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)