's generally only in retrospect when the bubble has burst that we see it for what it was and people begin to recognise that demand goes down as well as up.

What's interesting is that while we see this at a macro level, its happening all the time in different markets. Through my work with various FMCG brands I was amazed to see that the number one measure of success for many brand marketers was penetration – the number of people who have the brand's product in their basket in a given period of time.

The movement of this measure in a positive direction has become critical to many and being the number 1 or 2 brand in penetration terms is the place most brand marketers want to be. Changing this measure can be relatively simple though – in the short term – by creating a sales promotion which targets a large number of people with a very compelling offer.

The problem is, the gain from this sales promotion is not real – many of the brand's existing customers have simply bought forward to take advantage of the offer and many others have only purchased it because of the offer. Sure it has introduced new people to the brand – some of whom will stay – but no where near the amount of people who were contained in the spike in penetration.

Now there is nothing wrong with this approach – generating awareness and creating trial is a key activity for any brand - the problem is believing that the spike in penetration is reflective of the actual customer base.

Where brands believe this, thus starts a never ending cycle of sales promotion – creating new promotions to follow quickly on the heels of the previous promotion so as to prop-up the penetration figure over time. This can be costly on two accounts – firstly the brand is literally buying this extra penetration with free product and secondly they are conditioning their existing customers to only purchase through offers.

As times get tough and budgets are reviewed, this constant over spend on sales promotion is going to result in some brands coming back down to earth with a bang as the penetration bubble bursts.

Ideally brands should be looking at how to maintain market share and grow this in a controlled and responsible way – not focusing on price reductions and volume lifts but focusing on brand values and recognising and rewarding existing customers. Sales promotion will always have its place to drive awareness and trial, but acquisition without a focus on retention is a slippery slope to boom and bust.

As Gordon Brown said a little prematurely back then - no return to short-termism – no return to boom and bust.

Tuesday, 4 November 2008

The best things in life are free

One of the questions I’m asked quite often is how do we measure engagement within a loyalty programme - how do we know people are "getting it".

There are obviously a number of indicators to a loyalty programme working well including enrolment levels and tracked spend, but the number one measure of engagement is normally expressed in terms of redemption. Where 30-60% of customers are redeeming within a programme we’d class this as working well - over 70% probably too well and under 30% not well enough.

It’s a simple measure but it makes sense.

For someone to go to the effort of carrying a card and swiping it they must feel there is an achievable reward in the future. Driving loyal behaviour is a balance between having rewards the customer wants (the goal) and how achievable the rewards appear (reward divisibility). The level of redemption within a programme validates the number of people seeing this benefit and working towards achieving it - low levels of redemption suggest low levels of engagement.

This measure was called into question though earlier this week when I was reviewing a US retail loyalty programme. This programme had 80% basket penetration (% of visits with loyalty card used) yet only 5% redemption. Given the low level of redemption you’d expect low engagement and hence low levels of card carrying/usage. Customer research carried out for the programme also showed that customers were not aware of the benefits of the programme even though they had apparently worked towards them and received them. So here was a programme which customers didn’t really know about, didn’t redeem for and yet had high levels of usage.

Digging into how the programme worked revealed some interesting findings however. The employees of the retailer were trained to ask for the card on every transaction and where the card wasn’t being carried could use the customer’s phone number to link the transaction.

I know from my own experience at retailers like Wickes in the UK that when they suddenly ask for your post code at point of purchase you simply provide it - sometimes a little uneasy as to why they asked - but they asked so you provide it. I've also seen the same effect on a programme we ran where we simply asked a customer if we could put that purchase on a specific card type and managed to significantly move the needle on spend towards that card - for free - just by asking.

It would appear the same thing is happening here - customers have high levels of inertia and are taking part in the programme just because they are asked to on every visit. Although this makes the programme successful in terms of the amount of spend tracked through it and the data this affords the retailer, it could be significantly more successful if customers actually valued the programme, saw achievable rewards within it and changed behaviour to reach them.

That said, it is a great example of what can be achieved by engaging employees in a programme - something that is key to all successful loyalty schemes - and best of all its free.

Saturday, 1 November 2008

Customers Pay the Price for Quality and Service

I had some push back on my article "The customer is always right (unless they’re wrong)" where I commented that I felt price ceased to be a major reason for churn for existing customers. It was pointed out to me that although this may be true to a point, brands still needed to reassure their customers that they were receiving a fair price, even if they wouldn’t really know either way. This is evidenced by brands such as Tesco continuing to provide messages on "value" and comparisons to other retailers.

I was then reading an article on Retail Week by Mark Price, MD of Waitrose with the title "Cash-strapped shoppers might be chasing after value, but they can still appreciate quality". He raised the question that in these challenging times and the sudden need to realign around price, how a brand such as Waitrose, with a tradition of quality for over 100 years can reassure about price (and real value) without losing their quality credentials.

He then went on to outline how Waitrose is meeting this challenge by actually investing in their products rather than cutting back and cutting costs. They have invested in the quality of their own brand lines meaning these now stand up well against other own-brand and branded products. This has then been backed up with advertising saying that if you don't enjoy your Waitrose product they will refund and replace it.

To fight the challenge that consumers will naturally think that a "quality" product is automatically going to be more expensive they have introduced subtle ticketing in-store to communicate that they are the same price.

Most interestingly they are also investing in their staff - an area many businesses actually cut back on in hard times, reducing training and staff numbers. By investing in customer service training they are now seeing a 10 percentage point gap on mystery shopping scores between themselves and their closest competitor.

Mark finished of his article stating that they have improved their quality, value and price perceptions over recent months and are holding on to their customers. Waitrose it would seem are doing a good job of retaining their customers by building on the things that customers value – good quality and service – whilst reminding customers that they are still competitive on price.

I still maintain that price is not the number 1 reason for churn despite what customer research may say - but it would seem all brands in these more trying times need to consistently reassure customers that the price paid is fair for the quality and service delivered.

Thursday, 30 October 2008

Why do (some) loyalty marketers throw out the rule book?

Traditional promotional marketing tends to use a combination of activities which includes "push" based techniques - whereby trade based promotions are utilised to encourage wholesalers and retailers to stock a product - as well as “pull” based techniques which use more above the line methods and consumer promotions to create demand.

When done right the combination of "pull" and "push" techniques can work very well to ensure the product is in the retailer for the consumer and that consumers are buying the product from the retailer.

Given that most marketers understand this it raises the question as to why so many loyalty programmes seem to throw the rules out of the window. Whether it's channel loyalty programmes that are used to reward intermediaries, employee incentive programmes rewarding sales, or consumer loyalty programmes rewarding purchasers - very rarely are these combined to maximise the effect.

I was quite pleased then when attending Loyalty World this year to actually see someone who is actively doing this. The new programme for GHD (blessed) is a very clever loyalty programme which essentially engages their sales channel (salons) in the programme (the “push”) along with engaging consumers through their online activities (the “pull”). Although the roll out is only small at the moment, the programme has a number of design features which make it very interesting.

GHD want customers to purchase their products which are stocked by salons and the salons would like repeat custom. By creating a programme which works for and incentivises both, it helps to ensure the programme is well promoted by the salon and the consumer is keen to take part. Key design characteristics such as surprise and delight mailings - which the consumer is notified about but has to pickup in-store - help to ensure that this symbiotic relationship continues to thrive.

However the real success is that - because it's one programme - the push and the pull work together, so the salon feels like consumers are genuinely interested and the consumer feels like the retailer is genuinely engaged – moving the conversation from selling to that holy grail of marketing... personal recommendation

Wednesday, 29 October 2008

Customer loyalty or inertia - two sides of the same coin?

In reviewing some recent credit card customer qualitative research it was suggested that the customers didn’t have emotional loyalty with their card and that instead any loyalty they did have was more akin to inertia than actual loyalty. Their hypothesis was that all credit cards offer the same “service” – i.e. payments, and so a customer remains with a credit card whilst the benefits they receive outweigh the effort it takes to change issuer.

As one of my main areas of expertise is card based loyalty this struck me as quite an interesting thought. Is all the work we do to retain customers and engender loyalty simply a way of tipping the balance of inertia so its not worth the customer making the effort to change rather than loyalty being a means of building deeper engagement.

I agree that building any type of engagement with a product such as a credit card is hard. At a basic level all credit cards do the same job. There may be subtle differences with some cards such as Amex and the perception people have with acceptance, but basically gone are the days where the card network or even the issuer mattered that much.

However, if loyalty efforts within a credit card product were really just a way of entangling the customer a little more to prevent them from churning, that doesn’t explain the real benefit that we see in terms of card usage. There is no denying that when loyalty is put onto a credit card product we see increased card usage. A Visa payment study in 2006 showed that share of wallet for credit cards increased from just 8% for non-reward cards to 36% for reward card holders. Research from First Annapolis showed a similar trend for debit card reward programmes with activation rates 15% higher and spend per card as much as 40% higher.

This is not to suggest that reward programmes create deep engagement with a card product or in fact that people actually have real engagement with their credit card. What they can do however is create engagement with the reward programme itself – causing customers to want to consolidate their spend to maximise their reward opportunities and the rules for doing this are the same whether we’re creating loyalty for credit cards or loyalty to a carbonated soft drink.

Monday, 27 October 2008

The customer is always right (unless they're wrong)

I was reading a loyalty white paper today from Accenture on retail loyalty. It was discussing a survey they carried out asking customers what they wanted from a loyalty programme. As expected (and as shown in many surveys before it), customers said that price was one of the top reasons for continued loyalty. The article continued by pointing out that one of the top reasons for loyal customers defecting to another retailer was also price.

Does this suggest that customers are only loyal to the retailer providing the lowest prices? Well evidently not or else there would be just one retailer in each sector with some very long queues.
When was the last time you actually checked the price of things though?

Do you know how much a pint of milk costs - and if you do are you aware of how much it costs at the retailer next door?
In practice customers say they care about "price" - but most are not actually aware of the price they are paying. This was born out last week when I attended some research focus groups for a credit card loyalty programme - customers were asked what elements of a credit card they considered important and almost all customers agreed that APR was top of the list. When asked though what the current APR was on their existing cards, no one could provide an answer.

Price it seems is more important in initial customer acquisition when customers will research the best options available, but for existing customers the price ceases to be something they really use to evaluate their relationship with the retailer. Many financial companies have actually taken advantage of this fact which is why there are financial products where the interest rate declines overtime - with the companies hoping that customers will not actively re-evaluate their relationship.

Rather than price, customers defect from retailers because of other factors including service, relevance and benefits.

If a store you frequent changes its range, ceases to keep up with your requirements or tastes or removes benefits it provided (or doesn't offer benefits competitors are promoting) then this will create moments of reflection when you'll begin to consider other retailer options. If this consideration turns into trial then price may well come back into the equation - more likely however a customer will actually defect if the service and experience they receive from the new retailer is considered better than they've been used to.

I'd argue that retaining customers is not about providing discounts, promotions or everyday low prices - its about how you treat customers and the service you provide. Feel free to ask your own customers - but I suspect they'll be wrong.