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.