Loyalty Management - Powered By Loyalty 360 - September 2009

LOYALTY Volume 1 Number 4

September 2009

MANAGEMENT Powered by Loyalty 360

The Balance of Powers in Payment Cards and Loyalty

Technology Can Do That, But Can We? What works with today’s loyalty technology Optimizing Human Capital Assets in Tough Times

Influencing the Channel Building Trust to Drive Loyal Relationships

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This Month in LOYALTY MANAGEMENT

SEPTEMBER 2009

VOLUME 1

DEPARTMENTS 0,11 Contributors 1 6 What’s on Loyalty360.org 8 Letter from the Editor

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Should program structure strategy include a co-branded credit card or simply a tender neutral only approach? The Balance of Powers in Payment Cards and Loyalty, pg28

LOYALTY FORUM 7 Your Voice “Many clients are changing their internal focus from Loyalty Program Management to flawless & effective Program Execution. What is your team doing to ensure ongoing flawless execution for your clients?” 12 Q&A: Ask the Experts “I’ve been hearing a lot of buzz about incorporating SMS into loyalty program marketing. What should I expect from an implementation perspective?” 14 Behind the Brand/People Interview with Sandra L. Gudat, President and CEO, Customer Communications Group 16 Books Loyalty Reads

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As President and CEO of Customer Communications Group (CCG), Sandra Gudat has helped define the field of CRM.

FEATURES 18 Leveraging Loyalty, One Actionable Idea at a Time Kory Schramm – ITAGroup 20 Optimizing Human Capital Assets in Tough Times Performance Improvement Council 24 Influencing the Channel—Building Trust to Drive Loyal Relationships Rick Blabolil – Marketing Innovators 28 The Balance of Powers in Payment Cards and Loyalty Sarah Phelps – First Annapolis Consulting

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Optimizing Human Capital Assets in Tough Times—a whitepaper developed by the Performance Improvement Council, a strategic industry group within the Incentive Marketing Association



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This Month in LOYALTY MANAGEMENT

SEPTEMBER 2009

VOLUME 1

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TECHNOLOGY, TRENDS & REWARDS 30 Technology Can Do That, But Can We? What works with today’s loyalty technology Jake Sterling – Maritz 34 Automating Marketing— Self-Service Technology Awaits Those Smart Enough to Experiment Scott Couvillon – Dukky

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36 Product Level Rewards Roger L. Brooks – ValueCentric Marketing Group

Technology Can Do That, But Can We? Loyalty Management Editorial & Production Team: Erin Raese – Editor in Chief Caitlin Schar – Editorial Director Victor Wilcox, Graphics Plus Inc. – Layout & Design Graphics Plus Inc. – Print Production Loyalty 360 team: Mark Johnson – President and CEO Laura Rusche – Director, Marketing Operations Amanda Chasteen – Associate Manager, Marketing Operations Thomas Scott – Sales Associate Jennifer Wickline – Marketing & Events Coordinator Julie Hellebusch – Controller Kathleen Ninneman – Graphic Designer Contacts: Article Submissions: Erin Raese (630) 235-8251 Advertising: Caitlin Schar (630) 850-7867 To subscribe to Loyalty Management visit Loyalty360.org.

We Want Your Feedback As a “voice of the customer” focused publication we want to hear from you—our customers. What would you like to see included in these pages? Share your thoughts on articles and ideas for content. This is your platform. We would like to hear from you. Write us at: [email protected]



38 Turn Marketing $$$ Into Loyalty Randy Fox & Jeffrey Norby – Jet Litho

40 The role of the contact

center customer service representative is a key element in the success of any loyalty program. The Quality of Loyalty, pg40

BEST BUSINESS PRACTICES 40 The Quality of Loyalty Jim Boring – Global Response 42 Improving Customer Loyalty Starts With Setting Your Priorities Ivan Frank – ePrize, LLC 44 Creating a Loyal Relationship with Your Channel Paul Hebert – i2i and Heather K. Margolis 46 Creating Profitable Customer Loyalty Timothy Keiningham – Ipsos Loyalty & Lerzan Aksoy – Fordham University 48 Engaging Customers for Long-Term Success— Emotion Throughout the Customer Life Cycle Scott Bauer – Hallmark Business Expressions 50 Loyalty Program Profile: Chase Ultimate Rewards Loyalty Management |

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LOYALTY 360 ON THE WEB

What’s on Loyalty360.org LOYALT Y 360.org

C AREER CENTER

Check Out The New Loyalty360.org

Loyalty 360 Career Center

n Enhanced User Experience n New features, more news n ‘Loyalty Today’—get the latest loyalty and engagement news daily n Multimedia—Come view webinars, Loyalty 360, and conference presentations.

Do you have an opening to fill in the loyalty industry? Or maybe you are looking for a fresh challenge. Loyalty 360 is connecting top talent in the loyalty, incentive/reward, and engagement marketplace like never before!

n Member Search—Now, connect with members like never before!

Looking for a job? Submit your resume to our resume bank.Looking to hire? Post job opportunities on our site.

n More interactivity—You can now comment on all content on Loyalty360.org

VISIT www.Loyalty360.org/career-center.shtml

S tate of the Industry A snapshot from “State of the Industry”, July 2009:

Thou Shalt Monetize? by Michael F. Hemsey – President, Kobie Marketing, Inc. “…The most recent and relevant example of bottom-line impact and the changing landscape of monetization, and, of course, the subsequent lessons which will be learned, comes from one of the most established sponsors of loyalty in our industry: the banks and the credit card. The Credit Card Bill of Rights was signed into law in May 2009, ending unfair and arbitrary interest rate increases; stopping excessive “Over the Limit” fees; ending unfair penalties for cardholders who pay on time; requiring fair allocation of consumer payments to balances; and protecting card holders from due date gimmicks. In addition to this Bill of Rights, there are amendments referred to as “UDAP” and “Reg Z” which are pending approval with different timelines. And the buzz on the street? “Banks are losing 50% of their fee income! Loyalty programs are in trouble!” Not so. Let’s take a look at how the banks and issuers can,

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and invariably will, respond to the legislation, starting with interest rates. Good ol’ fashioned A.P.R. Interest Rates will increase across the board: whether they are Introductory, or based on Purchase, Delinquency, Cash Advance, Employee Promotional, or Balance Transfer – nearly ALL of the APR changes banks are putting into affect will increase their rates prior to February 2010. What’s more, banks will have other means, besides jacking the APR, to manage the new regulations so that their credit card loyalty programs can remain untouched. Those banks that were healthier prior to the economic tsunami will not have to add or raise loyalty program fees, and they will not have to change their rewards grids. They can continue, as a predictable result, to increase acquisitions, transactions and volume… …In aggregate, with APR changes and fees going up on a number of daily and typical banking occurrences, banks (especially the healthier ones) are in a position to make more revenue on the new legislative mandates in comparison to what they’re giving up with compliance to the more consumer friendly Bill of Rights. Ironic? Beautiful? Maybe not as onerous as it seems? Now what?” …. Read the complete article and join the discussion on Loyalty360.org!

LOYALTY FORUM: Your Voice

Discussion from the Loyalty 360 Social Network (Find us on: 360.org, Linked In, Twitter & Facebook)...

“Many clients are changing their internal focus from Loyalty Program Management to flawless & effective Program Execution. What is your team doing to ensure ongoing flawless execution for your clients?”

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n my opinion, general error of many loyalty programs is development of loyalty program for Loyalty Program itself. Rising of loyalty is a complex process which should involve all aspects of customer service. It’s possible to make a customer more loyal, providing him flawless service and perfect goods by reasonable price without any CRM system. But it’s impossible to make a customer loyal just by CRM system separately of general business. So, shifting the accents from the Loyalty Program management to common customer service is often just a reasonable optimization. Actually, my opinion is: loyalty program is a powerful tool but just a tool. Without concrete goals it’s just a decoration. In our company we are working closely with our operation team to support qualified customer service in every of 130 stores where Loyalty program is working now.

Elena Naumchik Head of Loyalty Department at X5 Retail Group N.V.

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hile I would argue that any company that wasn’t focusing on flawless execution was destined for disaster, the conversation here has moved to loyalty programs vs. the service-oriented customer experience. 

This isn’t either/or. Effective customer retention and loyalty comes from executing well on all aspects of the customer experience - loyalty programs, customer support, online/offline touchpoints, community, communications, etc. But once you are pretty good all of them, you can pick and choose where to excel. Part of the reason loyalty programs can be so powerful is they can touch every aspect of the customer experience through differentiated service, recognition, and rewards. Get to “acceptable” across the board, then get to “great” where it fits with your organization.

Michael Greenberg COO at Loyalty Lab



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he sequence of successful implementation of loyalty program would start with first making the employees and customer touch point experience extremely smooth and customer friendly - the cost of creating a “vow” may be too steep - most customers do not even expect it. Only if the customer experience is consistent and flawless will the implementation of a loyalty program can yield incremental and exponential results.

Ashok Manachanallur COO at Direxions Marketing Solutions

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ave clear objectives for each segment of clients and be able to evaluate the success in terms of increase of value of the client, increase of frequency or amount purchase, or retention rate. We have to work with our clients to do this in a consistent way.

Paul Garnier CEO at CIS

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find that most so-called Loyalty Programs are not that at all, but instead concentrate on providing some reward or incentive to continue purchasing. In my mind, such programs do not create loyalty. Loyalty is the result of the customers’ acceptance of the inherent value of the brand in their life-value structure. This is almost always the result of purposeful management of the customer experience at strategic “moments of truth” - the Flawless execution of which [Loyalty Management] is potentially speaking. The most important distinction, I have found, however, is that Loyalty is an emotional human response and thereby cannot be reached by merely satisfying customer needs. Satisfied customers are not necessarily loyal. 



Rudy Vidal Principal at Vidal Consulting Group

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FROM THE EDITOR

The New Customer Everyone has a different opinion on the best way to market to these people to build strong engagement, create loyalty and earn commitment. What’s interesting, many of these strategies aren’t really all that different—to be successful you have to build trust. On page 24, Rick Babolil from Marketing Innovators shares how building trusting relationships with channel partners creates foundation for success.

Loyalty 360 has announced the first annual Engagement Expo to be held in Chicago at the Sheraton Chicago Hotel & Towers November 18 & 19 2010 Loyalty Expo to be held on June 6 – 8 in Orlando, FL at the Omni Champions Gate Loyalty 360 on Twitter –#LE360

LOYALTY 4 Volume 1 Number

September 2009

In trends and technology we explore new automation and a new loyalty technology that is working today to enhance a customers’ purchase experience. The topics in this issue are a precursor to what you’ll learn at this falls’ Engagement Expo—November 18-19, Sheraton Hotel and Towers, Chicago, IL. We encourage your feedback; it will help us further enhance your conference experience. Enjoy the read!

MANAGEMENT

The Balance of Powers in Payment Cards and Loyalty

Technology Can Do That, But Can We?

Powered by Loyalty

360

influenCingl tHe CHanne

Optimizing Human Capital assets in tOugH times

Loyalty Management is now a bi-monthly publication. Expect the next issue in late October!

Loyalty Management |

Sincerely,

Building Trustl to Drive Loya Relationships

What works with today’s loyalty technology

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Tying into that, last month I was introduced to Linda Kaplan Thaler’s book, The Power of Nice. What makes this interesting, all of us would say—“Of course I’m nice”. However, in reading this book, we realize how often we lose sight of “nice” and how important it is to make “nice” a priority in building that trusting relationship. The book is highlighted in Loyalty Reads. Hallmark reinforces the importance of this message on page 48.

Loyalty360.org

Erin Raese Editor-in-Chief Loyalty Management [email protected]



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LOYALTY

Contributors

MANAGEMENT

Scott Bauer

Scott Bauer

Ivan Frank

President—Hallmark Business Expressions a Subsidiary of Hallmark Cards,Inc. As President of Hallmark Business Expressions, Scott leads a marketing, creative, sales and operational organization that enables an emotionally driven product within Hallmark’s business-to-business branded enterprise.

As Chief Marketing Officer of ePrize, Ivan leads ePrize’s loyalty business, with 15+ years of advertising, marketing and consulting experience, including experience prior to ePrize at Silicon Graphics, MetLife and Leo Burnett.

Ivan Frank

Paul Hebert Paul Hebert is the Managing Director of I2I- an influence consultancy that helps companies align the behavior of their employees, channel partners and consumers with the goals and objectives of the company.

Richard A. Blabolil, CPIM

Richard A. Blabolil, CPIM

Rick Blabolil is president of Marketing Innovators International, Inc. (MI). Providing thought leadership to the industry, Rick is past president of the Incentive Marketing Association and Forum for PPMM, and Vice President of the Incentive Research Foundation.

Paul Hebert

Timothy Keiningham & Lerzan Aksoy Timothy Keiningham is Global Chief Strategy Officer at Ipsos Loyalty. Lerzan Aksoy is Associate Professor of marketing at Fordham University. Tim and Lerzan are authors of the book “Why Loyalty Matters.”

Jim Boring

Jim Boring

Jim Boring is a Marketing Communications Consultant with extensive experience with customer contact organizations. His client engagements include Motorola, PSA, CDW, Baxter, Global Response and Blue Cross/Blue Shield.

Timothy Keiningham & Lerzan Aksoy

Roger L. Brooks

Roger L. Brooks

Roger brings more than 16 years of customer loyalty experience to ValueCentric Marketing Group as Vice President, Loyalty Marketing. In his role he implements new processes for clients needing to build or enhance customer loyalty programs.

Heather K. Margolis

Scott Couvillon

Scott Couvillon

Scott is Chief Marketing Officer of Dukky. His background includes national branding and the use of connection planning to create relationships between brands and individuals in communities both online and offline.

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Heather K. Margolis is an independent consultant, providing channel strategy and social media consulting to vendors and channel partners. Heather has led channel programs, lead generation, and social media strategy for companies like EMC, EqualLogic, Dell, Kadient and Corporate Event Promotions, which she founded in 2003.

Jeff Norby

Jeff Norby

President of JET—an award-winning, custom communications provider— Jeff fosters loyalty and marketing strategies utilizing innovative graphic solutions that enhance client’s brands and grow revenue.

Performance Improvement Council (PIC)

Randy Fox JET’s Director of Business Development, Randy helps clients build profitable programs that engage and retain consumers. His expertise in sales, marketing, and operational management turns client’s brand vision into reality.

Heather K. Margolis

Performance Improvement Council (PIC)

The Performance Improvement Council, a professional organization of performance marketing executives collectively focused on helping companies optimize their investment in human capital through proven and innovative reward and recognition solutions.

LOYALTY

Contributors

MANAGEMENT

Sarah Phelps

Sarah Phelps

Jake Sterling

Principal at First Annapolis Consulting. Sarah specializes in the card issuing practice area and leads the loyalty support strategic initiative for the firm. Her areas of expertise include strategic planning, outsourcing, credit card operations management, negotiations and card issuing partnerships.

Jake is division vice president of payment technologies for Maritz Real-Time Rewards™, a POS–delivered solution that enables retailers and credit card companies to improve the effectiveness of their loyalty and promotional programs instantly at the point of sale.

Jake Sterling

Kory Schramm

Kory Schramm

Kory is Corporate Communications Manager at ITAGroup, a company that designs and operates businessto-business loyalty initiatives, sales incentives, product launches, employee recognition and reward programs, and business meetings and events.

If you would like to contribute to a future issue of Loyalty Management please contact Erin Raese at (630) 235-8251 or [email protected]. Deadline for the January 2010 issue is October 12th!

I’m beIng pulled In a mIllIon dIfferent dIrectIons. except yours.

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point of sale

connect wIth more people In more ways. In a world where consumers are bombarded by marketing impressions, Acxiom enables marketers to reach the right people with the right message across all key marketing channels: email, mobile, website, display ads, as well as offline.

GLOBAL INTERACTIVE MARKETING SERVICES

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www.acxiom.com • 888-3ACXIOM

Q&A LOYALTY FORUM: Q&A

Ask the Experts

Q: “I’ve been hearing a lot of buzz

about incorporating SMS into loyalty program marketing. What should I expect from an implementation perspective? What hurdles are there, what’s the typical timing? There are a lot of different companies in the marketplace offering services, some tips on what to look for would be very helpful?”

A:

What hurdles are there, what’s the typical timing?

What should I expect from an implementation perspective? • You will need to lease a short code from the CSCA http://www. usshortcodes.com/and have your mobile partner certify and provision the short code across the carriers that you want to make your program available • I ts always best to implement your campaigns over as many wireless carriers as possible in order to reach the maximum number of mobile subscribers • If your campaign is not available on all carriers, be sure to list the participating carriers in the promotional material • SMS Text messages are 160 characters. Messages longer than 160 characters will either be interrupted at 160 characters or split into two messages • Do not purchase third party mobile phone number lists. You must obtain subscriber numbers through an opt-in. If you send messages to subscribers who have not opted in to your campaign, your messages will be considered SPAM • Consult the Mobile Marketing Association’s Guide to Consumer Best Practices when implementing your program. Your mobile marketing partner should be well versed in the policies and recommendations of the guide but you should be familiar with them as well • Provide instructions for getting information, opting-out, potential text messaging fees and anticipated number of messages in the initial text to opt-in participant

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• Setting up a vanity code takes 6-10 weeks • The carriers will require that you have e-mail addresses, a web page and a toll-free number in place to answer potential consumer inquiries before your short code will be approved • I f you need to launch a campaign quickly, borrow a short code from your mobile marketing provider until your vanity code is approved

What should I look for in a partner? • There are many companies providing different mobile technologies, look for a partner that has financial stability • With mobile, experience is key, especially in your type of business • Look for partners that have capabilities with multiple platforms, (SMS, MMS, Mobile Web, Handset Apps) • Look for a partner that understands the larger marketing picture and can integrate your mobile strategy with other marketing programs • Partners should have a set of APIs that enable you to easily connect your existing loyalty program infrastructure —Mike Keene, • Test and learn before leaping with partners that offer “bleeding edge” Acxiom mobile technology product leader

A:

With over 75 billion text messages sent every month in the U.S. alone, mobile marketing has certainly garnered more attention over the past several years and has evolved from being simply a novelty to a critical tool in the marketer’s tool box and allows you to fill the gaps between traditional and online communications. Enabling an effective SMS campaign requires several basic considerations in order to maximize the effectiveness of your efforts:

Partners and platforms As with e-mail, SMS is becoming more and more commoditized in the marketplace and it follows that there are many providers who can help enable your campaign. At the base level, you want to select a provider who can manage the short code process and has a proven, reliable and flexible platform. There are a number of self-serve platforms in the marketplace which allow you to set up and manage your own campaigns, eliminating layers of communication and latency to quickly get your communications into market. Also, make sure your provider is up-to-date on the current MMA Code of Conduct, Best Practices as well as the CANSPAM laws and FCC regulations.

In that time, you should be able to build the plan and the campaign and be ready to go by the time it’s fully provisioned. One of the big questions about short codes is whether or not to use a vanity code, one whose numbers resolve to a word. In this day and age of QWERTY devices, people are more challenged to translate words to numbers—so include the number itself in your promotional call-toaction. Better yet, secure a short code that is memorable not just for the name, but an easy to remember sequence of numbers.

—Jeff Anulewicz , Carlson Marketing

The keyword is used to identify the campaign and trigger a response back to the customer. If we take the simple call-toaction: “Text INFO to 123456”, the word “INFO” is your keyword and 123456 is your short code. As you construct your keyword campaigns it is important to keep them simple (typically one, short, easy-to-remember word).

Short codes and Keywords

Data acquisition plan

The next item of importance is procuring a short code, which is a 5-6 (in the U.S.) numeric address. Think of this as analogous to a Web domain—it’s the identifying address of your brand and is used to facilitate both inbound and outbound messaging. Short codes typically take about 10-12 weeks to provision across carriers, so this needs to be one of your first steps undertaken.

The most critical piece is data—collecting opt-ins and their mobile numbers. Mobile communications are fully permissionbased, so it’s essential that you to get permission from your customers in order to interact with them through their mobile device. Following the permission to communicate, it’s important to capture and track individual data in order to drive relevance.

A:

SMS text messaging is becoming a very important factor in loyalty program marketing. Because this a 100% permission based medium, those marketers who delay engaging in text based conversations risk losing out to competitors who establish a text relationship quickly – unlike email, customers are going to become very judicious over time about allowing other brands to communicate with them via text. This is a clear case of “first mover advantage.” Tips to look for—avoid at all costs working with text messaging companies that are willing to take a list of customers’ mobile numbers (or worse offering you such a list) to send text messages to. These folks —Victor Varney, are spammers and you run the risk of having customers and the carriers coming after you for engaging Chief Executive in “SPAM” texting. There are many very professional text messaging service providers who can help with Officer & President – campaigns or short lived programs. Their expertise as marketing agencies with mobile technology can be very effective running a short run program. But if your interests in a long term loyalty program, “persistent” Vayulogic™ service that allows you to engage in text conversations with your customers over a longer period, look for a text message service provider that can build both a data base that tracks all of your customer text interactions and can plug into your back end loyalty program applications. Even more important is that the text message service provider can provide you with assurances that your customer data and only you can send text messages to your customers. There are some text messaging service providers that will claim your “opt in” customers as mobile numbers that they will sell or share to other brands. Not something you or your “loyal” customers would be happy about.

Q:

Do you have a question for our panel of experts? Write us at: [email protected]



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LOYALTY FORUM: Behind the Brand/People

Sandra L. Gudat President and CEO Customer Communications Group As President and CEO of Customer Communications Group (CCG), Sandra has helped define the field of CRM, recognizing the importance of growing relationships with existing customers to increase customer loyalty and retention. Sandra is the Chairman of the Direct Marketing Association’s Agency Council and also serves as a final round judge for the DMA’s International Echo Awards.

You’ve been traveling a lot, how do you keep energized?

Which book(s) are you currently recommending?

To the greatest extent possible, I try to maintain my sleep, eat and exercise routine on the road. At the same time, I love it when I have a little bit of down time that allows me to try out something in the area—like riding the rollercoaster at the Mall of America in Minneapolis, going to see Falling Water near Pittsburgh or taking a run in Golden Gate Park in San Francisco.

1491.* It’s an absolutely fascinating book about life in the Americas prior to Columbus. It’s very well researched and presents the most current thinking of anthropologists—lots of surprises. For instance, some scientists

“My mindset has completely changed: I know now that I can accomplish things that appear to be impossible, and this has helped me greatly in every aspect of my life — business and personal.” Any traveling tips? I put each clothing item in its own dry cleaning bag— that simple trick dramatically reduces wrinkles. Also, if I am going to be staying more than a day in the same place, I go to a grocery store and stock up on healthful snacks for my hotel room like cherry tomatoes or string cheese.

believe vast portions of the Amazon rain forest show evidence that they were, in fact, cultivated gardens. Peoples living there believed it would be much easier to plant a fruit tree that can produce fruit to eat for the next 40 years rather than going to the trouble of planting fields of corn each year—smart, huh? Several times on an airplane I had to resist the urge to disturb the passenger next to me to tell them about some intriguing thing I had just read! *1491: New Revelations of the Americas Before Columbus, by Charles C. Mann. Vintage (October 10, 2006)

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What do you consider your greatest achievement? Personal transformation. Over 12 years ago, I lost 70 pounds and have kept it off. Since then, I’ve completed three marathons, a marathon and a half, and numerous half-marathons. I went from thinking of myself as an overweight couch potato to a quasi-athlete. My mindset has completely changed: I know now that I can accomplish things that appear to be impossible, and this has helped me greatly in every aspect of my life—business and personal.

“Have the humility to think about everything from your customer’s perspective, and the rest will fall into place.” If you could invite any 4 people (past or present) to dinner, who would they be and why? My great-grandparents—I never knew them, yet they are responsible for my being on this planet. The trouble would be narrowing it down from eight to four.

Which talent would you most like to have? I wish I could run fast! I so admire those folks that seem to glide, effortlessly along—I’m not one of them.

What’s your latest hobby? Texas Hold’em Poker. I love playing and studying the game. I’ve read Harrington on Hold ‘em Volumes I – III and Mike Caro’s Book of Tells, and I play in a Fireman’s Tournament every year.



What are the qualities you most admire in a person?

What have been your biggest challenges in 2009?

Integrity, empathy, perseverance and a wicked, dry sense of humor.

Helping our clients stay focused on building a loyal and profitable customer base when every particle of their being suggests they should put everything on hold when sales are down.

What can we expect from CCG in 2010? We will continue to break new ground in developing strategies and tactics that help our clients improve their relationships with their customers—my team and I are truly passionate about it (we’re real geeks about it, actually). Many times CCG is asked by clients to assist them in “filling out” their existing efforts—finding overlooked opportunities or tweaking existing ones with our unique view of best practices in the retail and financial services industries. We pride ourselves in being ahead of the curve in suggesting new ideas and technologies to clients, and this will definitely continue in 2010.

Word of advice for a novice loyalty marketer: Put yourself in your customer’s place. She doesn’t think she is participating in a “loyalty program”—that’s just not in her vernacular, so don’t call it that out in the field. From her perspective, she may be a member of your discount program or she’s carrying a “cardthingy” so she can get rewards and special perks. Have the humility to think about everything from your customer’s perspective, and the rest will fall into place. L

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LOYALTY FORUM: Books

Loyalty Reads Human Sigma: Managing the Employee-Customer Encounter by John H. Fleming and Jim Asplund October 2007 | Gallup Press

This book offers an innovative, research-based approach to one of the toughest challenges facing business today: how to drive success by effectively managing the moments where employees interact with customers. Based on research spanning 10 million employees and 10 million customers around the globe, the Human Sigma approach combines a proven method for assessing the health of the employee-customer encounter with a disciplined process for improving it. Human Sigma is based on five new rules to bring excellence to the way employees engage and interact with customers: RULE #1: E Pluribus Unum. Employee and customer experiences must be managed together—not as separate entities. RULE #2: Feelings Are Facts. Emotions drive and shape the employee-customer encounter. RULE #3: Think Globally, Measure and Act Locally. The employee-customer encounter must be measured and managed at the local level. RULE #4: There Is One Number You Need to Know. Employee and customer engagement interact to drive enhanced financial performance. And this interaction can be quantified and summarized with a single performance metric. RULE #5: If You Pray for Potatoes, You Better Grab a Hoe. This means that good intentions alone do not constitute a plan of action. Sustainable improvement in the employee-customer encounter requires disciplined local action coupled with a companywide commitment to changing how employees are recruited, positioned in roles, rewarded and recognized, and importantly, how they are managed. Essential reading for today’s global business leaders, Human Sigma shows how sales and service companies can flourish in the new global economy. It reveals a profoundly different method for managing human systems for growth. Blending strategic analysis with hands-on, practical steps and advice, Human Sigma will change how you view your work, your employees, and your customers forever.

Building Customer-Brand Relationships by Don E. Schultz, Beth E. Barnes, Hiedi F. Schultz, Marian Azzaro January 2009 | M.E. Sharpe

Almost every advertising, promotion, or marketing communications textbook is based on an inside-out approach, focusing on what the marketer wants to communicate to customers and prospects. This text takes a different view--that the marketer and the customer build the ongoing brand value together. Rather than the marketer trying to “sell,” the role of the marketer is to help customer buy. To do that, a customer view is vital and customer insight is essential. Customer insights allow the marketer to understand which audiences are important for a product, what delivery forms are appropriate, and what type of content is beneficial. Building Customer-Brand Relationships is themed around the four key elements marketing communicators use in developing programs--audiences, brands, delivery, and content--but provides an innovative approach to marketing communications in the “push-pull” marketplace that combines traditional outbound communications (advertising, sales promotion, direct marketing, and PR) with the inbound or “pull” media of Internet, mobile communications, social networks, and more. Its “customercentric” media planning approach covers media decision before dealing with creative development, and emphasizes measurement and accountability. The text’s concepts have been used successfully around the world, and can be adapted and adjusted to any type of product or service.

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The Power of Nice: How to Conquer the Business World With Kindness by Linda Kaplan Thaler & Robin Koval September 2006 | Broadway Business

Linda Kaplan Thaler and Robin Koval have moved to the top of the advertising industry by following a simple but powerful philosophy: it pays to be nice. Where so many companies encourage a dog eat dog mentality, the Kaplan Thaler Group has succeeded through chocolate and flowers. In The Power of Nice, through their own experiences and the stories of other people and businesses, they demonstrate why, contrary to conventional wisdom, nice people finish first. Turning the well-known adage of “Nice Guys Finish Last” on its ear, The Power of Nice shows that “nice” companies have lower employee turnover, lower recruitment costs, and higher productivity. Nice people live longer, are healthier, and make more money. In today’s interconnected world, companies and people with a reputation for cooperation and fair play forge the kind of relationships that lead to bigger and better opportunities, both in business and in life. Kaplan Thaler and Koval illustrate the surprising power of nice with an array of real-life examples from the business arena as well as from their personal lives. Most important, they present a plan of action covering everything from creating a positive impression to sweetening the pot to turning enemies into allies. Filled with inspiration and suggestions on how to supercharge your career and expand your reach in the workplace, The Power of Nice will transform how you live and work.

Hug Your Customers: The Proven Way to Personalize Sales and Achieve Astounding Results by Jack Mitchell

June 2003 | Hyperion

A master of customer service reveals his secrets for developing long-lasting business relationships and customer loyalty. “We shower our customers with attention. There’s no doubt in my mind that our philosophy can be applied to selling just about anything—from aircraft engines to beanbags.” —Jack Mitchell The only way to stay in business is with customers, and Jack Mitchell knows how to attract them, and how to keep them. He has a deceptively simple but winning relationship approach to customer service—that a relationship is at the heart of every transaction. Jack’s business philosophy is based on “hugs”—personal touches that impress and satisfy the customer, such as: • Remembering the name of your customer’s dog • Calling a customer to make sure he’s satisfied after a purchase • Having a “kids’ corner” with TV, books, and treats • Knowing your customers golf handicap • Introducing customers to business contacts • Letting your customer use your office to make a personal phone call

The only way to stay in business is with customers, and Jack Mitchell knows how to attract them, and how to keep them.

This is a proven theory—hugging works! Mitchells/Richards achieves among the highest margins in its industry, as well as amazing customer loyalty. Complete with anecdotes that exemplify outstanding customer service, Hug Your Customers shows how any business can adapt this hugging philosophy to attract great staff, lower marketing costs, and maintain higher gross margins and long-term revenues. At a time when customer service has become the difference between success and failure, Hug Your Customers shows how Jack’s one-ofa-kind philosophy brings the results you’re looking for. L



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FEATURES

Leveraging Loyalty, One Actionable Idea at a Time by Kory Schramm – ITAGroup

Today’s marketplace is saturated with products and services, enabling business customers to be armed with the power of choice. The handshake promises of yesteryear have given way to meandering loyalties built on price, convenience and personal service. Globalization, endless social media outlets and a company’s own internal pressures have created an environment where clients are exposed to more, expect more and are committed less. A monumental business challenge is before us: determining how to retain and enhance existing customer business while acquiring new, long-term contacts.

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eality is frightening. On one hand, customers who have had no complaints with regard to their long-standing product or service providers continue to explore alternative options. On the other hand, statistics continue to demonstrate that financial success remains heavily tied to a continued incremental investment in products and services and the customer satisfaction ratings that surround them. While the situation seems challenging at best, it creates the opportunity to learn more about your customers, and define your company’s value proposition. Establishing (and maintaining) customer loyalty is not an easy task, nor an impossible one. Through a well-designed performance improvement program, your key business customers can serve as your most important brand ambassadors. And, perhaps even more important, those critical customers can be motivated to enhance their investment in your business.

Survival Requires Lateral Thinking Success depends on new perspectives. It requires an answer to the question—what do your customers place value on? For example, while product differentiation remains an important element for establishing customer loyalty, it no longer packs the punch it once did. Products can be replicated in a matter of weeks, perhaps days, and marketed in ways that quickly counter any company basing their brand solely on the product they sell. Price, ease of transaction and service are certainly in the conversation of what customers value, but the ability to sell an idea is what will carry your business the farthest. It is common practice for

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“A one unit increase in customer satisfaction leads to a 28 percent unit improvement in financial performance.” —Forum for People Performance Management & Measurement at Northwestern University

businesses to offer solutions to a customer’s wants. Selling to needs, however, is the essence of a partnership and the seed of satisfaction, innovation and admiration. In order to repeatedly purchase your product or use your service, the customer must place a value upon your idea for meeting both their identified and underlying needs. The concept is the core component of any relationship. The more you address current and long-term needs, the more value your customers will place on your business. The loyalty they have with you will transition from being based on things that make them “feel good” about the relationship to a relationship they feel is “essential.” Your price, deliverables and service will keep them happy. Consistently bringing new ideas to the table and turning them into measurable actions will keep them by your side. I’ve seen successful performance improvement initiatives implemented for some of the world’s largest companies that were based on ideas that were not on the client’s radar. There was the restaurant who improved their bottom line, not by generating more patron traffic, but by reducing the number of kitchen accidents. I recall the retail distributor who leveraged their customer expo to drive sales before the event took place. Then there was the service provider who took advantage of their employee base to create an entirely new, and very successful, sales channel focused on generating sales referrals.

Implementing an Idea Consistently generating and sharing an idea with a customer is only half the battle. Successfully implementing the idea ultimately validates your worth. There are an endless number of consultants ready to toss ideas your customer’s way, but recent economic downturns have forced companies to place high value on the resulting action of those ideas. Action requires fore-thought and logical step-by-step execution. Sure, if you only learn “a little” about your customer’s business or discuss with them only what you are comfortable selling, you may

still create movement. But keep in mind; you could say the same thing about falling.

“Vision without action is a daydream. Action without vision is a nightmare.” —Japanese Proverb Meaningful action typically spurs unexpected results. So how do you implement an idea initiative? 1. Begin with a multi-faceted assessment, using data to build your initiative around the true needs of your customer. 2. Design your initiative so what you offer is aligned between your customer’s current performance and the needs that will drive performance to their desired levels (their objectives). 3. Recognize the value communications, events and training have in building and reinforcing an idea. 4. Ensure your initiative remains centered on the idea’s greatest asset—people (motivating and rewarding the types of behaviors that drive the long-term value of the idea). Demand for your business and loyalty to your business are intertwined. An effective business-to-business loyalty program not only keeps your customers, but spurs them to invest more in you. And the more you learn about them, the longer you keep them interested in your ideas. Your strategies extend beyond the definition of an incentive program. They become integrated, long-term ideas driven by listening, communicating, recognition and results. Sure, the marketplace is alive, filled with curiosity, competition and uncertainty. We should be comforted, however, in the fact that today’s business environment is also filled with endless business-tobusiness opportunity—both for you and your customers. L Loyalty Management |

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FEATURES

Optimizing Human Capital Assets in Tough Times Whitepaper by the Performance Improvement Council

Inside This Whitepaper n How to Sustain Corporate Culture through People n Driving Innovation through People n How to Acknowledge the Right Behaviors n Keeping the Best Performers

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t’s a different economy all together, isn’t it? Even with optimistic pronouncements that we have hit the bottom and a rebound is on the way, the last year-and-a-half has taught us that no one really knows what’s lurking around the corner. Opportunity? Chaos? Maybe a little bit of both. Today’s executives are wrestling with unparalleled uncertainty. Chances are that revenues are down, expenses are up. And margins? Well, forget about those. Expenses have become conspicuous, to say the least. Reduce this, trim that, every move raises an eyebrow. Name one company

For those in that predicament (and who isn’t?), the question worth asking is this: is cash all there is to work with? There is no debate that salary is the primary contract between employer and employee. And while it may be the primary reason we go to work each day, is it really what gets us up in the morning? Does it motivate us to do more? When we think of our salary, do we feel engaged, energized and passionate about our work? Does it make us think of our job as more than just a place we go or something we do? The Harvard Business Review doesn’t think so. In “Employee

“Smart executives know that, rather than any new technology or product offering, it is the ability and attitudes of their people that’s more likely to set a firm apart from its rivals.” that isn’t re-examining every business input, debating every cost or looking at every practice for new ways to trim costs while also hoping to exploit competitive advantage. In our hyper-challenging marketplace, companies must do more with less. No matter what the business model, value propositions have become increasingly knowledge-based and service driven. Smart executives know that, rather than any new technology or product offering, it is the ability and attitudes of their people that’s more likely to set a firm apart from its rivals. People spur innovation, cultivate customer loyalty, drive productivity and ignite economic growth.

How to Sustain Corporate Culture through People Considered as a cost of business, people costs can be the biggest drag on the bottom line. But, as a resource, they can also have the biggest positive impact. Members of the C-suite that get this (and most do) are demanding more for less from anyone who impacts this precious resource. Progressive business leaders are continuously searching for effective ways to optimize their human resource investments. While recruitment, hiring, training and benefits expenditures are all part of the aggregate people investment, compensation is the biggest and most visible component. But as companies tighten their belts, freezing, sometimes slashing expenditures, many managers feel their options are limited. With a shrinking compensation pool to draw from, many are left wondering: • How can the organization motivate employees to reach goals that are critical to the organization’s success? How can we retain our best people? • How do we develop leaders for tomorrow? • How do we share best practices and build on our cultural attributes? • How can we possibly do more for less?



Motivation: A Power New Model,” (August 2008) the authors argue that people are guided by four basic emotional needs and that traditional forms of compensation fall short of satisfying us. How so? Cash plans do a very good job of exploiting a person’s drive to acquire. Employees are motivated by their yearning for tangible things: homes, cars, etc. The material girl was right. We want STUFF. People are also motivated by our desire to defend what is ours. Yes, we want to keep our homes and what’s in the driveway (by making our mortgage payments and car loans). But we are also motivated to defend, or improve, our economic standing in society. We want to keep everything we have acquired over time: STUFF AND STATUS.

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ut the Harvard Business Review paper also contends we need to learn and bond with others to feel fulfilled. Human beings are motivated by a need to comprehend the world and to figure out where we belong in it. Don’t worry; we are not talking existential quests for the meaning of life here. But most of us do have a hunger to understand how things work, to demystify what surrounds us, to make a meaningful contribution along the way and find a way to fit in. It’s that last need, our desire to bond, that’s the most interesting. It’s a survival reflex really. Most animals travel in herds or packs because there is safety in belonging. People look for assurance socially and professionally. We seek connections with customers, managers and coworkers for the same reasons animals do it in the wild. People want to contribute to the success of a group and feel part of that success. It elevates our role in the group and makes us more secure. The reward in forming relationships is primal. In short, we need to feel needed. Most of us get frustrated, maybe a little uneasy, when we can’t. Good sales people and customer-facing employees in particular have these traits at higher levels than say an accountant. But all employees…all people…take pleasure in knowing

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Optimizing Human Capital Assets (continued) they are important parts of the groups they value. For companies looking to do more with less, this is where the strategic use of recognition comes in. The way to expand the impact of your compensation effort, without increasing the costs, may lie in expanding the use of recognition. Dr. James Oakley from Purdue University examined the impact of compensation and the role it plays in fostering and sustaining culture in his study “The Road to An Engaged Workforce”, (www.performanceforum.org). In Oakley’s opinion, all forms of compensation must be leveraged to drive the culture that’s right for your business. He feels non-cash as a compensation lever is actually under-utilized in all business models. Effective use of recognition, using non-cash rewards that are distinct from ongoing compensation, is a powerful tool for sustaining culture, driving innovation and rewarding the right behaviors across the corporation.

How to Acknowledge the Right Behaviors From a strategic perspective, recognizing innovation and creativity is just one of many behaviors that a company should be encouraging to promote business success. The tendency when times are tough is to have a laser-sharp focus on the bottom line. No one will argue with the desire to make a profit. However, business success doesn’t rest exclusively in generating positive numbers for Wall Street. Companies must also do everything they can to reinforce the right behaviors which reflect the brand and the desired reputation in the marketplace. A company which encourages short-term business results at the expense of the long-term value of the brand will find itself losing customers even as the economy starts its upturn. There are many behaviors that well-designed recognition programs can promote. For example, according to a 2007 Forum for People Performance Management and Measurement study of sales force effectiveness, the most common “wish” a customer seeks from salespeople is a high degree of consumer focus. Recognition can be a means to raise awareness on the part of salespeople, in conjunction with generating bottom-line sales. Initiatives may also target recognizing individuals who actively live the company’s stated values. And, some of the most progressive companies are finding ways to acknowledge how well employees contribute to their vision of corporate social responsibility (CSR). In fact, there is a growing interest by consumers to spend their hard-earned dollars with companies who exhibit concern for more than just their stock price. In just one of many surveys on the topic, Cambridge University noted that 60% of consumers admire companies they see as taking action to protect the environment and climate change (November, 2007). In a highly competitive economy, such admiration can have a significant impact on profit and growth.

“It’s the employees who are dealing directly with customers and wrestling with business challenges who are best equipped to generate the next game-changing concept.” Driving Innovation through People While cutting costs—and people—is a necessary response to the current economic challenges, many companies are activating a second critical strategy to stabilize and grow their organizations: they’re tapping into the innovation of their people. This is an especially important approach given the magnitude of change sweeping across the economic landscape. The “old ways” of running any business are rapidly eroding, requiring a need to respond to the marketplace with true creativity. Research and Development departments have traditionally been tapped to take the lead on new products, services and processes. But according to a CEO survey conducted by IBM, over 40% of new ideas are coming from employees across the enterprise. By comparison, just 14% were attributed to R & D (April 2005). It’s the employees who are dealing directly with customers and wrestling with business challenges who are best equipped to generate the next game-changing concept. Recognition can be an important catalyst in sparking these innovations. Everyone wants to know his/her contribution makes a difference, especially when the need is great. In a study done by a marketing company that explored the motivators for submitting business improvement ideas, the number one reason given was “the pride of seeing my idea implemented.” Employees are particularly motivated to demonstrate their talents when layoffs become a regular occurrence. Formal recognition becomes a way to tangibly recognize an individual’s unique value and his/her ability to solve even the most difficult problems. The payoff for promoting and recognizing employee creativity can be enormous. In the 2008 Employee Involvement Association Suggestion System Survey, the 33 participating companies reported a total savings of over $564 million, with an average savings of nearly $9,000 per implemented suggestion.

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Keeping the Best Performers As a complement to compensation strategies, non-cash reward and recognition practices promote the company’s culture, drive innovation and foster the behaviors which help a firm deliver on its brand promise. At the end of the day, building a culture of recognition is about keeping one’s best performers. There are many statistics on the efficacy of systematic and formal recognition as a tool for driving loyalty to the company and engagement in its mission, vision and values. In a national study on the link between recognition and performance, 77.6% of employees stated it was “very or extremely important [for employees] to be recognized by managers when they do good work.” And the bottom line benefits of an engaged workforce are being plotted more frequently. A 2005 Gallup survey found that organizations where employees have above average attitudes toward their work had 38% higher customer satisfaction scores, 22% higher productivity and 27% higher profits. Along with the ample evidence to support the contributions of engaged employees to the firm’s performance, there is also a growing understanding of the “soft” benefits of engaged employees. Dr. Bob Nelson, one of the leading gurus of recognition, has stated that a systematic process for recognizing employees builds morale and enhances performance. (“The CEO’s Role in Employee Motivation,” Dr. Bob Nelson, Leader to Leader)

Optimizing Human Capital Assets (continued) “People want to contribute to the success of a group and feel part of that success. It elevates our role in the group and makes us more secure... In short, we need to feel needed.”

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erhaps no appeal has been as stirring as a recent ad in the Wall Street Journal placed by John Stumpf, President and CEO of Wells Fargo. Entitled “The Value of Team Member Recognition,” Stumpf acknowledged the need to re-examine how much companies spend on recognition events for employees, then praised the value of recognition for top team members: “This recognition energizes them. It inspires them and their team members to want to create an even better experience for our customers… We believe our profits actually increase by rewarding and recognizing our best performers…Competition to be recognized inspires everyone to work harder and smarter… our product is service delivered by caring, energized, talented loyal team members.”

As Dr. Nelson says, “Creating energized employees and maximizing a firm’s investment in its talent demands a new set of leadership priorities.” It requires leaders with the vision to build a culture of recognition around the specific behaviors that a company requires if it is to thrive in bad and in good times. It may seem like second nature or common sense to have a process in place to say “thank you” when someone is doing the right thing. However, too few companies have formalized recognition practices in place to reinforce critical behaviors. Recognition may often be seen as yet another people-related expense. However, elevating recognition so that it becomes a way of life is an investment in the right people and in the right behaviors…and a strategic imperative that will help a firm to weather lean economic times and thrive in a good economy.

 Look for upcoming white papers addressing additional elements pertaining to Employee Lifetime Value (ELTV), based on the results of full study, which is available on the Forum’s website: www.performanceforum.org.

Loyalty Management spoke with Mike Ryan, SVP of Marketing for Madison Performance Group and President of the Performance Improvement Council, for additional insight on this topic. Which companies have you seen incorporate these theories?

Mike Ryan When you’re speaking with your clients, what do you recommend as best practices for each of the principles? Recognition strategies should revolve around the firm’s point of differentiation; that extra level of value the organization can provide. Companies that are brand focused see the most success because the brand and expectation is clearly defined and acted upon by their employees in every customer (internal as well as external) interaction

Organizations where people are perceived as the primary source of competitive advantage—knowledge and service based enterprises; worldwide companies with multiple business units have an exasperated need to align behavior with a unified brand. Examples include Accenture, Dell, McDonalds and Southwest. How are organizations measuring effectiveness/ results from these initiatives? In a better economy many organizations would gauge employee engagement on an employee’s commitment to



stay or their desire to leave. Now, these organizations are looking into an employee’s emotional and intellectual commitment. They see improvements in customer satisfaction and use that index as a hedge against lower prices. Some firm’s have some pretty sophisticated analytical models that help them gauge their elasticity in the face of competitive offers. How are these companies applying the same principles to their consumer loyalty and channel initiatives? Channel initiatives are more challenging, since the channel partner is not an employee. However, the same concepts: giving recognition based on customer feedback,

tweaking programs based on customer service reporting and surveying; using surveys to identify points of weakness to further training and other emphasis all absolutely apply across many initiative platforms. What do you see as the next steps for these organizations? Using web 2.0 tools and techniques to expand the impact of recognition. Since recognition is all about storytelling, many organizations will be integrating social networkingtype tools into their own platform. This promotes knowledge share and best practice adoption faster. L

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FEATURES

Influencing the Channel Building Trust to Drive Loyal Relationships by Rick Blabolil – Marketing Innovators

Today’s economic pressures have increased the complexity of the marketplace. Sales channels are shrinking and competitive challenges are weakening mature distribution channels. For a marketer trying to deliver greater brand value, navigating today’s business environment demands a deep understanding of the relationship between your company and your distribution channel, customer and market needs.

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he focus has changed from the customer experience to the customer expectation around value. It is no longer effective to build customer loyalty with yesterday’s tactics and a simple increase in promotional offerings. Customers have grown immune to the lure of the ubiquitous discounts and freebies that have been become the norm in a faltering economy. This is now the expectation. Value goes beyond price. Customers are seeking the all too elusive relationship with the companies they do business with – one that is built on trust. To create a trusted relationship, all channel members must work together to foster an environment of collaboration and communication. The focus has shifted to building efficiencies and effectiveness through joint strategy, process, technology and planning initiatives versus an isolated consumer offer. Working cooperatively lends itself to the inherent understanding that all members view their relationships as true partnerships; ones whose successes and shortcomings are interwoven. By establishing a commitment to these relationships at all levels of the chain, channel members are committing to driving their partners’ value as much as their own. To best meet these demands and remain competitive, marketers relying on a channel need to push the envelope on traditional business models and find ways to expand solutions to the extended enterprise: • Channel Influence—To optimize their influence over channel partners, marketers need to leverage business solutions best suited to serve the needs of their partners and customers as well as their own companies. •C  hannel Loyalty—To earn loyalty and trust from channel partners, companies must also prove their loyalty to those partners. The efforts must be authentic. Channel loyalty is a two-way street.

• Channel Value Engineering—To expand value throughout the channel and capitalize on emerging opportunities, marketers need more adaptable business models that leverage partnerships and collaboration. • Operational Breakthroughs—To deliver value throughout the supply chain, marketers need to measure, monitor and manage results. Leveraging emerging technologies and resulting actionable data is the foundation for value-driven operations.

Influencing the Channel In a marketer-dealer working partnership there is mutual recognition and understanding that the success of each depends in part on the other. Control has shifted from exclusive distributors to independent dealers and an indirect sales coverage model where marketers (manufacturers/suppliers) have influence versus control. The most common scenario is a multi-line dealer channel that represents competitive brands and is saturated with incentive and loyalty programs. So how do you optimize your influence, build loyalty and increase your brand’s share of mind within your channel? The quick answer is: Collaborate to help your channel partners succeed. Communication and trust are core elements of the paradigm. These elements are now needed to build the consumer and partner confidence that has been broken in recent years. Building this collaborative network naturally lends itself to more transparency within the channel and a resulting increase in trust. This allows for quick adaptation and response to directional changes in the marketplace.

Best Practices in Channel Loyalty Programs: Enhance Your Value as a Trusted Partner n Shift the focus from incentives to services Demonstrate your commitment to investing in your channel partners by shifting your loyalty program’s focus to value-added services that will help drive key metrics for the partner company. Offering training, advice or support in marketing, operations, finance or human resources, will not only offers customers a much broader range of services, but also provide them reassurance of working with a trusted partner.

n Leverage the unlimited power of the Web Channel loyalty programs are increasingly going online. The interactivity provided by online programs allows for two-way communication to enhance participant engagement. Technology enables program members to check their performance and sales activity, reward/point status, explore reward options and redeem online at any time. Mobile communication can add power to the Web and work very effectively in tandem.

n Integrate branding, training and promotions A technology-driven program site can integrate incentives, branding, promotions, training modules, knowledge-testing and more, to become a comprehensive performance management vehicle. In addition to driving key behaviors, the program can prioritize promotions, build product knowledge and help your brand increase share-of-mind by offering incentives for completing online training or education.

n Engage your stakeholders across the enterprise There is already an element of trust built into the relationship channel partners have with the channel organization’s sales force. It is therefore critical to get the sales force charged up about the program and ensure their buy-in. This will require that they are given enough information and training so that they can speak knowledgeably about the program. Engaging your sales force will promote the sincerity of both dealer and distributor commitment.

n Communicate frequently with meaningful messages Communication is the mainstay of a channel loyalty program and critical for its success. Today’s technology makes it possible to intelligently segment communication to speak one-to-one to diverse audiences. Marketers can talk to channel partners as well as the individuals who work within the partner companies. Frequent, meaningful communications will help build brand loyalty and trust.

n Reward innovation and collaboration True collaboration is the cornerstone of successful relationships and financial outcomes. Programs that reward innovation and collaboration will drive success across the extended enterprise.



Continued on next page

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Influencing the Channel (continued)

Driving Channel Loyalty In an effort to enhance sales and build brand awareness, companies are placing a “mission critical” importance on buyer loyalty. When a company is dependent upon a dealer/ distributor channel, one might presume its goal would be to build (or demand) loyalty from its channel partners. But, some companies are instead emphasizing their mutual loyalty to channel partners through comprehensive communications and training, joint sales efforts and incentives. Traditionally, brand loyalty hinged on the marketer’s ability and willingness to provide sales, marketing and technical support, as well a guarantee not to undercut partners by trying to sell directly to their customers. In essence, trustworthy support from marketers produces loyalty dividends from partners. In developing new, or refining existing channel incentive programs, companies must keep in mind that if they expect loyalty from partners they must also prove their loyalty to those partners. Since indirect channel sales make up the lion’s share of sales revenue in many companies, it’s only sensible that these companies make genuine commitments to their channel partner’s business success,

Channel Value Engineering At every stage, companies must work actively with their channel partners to create solutions and articulate customer value in terms of the latest industry and channel business models. Many companies refer to this as “channel value engineering.” We used to live in a product-driven world. In today’s customerdriven world, customers want solutions to their problems. The old top-down approach, where generic solutions were pushed to the marketplace, has become obsolete. The new “value provider” mindset is a bottom-up approach, where the seller must demonstrate a real understanding of the customer’s needs and be ready to provide a customized solution for a specific problem. Instead of “pushing” programs from the top down through the channel, marketers need to build programs cooperatively with their partners. Inherently, this places channel partners on the front-lines of creating significant value through innovation.

Collaboration Drives Success As companies increasingly rely on collaboration with distributors and dealers, their need to gain operational efficiencies downstream and uncover ways to improve their channel partners’ overall business is heightened.

“While collaboration may have been a component of relationships within the channel, times dictate that it becomes the focus.” and collaborate with them to make that success happen. When approached in this fashion, companies can establish themselves as strategic business partners and trusted advisors genuinely interested in mutual benefits.

Building Trust To create a trusted relationship, one that engenders loyalty, all channel members must work together to foster an environment of collaboration and communication. The first step is to move from a top-down approach to one of partnership, a collaboration that might be expressed in a variety of business activities: joint strategies, processes and technologies, or even co-created partner business plans. Such plans would be cognizant of the partner’s business objectives and goals and based on suitable partner sales engagement models, as well as partner enablement and support tools. The outcome of such co-created programs is an enriched business relationship and enhanced customer loyalty. Collaboration based on mutual understanding and alignment of goals should capabilities, organizational structure and resources.

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Ultimately, companies in today’s marketplace have been forced to give up some of the control they once maintained over their channel partners. The outcome for some of the most adaptive companies has been the initiation of meaningful and genuine involvement in their channel partner’s business with the desired intention of building trust and driving loyalty. While collaboration may have been a component of relationships within the channel, times dictate that it becomes the focus. This can be a challenge for companies yet to make the transition. In addition to global economic woes, overall channel performance in general has been unstable. While some marketers have extolled the virtues of winning customers’ trust, and frequently advocate “client-focus,” “partner-focus” or “customer-centric,” they often fail to follow through in a truly meaningful way. When these companies understand that loyalty has more to do with the quality of trust derived from each collaborative experience than a program strictly designed to drive partner behavior, and realign their business practices accordingly, they and their partners will reap the benefits. L



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FEATURES

The Balance of Powers in Payment Cards and Loyalty by Sarah Phelps – First Annapolis Consulting

Retailers use various combinations of branded credit cards such as co-brand and private label, and loyalty programs to attract, invigorate, and extend customer relationships. In theory, the decision to introduce a payment card vs. a tender neutral loyalty program should revolve around the value proposition available to the three key stakeholders: the consumer, the retailer, and the financial institution. However, other factors will influence this decision including the retailer’s brand strategy, the in-store operating environment, and the presence of competitive programs.

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irst Annapolis conducted a review of the top 100 merchants, by sales, to determine the commonalities among retailers that fell within the same categories in terms of combination of reward programs and payment cards offered to consumers. What was found is very little consistency among the retailers in each group. For purposes of this review, we defined a loyalty program as one in which the customer enrolls and accrues value, in one form or another. Perhaps the greatest surprise is the comparison of how many of the top 100 have no program versus how few use a combination of all three (e.g., co-brand, private label and tender neutral loyalty). The types of organizations that fall into these two groups are also surprising. For example, the two preeminent names in home improvement (Lowe’s and The Home Depot) have opted against a loyalty program while two of the front-runners of office supplies (Staples and Office Max) have loyalty programs as well as both private label and co-brand credit cards. There is some consistency among certain vertical markets; the two leading wholesale clubs and booksellers have similar programs in that both use a co-brand credit card and tender neutral loyalty. However, there is a fair amount of inconsistency in some categories as well; grocery is represented in the co-brand/tender neutral, tender neutral only, and no program categories. The question then becomes what factors into a retailer’s decision when it determines which program structure to embrace? Should the strategy include a co-branded credit card or simply a tender neutral only approach? Is it strictly about the business deal the retailer can strike with the financial institution or is there more to it? One potential

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approach in developing the right combination of payment and loyalty programs is to think of what can be offered to each of the three key stakeholders: the retailer, the financial institution and, most importantly, the consumer.

The Retailer The way in which a loyalty or payment card program will influence a customer’s purchase behavior over other potential drivers is at the foundation of the right design. Merchants selling large ticket items or with high average transaction values stand to benefit from a payment card program that provides the customer with a financing vehicle. If these same merchants are in vertical markets with staunch competitors and little other means to differentiate, a tender neutral loyalty program that facilitates a return of special value to key customers may be a critical component of the overall business strategy. Moreover, the extent to which customer loyalty is “on-brand” or consistent with the broader retail and marketing strategy, is also key.

“Perhaps the greatest surprise is the comparison of how many of the top 100 have no program versus how few use a combination of all three (e.g., co-brand, private label and tender neutral loyalty).”

The Financial Institution The retail card sector tends to offer an attractive option for issuers and offering loyalty programs in parallel with the payment card has the potential to drive increased account acquisition and purchase volume relative to payment card programs without accompanying loyalty programs. However, the issuer needs to use caution in designing the payment card strategy to avoid some of the pitfalls inherent in retail card programs. Most notably, using large acquisition incentives to lure customers into the program can drive incremental new account volumes, but they can also increase costs to an unsustainable level if the customers do not continue to use the card on a frequent basis. Similarly, while co-brand programs (as compared to private label) can drive higher revenue due to interchange fees, the propensity of cardholders to use the card outside the merchant location is important to profitability and program success. The consumer value proposition and the cardholder’s affinity to the retail brand are critical drivers of customer engagement and ultimate behavior.

However, not all retailers are created equal in terms of their ability to deliver value. Influencing factors include available margins to fund rewards, frequency of visit (to drive relevancy), and the relative position of the retailer as compared to its competitors. The perspectives of these three groups must also be considered in the context of the current economic environment and legislative events. Weakening consumer spending, rising loss rates, and recent regulatory and legislative rulings present major challenges in all credit card portfolios, not just those associated with retailers, impacting the value to the card issuers. Rising unemployment, home foreclosures and consumer bankruptcies stress the availability of credit to average consumers. In short, the world of credit is in a state of transition and will continue to evolve as the new normal is defined over time. In the current environment, retailers may need to reconsider their loyalty strategy to determine the right mix of payment cards and customer incentives. Several decision points exist, including whether to introduce or shift focus to tender neutral programs and if so, should that transition be made across all customer groups or only within well-defined segments? Arriving at a manageable value proposition within and among segments is also critical. Shifting away from a payment cardbased loyalty programs, however, has critically important financial implications. The extent to which elements of the rewards program are subsidized by the economics of the card program (e.g., card program revenue, avoidance of credit card interchange on retailer payment card transactions) must be carefully considered. As such, the decision to transition away from credit-based programs is not an easy one. At a minimum, testing and detailed financial analysis will be keys to any evaluation. L

“If these same merchants are in vertical markets with staunch competitors and little other means to differentiate, a tender neutral loyalty program that facilitates a return of special value to key customers may be a critical component of the overall business strategy.”

The Consumer At the core of the business model is the consumer and their potential as a customer and as a cardholder. Unfortunately for retailers and financial institutions in card issuing partnerships, not all customers make good cardholders. While payment card and retailer rewards programs can be attractive, they are also pervasive across various industries, and potentially represent a new frontier of consumer choice. As a result, getting the attention of consumers requires presentment of compelling value to prompt a response.



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TECHNOLOGY, TRENDS & REWARDS

Technology Can Do That, But Can We? What works with today’s loyalty technology by Jake Sterling – Maritz

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Like a scene from the movie “Minority Report,” Tom Cruise walks into the GAP, and the retailer performs an iris scan to determine his identity. Holographic “associates” ask Cruise’s character if he would like to buy the GAP’s latest t-shirt in a “large,” basing their sales pitch on his previous purchases and bio statistics. Though Minority Report came out in 2002, many of the technologies featured in the film aren’t so futuristic anymore. Technologists are turning these scenarios into reality.

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airy Queen recently announced an RFID sticker that customers can attach to a phone or wallet to receive targeted promotional offers in store. Burger King has introduced an iPhone application that allows users to place orders automatically. Whole Foods is making more than 2,000 recipes available to its customers via an app for both iPhone and iPod users. Text messaging, social networking, and smart phones are opening up new avenues for reaching and creating loyal customers. Technology is moving at light speed, but are we moving along with it? Consider the following: •L  ess than 10 percent of credit cards in the US have RFID chips in them and retailers have been slow to adopt the technology. • 7 7 percent of the entire mobile market do not own an iPhone • 4 0 percent of the US population do not use text messaging • 5 1 percent of Americans do NOT participate in social networking sites such as Facebook or Twitter

moment of purchase, increasing transaction frequency and sales, and credit card issuers can use the same technology to increase their customer’s loyalty at a lower cost. For both retailers and credit card issuers, POS loyalty programs allow them to gather valuable information about their customers. The best POS loyalty programs identify customers through their credit, debit or loyalty card and track purchasing behavior in order to deliver targeted promotions. These behaviors can include spend, number of visits, and time lapsed since the last visit. Retailer promotions can be set up to drive frequency, increase average ticket, reward their best customers, cross sell, market new products or deliver targeted messaging. This targeted approach ensures the right customer gets the right offer. For card issuers, promotions are linked to their specific card. Beyond the targeted delivery, the beauty of POS loyalty is that the customer doesn’t need to remember to bring a coupon, direct mail piece or a print out of an email to receive their offer—they just show up and buy.

“The on-the-spot recognition and reward redemption that comes with a POS loyalty program provides immediate reinforcement and brings that particular card to the top of the wallet position that consumers reach for first.” These technologies can and will play a major role in the future of retail. But today, they have significant limitations. In our current economy, when both retailers and credit card issuers have an immediate need to boost sales and increase store traffic with compressed marketing budgets, these technologies offer limited opportunity. In today’s economic reality, both retailers and credit card issuers must rely on connecting with their customers using existing and pervasive technologies that don’t require consumers to change their behavior. Case in point: • 82 percent of adult Americans have a credit or debit card • 78 percent of all retailers use a point-of-sale (POS) terminal or system

Point-of-Sale: Today’s Customer Connection The vast majority of purchases are still made on a POS terminal. Here, innovative loyalty strategies can increase the value proposition for both the customer and the retailer. A POS loyalty program allows retailers to deliver personalized offers—at the

Successful POS loyalty programs create highly personalized redemption experiences so that the customer is receiving exactly WHAT they want, WHEN they want it. For example: Chad is a truck driver who stops at “Burger Land” every week. When he uses his registered credit card, the printed receipt offers him a free breakfast sandwich if he comes back in within five days. He does not need to bring the printed receipt back, but merely swipes his card to redeem his free sandwich next time. Beth stops at “Coffee King” on her way to work every morning for a large latte, but hasn’t thought to visit in the afternoon. When she uses her registered card, her receipt tells her to come back on any weekday between noon and three to receive $2 off any purchase of $5 or more. Liz is a frequent “Books & More” shopper and earns three points for every dollar spent when she uses her “Bank of the Nation” credit card. Upon checkout at “Books & More,” she will be prompted at the POS to use her “Bank of the Nation” reward points to pay for all or part of her purchase and reduce her out-of-pocket costs. Both card issuers and merchants face challenges in optimizing Continued on next page



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Technology Can Do That, But Can We? (continued)

“Beyond the targeted delivery, the beauty of POS loyalty is that the customer doesn’t need to remember to bring a coupon, direct mail piece or a print out of an email to receive their offer—they just show up and buy.” the value of their loyalty efforts. As these examples demonstrate, POS loyalty programs help strengthen relationships and address unmet needs for retailers, issuers and their mutual customers: • Customers: Redeem points to make purchases at the point of sale and receive promotions based on how they shop. • Retailers: Deliver personalized offers at the point of sale, increasing spend and customer frequency. • Card Issuers: Enable loyalty point redemption at the point of sale, providing a unique opportunity to increase brand loyalty for their cards at a lower cost while also gathering valuable information about their customers. A POS loyalty program also solves the “decoupling” challenge that has been a hurdle for traditional loyalty programs. It is a proven psychology that the separation between the customer’s point earning and the redemption of points makes the program less effective and valuable. The on-the-spot recognition and reward redemption that comes with a POS loyalty program provides immediate reinforcement and brings that particular card to the top of the wallet position that consumers reach for first. POS loyalty programs have been widely used in Europe and Asia for years with a lot of success, and are now coming to North America. For example, Alpha Bank, the second largest commercial bank in Greece, wanted to accomplish three things: • Consolidate multiple loyalty programs • Differentiate their offering • Connect with merchants and customers Through “BonuS”, a targeted POS loyalty program—delivered through merchant partners and other participating merchants—Alpha Bank, in 2007, was able to:

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• Increase Spend: Spend on the BonuS Card increased by 19 percent • Decrease Attrition: Attrition on the BonuS Card decreased by 27 percent • Deliver significant benefits to participating merchants: Wind, the second largest telecommunications company in Greece, was able to reduce customer churn by 10.4 percent compared to non-loyalty members; and by 7 percent compared to their existing loyalty program members. Asian retailers deploying POS loyalty programs saw similar results. A supermarket in Thailand saw a 65 percent promotion redemption rate and a 40 percent increase in spend, while an ice cream store in Malaysia received an eCoupon redemption rate of 53 percent.

Leverage Today’s Technology with an Eye Toward the Future For retailers and credit card issuers worldwide, the technology of the future is becoming a reality. Over the next several years, we’ll see wide adoption of smart phones, RFID technology and social media, providing retailers and credit card issuers with theoretically limitless possibilities to connect with customers. But until then, we need to leverage the realities of today. POS loyalty programs are here now, and they enable retailers and credit card issuers to reach ALL of their customers, with the offers they want, when they want them—capitalizing on today’s consumer behaviors. L

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TECHNOLOGY, TRENDS & REWARDS

Automating Marketing Self-Service Technology Awaits Those Smart Enough to Experiment by Scott Couvillon – Dukky

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anagers of incentive programs aren’t the only marketers hanging their heads, wringing their hands and trying to find something positive in the confidence indicators and revenue reports they await like a make or break report card in the 6th grade. And who could blame them? Marketers are facing a convergence of realities ranging from a recession and surging unemployment to increased use of online, social platforms streamlining word of mouth and a general aversion to traditional marketing tactics. As an account director in advertising agencies both traditional and non, I always encouraged clients to earmark a portion of the budget for “R&D”. Today, the need to try new technologies is even more imperative as the results of traditional efforts are so clearly lagging or un-measurable. To simply default to the best of the traditional strategies makes your fate certain—and it won’t be pretty. Real innovations with specific application to the loyalty and incentive industry are coming available. The question is, are you willing to experiment?

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ortunately for you, there are a number of new platforms and technologies that allow you to experiment online without being an interactive phenom. They let you try offline tactics without the budget of a Walmart and conduct research in an afternoon—all without the expense of involving an external agency, consultant or buyer. Here are a few examples of some of the basic technology you ought to introduce yourself to if you haven’t already. Let’s begin with Google Adwords [adwords.google.com], which is neither new nor unknown to most of us. But, if you have not used it, you are missing a low-risk gateway to a better understanding of how online search works. Just playing with the resources Google makes available, will allow you to better comprehend what the world is talking about. Careful not to get carried away, but for literally dollars a day, you can link a text ad to your site, using terms specific to your business or program, and monitor the results (or lack thereof ) in real-time. Most importantly, when you embark down this path, begin to think about the real issues relative to search. For example, work to increase the quality of your leads, and not just lowering the cost toward acquiring large quantities. Next, take a look at Federated Media [www.federatedmedia. net]; leaders in conversational marketing. This group helps you place contextual advertising on the right sites and in the right conversations. Further, they make sure that the ad placement doesn’t undermine the brand. “[FM] ensures your brand is not only relevant to the context, but truly enhances the conversation. We ensure that your campaign will never appear next to content that’s objectionable or that conflicts with the mission of your brand. At FM, you’re not just an advertiser, you’re a marketing partner.”1 Interactive display has distinct advantages over traditional display, but none are bigger than being able to buy the milk without the cow. That is, you can start small and increase your exposure if you are happy with what you see. Finally, rates (like offline display) are a formula of impressions and their niche value; FM makes it very easy for you to understand your tolerances and manage your bill. For more information on conversational marketing, take a look at, “The Federal Media Guide to Conversational Marketing,” which is currently available for download on their website.

program managers know how the program is performing in realtime, while creating a database of interested people along with the data shared. Where it gets even more advantageous, is when multiple companies participate in one mailer to same audience, as the costs are shared and can decrease up to 96% compared to a traditional direct mail effort. And finally, Social Networks can’t be ignored, as these are consistent features in the marketing conversation right now. Both LinkedIn [www.linkedin.com/directads/] and Facebook [www. facebook.com/advertising] allow you to serve your ads to a targeted audience. The beauty is that that you can engage customers in a place where they’re committed to online interaction. So if that is your marketing strategy, or better yet, your product, this can be a very natural fit. Both networks have groups and associations related to specific targetable markets. So you can limit your exposure by limiting your audience. The key is to understand why your prospective recipient is spending time in that social space and to engage them appropriately, rather than simply ambushing them with a sales pitch. As with all smart marketing, revenue is a byproduct of a relationship, not a function of marketing and social networks allow you to live this. Many marketers are hibernating as they did in 2001—shutting down body function to preserve life at the core. Very few are heeding the advice of pundits to gain share as others retreat. This is a mistake. In your cube, this afternoon, you can balance self-preservation with calculated risk to move a few slots up the hatchet list through experimentation, and a new breed of resources is making that easier. You do not need to be a database manager, list expert, webmaster, social network maven or tweetfreak to do these things, resources such as those mentioned above, can enable you to broaden your arsenal while learning what is right for your situation. This can all be accomplished without exposing yourself to the financial risks that often accompany traditional channels. So go, get started today. L

“Real innovations with specific application to the loyalty and incentive industry are coming available. The question is, are you willing to experiment?”

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ow, onto… Dukky [www.Dukky.com], a direct response company, is introducing new marketing programs designed to leverage technology to initiate relationships between brands and individuals. About the time of the Loyalty Expo in Florida, Dukky launched a pay-forplacement direct mail platform that, in this example, allowed marketers to put up to 40 personalized gift cards into the hands of HR professionals, offering them the opportunity to truly experience the program portfolio rather than simply hear about it. Online tools allow for activation, measuring purchase intent or interest, and even specific feedback so analytics can learn something from those who are not interested. A dashboard lets

1 Federated Media. June 30, 2009.



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TECHNOLOGY, TRENDS & REWARDS

Product Level Rewards by Roger L. Brooks – ValueCentric Marketing Group

The rewards revolution continues to progress, improve and evolve. Loyalty marketers are embracing the most recent advancements in product-level rewards and are introducing next-generation technological, analytical and marketing innovations to improve the delivery of relevant rewards to consumers. What are considered relevant rewards? Simply put, relevant rewards are offers that are pertinent and meaningful to customer purchasing decisions.

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ompanies such as Catalina Marketing have more than 25 years of experience in delivering consumer-driven offers and rewards in the retail space. Catalina’s clients include brands such as Safeway, Walgreens, A&P and Kroger among others. More than likely you have been exposed to a certain level of relevant rewards as they are often delivered on the back of grocery, pharmacy or large merchandiser receipts. Typically, relevant rewards are delivered to consumers based on what is, or is not, in their shopping basket. Relevant rewards can also be triggered based upon historical purchase activity. CVS ExtraCare® is a proprietary rewards program which provides offers to cardholders based on the purchase of select products or historical buying activity. For example, discount coupons for specific products you purchased in the past may be printed on your receipt if that particular product is not contained within your basket for the current transaction. The Catalina and CVS examples are merely the tip of the iceberg. Once you understand who your customers are, what they do and do not purchase and the frequency of their visits, there are a number of ways to increase profitability. Before doing so, it is crucial to have the proper loyalty program technology in place to support your effort. In addition, there are two fundamental loyalty program principles which should be considered prior to attempting to introduce relevant rewards as a means to change customer purchasing behavior.

1. Identify Customers In order to reward customers on a product or SKU (stock keeping unit) level, there must be a means to uniquely identify each customer. Customers can be identified through a number of vehicles including a payment instrument, loyalty card, driver’s license or phone number. Customers will willingly participate and identify themselves if they truly understand the value they’ll receive in return, i.e. attractive redemption items or instant product-level rewards.

2. Track Spending Once customers are familiar with the program and embrace being identified, all purchase activity can be tracked and analyzed. During this step, proper promotions can be initiated to target

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specific customer groups to steer them toward cross-promotion, complimentary or new product purchases at department or SKU level.

Motivate Customer Behavior While identifying customers and tracking their spending remains an ongoing and tedious task, attempting to motivate customer purchasing behavior is the payoff. The essence of operating a loyalty program is to be able to motivate customer behavior. There’s tremendous opportunity to change behavior by targeting customers in multiple ways. For example, you can target customer groups that never purchase complimentary products, i.e. customer that purchase baby food, but never purchase diapers. Or, the historical profile of the customer may show that they did not purchase a product from a specific department in the past three months. Further, you can apply a promotion to a customer group which has never purchased a particular item. This will allow you to include participation from your vendors, suppliers or manufacturers to offset a portion of the cost of the relevant reward while introducing new customers to their brand.

Delivery of Relevant rewards Relevant rewards are routinely delivered once the customer is identified and prior to the transaction being closed. The POS (point-of-sale) system identifies the customer and connects to the loyalty host and applies all relevant loyalty promotions to the transaction based on a variety of business rules established in advance. The host marries the business rules up against the basket contents, and may consider; the time between product-specific purchases or appropriate vendor/manufacturer offers available. Then, single or multiple reward offers can be delivered back to the customer in the form of bonus points, instant discounts or coupons (depending on the program currency). Loyalty programs are most notably utilized as a tool to reward profitable purchasing behavior. Being able to offer your customer’s relevant rewards will only improve the depth, success and longevity of your program.

Roger L. Brooks had a chance to catch up with Joshua Petty, Freedom Rewards Program Manager of TETCO to provide his view on product-level rewards. TETCO is a gas and convenience store operator which has a major presence in the Texas market. Question #1

How relevant are product-level bonus rewards with the TETCO Freedom Rewards Program? [Joshua Petty] “Our product-level bonus rewards are very relevant. They allow us to always rotate product and keep our program fresh on a quarterly basis. We have established a baseline reward structure where as anyone participating in the program that visits our stores can earn rewards in our program. With our product-level bonus rewards we are allowing our customers, ourselves, and our vendors to push the envelope on the rewards possibilities in our stores. Issuing bonus points for particular purchases allows our customers an instant gratification experience that they cannot receive at any other c-store. The ability for us to reward our customers for purchasing specific products is very effective for our vendor partners. Our product-level bonus rewards increase our customer’s investment in the program at a rapid pace and help us to increase frequency and spend.”

Question #2

Do your vendors/suppliers participate in offsetting a portion of the liability of the rewards? [Joshua Petty] “Our vendors have 3 levels of sponsorship to choose from. There is a buy-in amount up front to participate and then the partner covers the cost of the reward for each of their products sold through the Freedom Rewards program. The first level costs X amount of dollars and gives them Y in reporting and impression value. The second and third sponsor levels cost more and give more reporting and impression opportunities. What we do with the upfront buy-in fee is we take the whole amount and purchase a vehicle, boat, truck, anything we can brand with our partners logos for the quarter, and we give it away to a customer at the end of each quarter. We take the item around and display it at our locations and different events that we are involved in. So essentially the partner is paying to advertise their brand and provide a grand prize item to our customers every quarter. Our vendors see the immediate value in the impressions and exposure, our customers have the chance to win the prize, and we take our program incentive to a whole new level of



“Issuing bonus points for particular purchases allows our customers an instant gratification experience that they cannot receive at any other c-store.” experience for our customers. It is a win/win/win situation for everyone involved. The cost to our vendor is minimal in comparison to any other method used to achieve this type of ROI for them. They pay for their items and get a ton of value for their participation, as well as relevant reporting on their product for the quarter they participated in.”

Question #3

How important is the technology to manage rewards on a product or SKU level? [Joshua Petty] “It is very important to be able to manage rewards by product and or SKU level. This is the basis of your loyalty program operation. This ability will allow you to tweak promotions, view customer buying habits, bill vendors, and gauge the overall success of your program. Having this ability also allows you to bundle items. For instance, we have the ability to offer a discount on item A when a customer purchases item B, and it is accomplished using the SKU’s on the items and or the line item description. The technology is advancing everyday in this area as well. We have the ability to send an opt-in customer coupon to their cell phone based on what SKU they did or did not purchase. It is a really powerful tool. If you do not have the opportunity to reward at this level then you are shopping the wrong loyalty provider. Everything we have discussed prior rests on the ability to provide rewards to your customers by SKU or product.” L

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TECHNOLOGY, TRENDS & REWARDS

Turn Marketing $$$ Into Loyalty by Randy Fox & Jeffrey Norby – Jet Litho

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verybody is saying now is the time to engage consumers. Reports demonstrate that reducing marketing spending in today’s economy results in lost customers. You need your customers to know you are viable in the marketplace, and spur them into spending their precious dollars with you. But, how do you reach consumers with clear, compelling messages? How do you turn your marketing dollars into consumer loyalty?

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Avoid the “Head In The Sand” response This economy presents you with a unique opportunity to market your brand and rise above the herd. Although somewhat counter-intuitive, spending money to stay in front of your clients—reminding them of the value you bring, and reassuring them that you stand ready to serve them—is more important than ever. Remember, just as you feel less certain about the future, so do many of your consumers. This is the perfect time to provide some clarity to them, based on the value and stability your organization can bring to them. Today’s consumers are driven by value. That value doesn’t necessarily mean inexpensive; they just need to be engaged with your brand enough to believe they are receiving REAL value for their dollars spent.

Stay In Front Of Your Consumer This may seem logical and straightforward, however, we find that many organizations are cutting back on marketing spend, and that could be a fatal decision. Let’s take a look at real facts on why investing in marketing now will pay off. Nearly half of US adults believe that a lack of advertising by a company during a recession is a sign that the business is struggling.1 Over one-third of consumers state that if a brand stopped advertising they would buy from a competitor.2 A McKinsey study conducted during the 1990-91 recession showed that companies who were market leaders through the downturn were those that increased marketing and advertising spending. The ones who cut back still struggled years after the recession ended. Consumers respond to value and promotions like never before. According to Brandweek, 62% of consumers say they are clipping coupons, and 82% plan to do so in the coming year.

Motivate Consumers If you are like most marketers, your commitment to understanding the consumer is only outweighed by your desire to find solutions that reach them. Multi-channel marketing approaches will give you the best results. In the virtual and tech times we live in, don’t lose sight of the 1 Ad-ology study, May 13, 2009

importance of remaining physically (and literally) in the hands of your consumer. Your call to action should come from many channels to ensure you reach the largest base possible. Choosing marketing channels wisely, carefully planning your campaign sequence, and doing it for the least amount of money for the greatest return is vital, so let’s take a hard look at popular marketing channels.

Email “Email is cheap and we don’t have the money for other types of marketing.” We hear this often. True, it is less expensive to send an email than to use other channels,

Website Mail and email should not stand alone. To truly retain and grow your market, and engage your consumers, your successful campaign must be based on ongoing, integrated communication. Use direct mail combined with email to drive consumers to your web page, or to a PURL to increase the “stickiness” of your program. Altering the

“If you are like most marketers, your commitment to understanding the consumer is only outweighed by your desire to find solutions that reach them. Multi-channel marketing approaches will give you the best results.” and it is one of the methods you should use, however, this method is only truly viable when interlaced with a dynamic, multi-channel marketing campaign. 37% of consumers patronize a new brand, and 68% are prompted to renew loyalty to a brand after receiving contact via direct mail.3 So, let’s move in that direction.

channels you use, and ensuring that each complements the other, will motivate your consumers to respond to your promotions and marketing messages. In today’s marketplace, you cannot touch a client just once, or use the same method over and over and expect success. Interlacing email messaging, online promotions, and direct mail with cards will deliver proven results.

Direct Mail That Includes a Plastic Card

What Next?

One of the best strategies is to start your marketing push with a direct mail campaign that includes a plastic card. Why? While not all consumers want to interact in the same manner, the largest category of consumers (76%) state they are most likely to respond when reached via direct mail.4 51% of consumers say they are more likely to open mail if they feel something in the package.5 One of our retail clients mails hundreds of thousands of these packages per month, and they are seeing a solid

2 Beta Research study by Adweek



15% response rate on their promotional campaigns using a 20 mil plastic card in a direct mail piece! With these compelling numbers, the ROI in putting a card in your mail piece far surpasses mailings without cards or other options like email.

3 DM News study, May 2009

The process of engaging consumers and achieving true loyalty in this new economy is a journey requiring focused flexibility. What worked ten years ago may not work today, and what works with one consumer may not work with another. Your goal is to make sure that best practices, with proven ROI results, are a priority in your overall, strategic marketing plan. Stay focused on being in front of your consumers frequently, and remain flexible with marketing channels, making sure your customers see, touch AND feel your value in order keep their loyalty. L

4 DM News and Pitney Bowes survey

5 Vertis Customer Focus Study, Retail 2008

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BEST BUSINESS PRACTICES

The Quality of Loyalty by Jim Boring – Global Response

Shakespeare could have been speaking of loyalty as well as mercy in The Merchant of Venice. Any good merchant of the time would have understood how customer loyalty cannot be forced or cajoled but must have as its source a genuine and free association with a particular brand. What is it that enables a brand to develop customers that consistently and faithfully prefer it even when they have readily available options? That question is at the heart of every company whose brand competes for customers. And it is the question that begins the discussion of the development of any loyalty program. Loyalty programs do not instill loyalty; they reward it. If a customer continues to do business with a brand because of its loyalty program then the program has become the focal point of the customer’s loyalty, not the brand. Yet the rewarding of loyalty, above and beyond the benefits of product purchases, becomes an inextricable part of the aura of the brand. The custom of rewarding customers with a little extra goes back a long way. The thirteenth bread roll in “a baker’s dozen,” is an old custom. In New Orleans the something added is called “lagniappe.” That French word is derived from the Spanish, which in turn comes to us from the still older tradition and language of Quechuan merchants high in the Andes. The practice and the intent is worldwide—a little something extra to keep you coming back. The rewards of loyalty programs are tokens of appreciation. And customers who feel appreciated tend to be more loyal than those

who feel unappreciated. Which is why both the design and the administration of loyalty programs must take care not to create counter-productive hassles or obstacles that will annoy and alienate the intended customers. It is not only the reward that should be satisfying but also the conditions surrounding the reward. Anticipating the reward is part of the reward itself. Building points or other qualifying prerequisites engages the customer emotionally and builds a pleasant tension that looks forward to its release in earning the reward. That anticipation should not be diminished or quashed by indifferent customer service. The role of the contact center customer service representative is a key element in the success of any loyalty program. Inquiries regarding qualification or other aspects of the loyalty program must be handled in the spirit of the program. Which means that selection and training of customer service representatives is a critical part of loyalty program planning and implementation.

“The role of the contact center customer service representative is a key element in the success of any loyalty program.”

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The quality of loyalty is not strained, It drops like the gentle rain from heaven; It is twice blessed ~ it blesses him that gives and him that receives.

~with apologies to William Shakespeare

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endy Shooster-Leuchter is Co-CEO of Global Response, a contact center that handles loyalty programs for leading retailers. “Loyalty programs are an important aspect of many of the brands we represent. Customers respond to them; they become engaged with the process of earning rewards and tracking that progression. What is critical to the interaction with customers calling about a brand loyalty program is the tone and energy in the customer service representative’s voice. Any perception on the part of the caller that the customer service rep is bored or annoyed or indifferent has a domino effect on the caller’s enthusiasm, interest and loyalty.” Craig Morrison is Customer Contact Quality Supervisor for American Eagle Direct. We asked about the purpose and management of American Eagle loyalty programs. “My area of responsibility is for the online channel of our business, but from a customer’s perspective American Eagle needs to provide the same kind of experience regardless of why, how and where they interact with us,” Morrison said. “We are a friendly, kind of laid-back company. Those are qualities that attract our customers and that they expect in any interaction with us. That is not to say they don’t expect the highest level of service and competence—they do, but they want it delivered in a manner that they associate with American Eagle.” No matter how well designed a loyalty program may be, no matter how generous and accommodating its requirements—all of it will be wasted unless the customer service representative delivers the “lagniappe” with a smile in her voice, her email or online chat with the customer. “We have a progression of accomplishment at Global Response,” Wendy Shooster-Leuchter said, “Our best customer service representatives earn the title, Brand Care Specialist. They understand just how important their job is, and how their primary responsibility is to engage the customer in keeping with the culture, style and manner of the brand they represent.” The idea of brand care shifts the focus of service to a higher level—it puts the interaction with the customer in the context of the brand experience and heightens the responsibility from that of handling an administrative task to that of representing a major brand name. “The contact center representative is American Eagle,” Craig Morrison says, “On the direct side of our business where I have responsibility, the contact center rep is probably the only live person the customer will talk to. That means the rep must have

assimilated the AE culture completely and express it naturally when he or she talks to our customers. We do everything we can to bring that about—site visits, product displays in the contact center, careful recruiting and selection, and especially training that includes culture and brand identification. All this is necessary to build loyalty and to implement our loyalty programs.” Mark Twain said that “lagniappe” was a word worth traveling to New Orleans to get. He might have said the same about a well-conceived, well-managed loyalty program. A program that is implemented with style, grace and in a manner reflecting the customers it serves will instill loyalty naturally and effectively. L

“What is critical is the tone and energy in the customer service representative’s voice. Any perception on the part of the caller that the customer service rep is bored or annoyed or indifferent has a domino effect on the caller’s enthusiasm, interest and loyalty.”



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Improving Customer Loyalty Starts With Setting Your Priorities by Ivan Frank – ePrize, LLC

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he loyalty solution marketplace has never been more plentiful. But, although today’s loyalty tools are stronger and sharper, it can be difficult to ensure that your loyalty initiatives are solving the right problems. When setting out on a loyalty endeavor, establishing priorities is the most important thing to get right. In fact, not doing so can lead to poor allocation of your investments: • Not solving for the fundamental issue at hand: making a large investment new platforms instead of tweaking an internal process

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• Competitive differentiation: resting on existing loyalty while key competitors advance • Investment losses: ending existing efforts prematurely • Organizational willingness to make improvements: inability to achieve internal buy-in for improvement. The process for establishing your loyalty priorities starts with: 1) understanding your current approach to loyalty; 2) scoring and evaluating five key components of loyalty; and 3) prioritizing your opportunities for improvement based on the gap between your current state and desired business strategy.

Guess what? You already have a loyalty system that can be measured. Yes, even without a dedicated loyalty program, your brand still has relatively consistent trending attrition rates, discounting pressures, and a host of other loyalty signifiers that have become a part of how your brand operates. Your loyalty system is made up of every element of your business that influences consumer behavior in any significant way: marketing, brand equity, sponsorships, product/ service experience, incentive programs (if applicable), social media presence, relationships with your channel, etc. Understanding and improving this system is the ultimate goal. How is your existing system driving loyalty results?

Are your loyalty metrics Best-in-Show? Effectively measuring loyalty means we need to challenge existing metrics—or at least broaden their approach. Loyalty can be measured in terms of five overarching results: retention, cross-selling power, share of wallet, advocacy, and brand immunity to price and margin pressure. In our client work, we recommend scoring each of these prior to new initiatives. These are different from the traditional RFM metrics used in retail to evaluate individual segments for personalization. Instead, these scores are designed as holistic measures relative to your competition, scaling from worst in class to best in class.

Knowledge begets power. Power begets strategy. Brands who are in stronger loyalty positions can be more strategic in their improvement efforts. A brand with a number of comparative strengths can gain in the market by extending strengths or potentially limiting a weakness. A brand weak on many facets of loyalty has fundamental business issues to solve before it can think about loyalty marketing.

What’s Mission Critical to your business? Once you have scored your current results, where do you go from there? In addition to understanding areas of strength and weakness, new loyalty investment decisions must take into account the “mission critical” areas of the business—those areas absolutely non-negotiable to long-term success. For example, brands that strategically place themselves in a premium position absolutely must be able to protect against discounting. Industries with high fixed costs must be able to drive cross-sell and share of wallet to cover the costs of doing business. Vulnerability is different for every brand based on its position within an industry.

Establish your place in the universe. We use the following tool to help brands map an individual loyalty metric by comparing their relative strengths/weaknesses against the level of strategic importance to the business. Consider a premium coffee retailer and the price/margin metric. Prior to competitive and economic changes over the last 12 months, this brand would have scored itself in quadrant 4 in its ability to protect its margin and avoid discounting. After these market shifts, protecting premium margins is still critical, perhaps more so, but the brand’s relative strength in immunity to price/margin pressure has fallen, placing it in quadrant 1. How do you prioritize results that fall into the various quadrants? Note that the order of these quadrants is also prioritized: Quadrant 1 most critical, followed by Quadrants 4, 3, and then 2. Quadrant 1 – Mission Critical Weak­nesses: Once you see a business issue in the context of loyalty, it becomes clear that failing to improve that weakness will put the brand at an ongoing disadvantage to your competitors, making this category a top priority. Quadrant 4 – Mission Critical Strengths: Quadrant 4 loyalty results must be understood, defended, and extended. Brands that fail to do so eventually join the ranks of case study bookshelves. Relative strengths shift all the time, as in the premium coffee retailer example. Quadrant 3 – Strengths (not critical): These areas can become red herrings that divert resources that otherwise could be used to create real value. Think of airlines that used to invest in drinks, food, and their hub monopolies; along comes Southwest Airlines who invested in everything but. Quadrant 2 – Weaknesses (not critical): On the other hand, non-critical weaknesses are equally important to acknowledge so you don’t invest in them. Saving resources or waste allows you to put your efforts where they really count. Building customer loyalty is globally the number one marketing priority. And the tools to help you grow loyalty have never been more available. Yet, the challenge we find still comes back to the fundamentals of identifying the right problems to solve and setting the subsequent goals of your initiatives.

What’s the impact of applying holistic loyalty metrics? Consider the following example: n A consumer electronics brand wanted to increase its household penetration via a cross-selling effort. n The metrics for improvement initially focused on share of wallet and cross-selling. n ePrize and the brand team evaluated a broader slice of metrics impacting the business, which uncovered a potential price/ margin challenge among heavy users.

n The nature of the program would create significant discounts that incentivize high-volume consumers who had maxed out their buying potential. Heavy users were not the original focus but subsidizing became a major consideration. n This process led to a more holistic definition of the loyalty problem. The subsequent strategy and structure of the program were created and helped avoid unintended consequences. L

See the whitepaper “Improving Customer Loyalty Starts with Setting Your Priorities” published at www.eprize.com/white-papers for a deep dive into prioritizing your loyalty strategy.



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Creating a Loyal Relationship with Your Channel by Paul Hebert – i2i and Heather K. Margolis

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n business you really only have three audiences... your employees, your customers and those you rely on to distribute your product, service or brand. An awful lot of information is available for employee engagement and customer programs but it seems there is a lack of good info on how to engage your channel. Not much is available to help you build long-term, strategically important relationships. Having a loyal and engaged channel allows you to: • Increase sales • Decrease cost of sales • Increase selling efficiency with better data • Increase competitive differentiation In other words, a channel loyalty initiative will drive better business for you and for your partners.

Loyalty is a Function of Interactions Loyalty is difficult to define as every industry, company, and enduser has a personal definition of loyalty. However, we can start to create a definition by looking at the type of business interactions that occur between the supplier and the channel. As the chart above illustrates, customers who “buy” from you are simply an “invoicing entity”. Those that use additional services such as online tools, marketing support, and credit options, become more than just an address to send an invoice. Obviously, the best place to be is “partner.”

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Driving True Partnership In most businesses the measure of a relationship is financial – the dollars spent. Unfortunately, measuring only the financial side of any relationship will create a mercenary mindset—focusing both you, and the channel, on the price of your product/service. The last thing you want is to have your entire business relationship based on the price you or your competitor may charge. But there is another measure of your relationship that isn’t purely financial. It is the amount of time and attention they spend with you as a vendor (and vice versa.) Call it the “social” measure [See Graph A]. The “social” measure can be defined by how much interaction there is between you and your channel. How many support services do they use? How often do they communicate with the sponsoring company? How often do they meet with your sales representatives? Each of these elements is an “interaction” and helps to expand and define a “social” relationship with the sponsor. Only by balancing the “transactional” and the “social” axis, can we develop a long-term, strategic and mutually beneficial relationship between you and your distribution channel.

Developing a Transactional/ Social View of Your Customer When you look at your customers through this lens you can start to segment your customers based on these axis. How many of your customers are question marks—they don’t buy a lot and

GRAPH A

Cross-sell: Vendors tend to use these incentives when trying to drive a joint solution or gain exposure for a product-line that is new or not doing as well. A vendor will offer a discount or rebate if the partner sells Product A with Product B. Competitive Displacement: Vendors provide this incentive when a partner replaces a competitor’s product with their product. Promotions: Generally given on a seasonal or quarterly basis, promotions focus on a certain product or solution for which the vendor is trying to get more exposure. Feedback from partners is that these tend to be hard to follow and change too often. These incentives tend not to drive behavior as the partner’s usually do not know which promotions are currently in effect. SPIFFs: While the sales people appreciate them, the partner business owners see them as a distraction and would rather manage their own sales peoples’ directives, not have them coming from the vendor.

Social and Relationship Building Tools—Driving Interaction they don’t interact a lot. What about those big customers that buy a ton but don’t really use other services or interact that much? The ultimate goal is to have as many customers as possible in the top right quadrant—buying a lot—and interacting a lot. CHART 1

Tools To Drive Loyalty Transac tio n a l P ro g r a m s

S o c i a l P ro g r a m s

Discounts/Rebates

MDF Participation

Net-New Business

Advisor y Councils

Volume Based

Attendance on Travel Awards

Cross-Sell

Co-Selling Opportunities

Promotions

Conversation/Meetings with Vendor Personnel

Spiffs

Developing a loyalty initiative requires you to include programs, initiatives, plans, and structures; whatever it takes to move your customer to the “True Partner” square. In some instances you may need to include social programs—things that drive interaction. In other cases you may need to include more transactional programs [See Chart 1].

Increasing Interactions through Traditional Means Some of the more traditional efforts included in loyalty programs will include variations on the following: Discounts and Rebates: Since discounts are given upfront they have more influence over sales. Partners see this as margin enhancement and will choose the product with the greater margin/ discount. Rebates have less effect on the sale as they are received at a specific point in time after the sale (end of quarter, end of year). Net-New Business: Obtained on a deal where the customer is new to the vendor (not the partner). Whether given as a discount or rebate, this incentive doesn’t drive behavior as much as loyalty. From the partner’s perspective they expend just as much energy trying to generate, pitch, and close a deal with a new customer as they do an existing customer. Volume Based: The more a partner buys the bigger the discount. Typically applied over a annual spend level they can also be based on other periods of time (quarter, month, etc.)

To really build a strong relationship you must engage your distribution channel around other issues besides sales. Some of the ways your distribution channel can help you (and you them) include: MDF/Co-op: These funds are used for demand generation, training, and other marketing activities. Measuring how well and how often your channel accesses these funds is one way to judge their level of interaction and connection to your company/brand/ product line. Advisory Councils: Inviting and having your channel partners participate in Advisory Councils is one way to target specific partners and solicit their feedback and input. Attendance on Travel Awards: While earning the award may be based on a specific transactional metric, the attendance and participation on the award is where true relationships can flourish. Allowing channel partners to “opt-out” of the travel award is in essence providing a financial incentive and devalues the travel award making more of a disguised “discount”. Co-selling Opportunities: Do your partners access your subject matter experts to help close a sale? If so they are reaching out and communicating that they value your relationship. Keep track of this and use it as another metric to measure their social connection to you. Conversations/Meetings with Vendor Personnel: Are you tracking the number of meetings/interactions your channel partners have with your sales people or even your executive staff? Creating a strong long-term loyal relationship requires face-to-face contact—especially in today’s hyper-connected e-driven world.

The Bottom Line The bottom line for developing strong, loyal channel partners is to engage them on both an economic front and a social front. Done correctly you can expect: • More and earlier input on what your channel needs to succeed, giving you time to adjust and provide new services and processes • Greater resiliency to failure—true partners allow for some mistakes, as long as you’re addressing them and continuing the conversation with them. • Greater overall margins as your products and your relationship increase the value you have with your channel partner. Stop looking at your financial spreadsheets when evaluating your channel—look at the big picture. L Loyalty Management |

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Creating Profitable Customer Loyalty by Timothy Keiningham – Ipsos Loyalty & Lerzan Aksoy – Fordham University

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here is no doubt that customer loyalty is important. Loyal customers stay with us for years, devote a larger share of their wallet to the company, and recommend the company to their friends. And customer loyalty can help to drive firm profitability. But it doesn’t always do so. Unfortunately, most companies do not distinguish between the right kind of customer loyalty that’s really worth pursuing and the wrong kind. We conducted an in-depth investigation into companies’ commonly held beliefs about customer loyalty and arrived at some surprising conclusions. Most managers assume that loyalty equals profitability. As a result, firms blindly chase loyalty based upon

finds that this is often a very large percentage of loyal customers—frequently more than 50%. As a result, when a company misprices its product, many of its loyal customers buy in large quantities, making them not only unprofitable but also some of the firm’s largest customers in the process. In a traditional sense they would be defined as “loyal” customers but they certainly do not benefit the bottom line. So what is the solution? The target audience for any company should be customers who are not only loyal in both attitude and action, but also profitable. Research consistently finds that profitable customers tend to make up only around 20% of a company’s customers. Break-even customers represent around

“The target audience for any company should be customers who are not only loyal in both attitude and action, but also profitable.” an ardent belief that firm performance will improve with each corresponding increase in their “loyalty” score. Unfortunately, for many firms, many (if not most) of the customers they would define as loyal do not generate an adequate rate of return. The first step managers need to do to address this problem is to understand what customer loyalty really is. To be defined as loyal, it shouldn’t be enough for a customer to feel a bond to a company, or to simply continue the relationship. It should also require the customer to engage in certain actions, or purchasing behaviors. Most corporate measures of customer loyalty focus only on the way the customer feels toward the brand or company. But our research shows that simply gauging how customers feel about a company is a poor indicator of how they will behave toward the company in the future. If data about purchasing behaviors are added to the picture, it can help a company identify not just who are the truly loyal customers, but also the ones which are profitable. There will always be a group of customers whose loyalty is driven largely by expectations of great deals. Loyal customers clearly know when they are getting a good deal since they are active consumers of the product. The problem is that our research

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60%, and unprofitable customers around 20%. The objective as a result should be to increase the number of Profitable Loyals, the term we use for customers who rate highly on their attitude and behavior toward the company, and on their value to the company. When customer value is included in the measure of loyalty, the goals of improving loyalty and financial performance are aligned. Not surprisingly, the percentage of Profitable Loyals a firm has in its customer base tends to be much more strongly correlated to the financial metrics firms use to manage their businesses than other commonly used loyalty metrics. ut a focus on Profitable Loyals doesn’t just spontaneously happen. It requires the successful integration of all areas of management—accounting, finance, marketing, operations, and human resources—in profitably addressing the needs of customers. Accounting needs to do a better job of analyzing the profitability of customers. Managers need this information to effectively run their businesses. They need to know who their profitable customers are, and what behaviors are associated with profitability. Paradoxically, one of the most commonly used

B

“Creating and nurturing real customer loyalty requires satisfying customer needs and wants at a sustainable profit. Too often, customer-loyalty experts have ignored the latter in the belief that loyalty and profitability are synonymous.”

financial metrics—revenue—is a terrible predictor of customer profitability. The highest revenue customers tend to be the most profitable or the least profitable. Finance needs to do a better job of incorporating customer metrics in their financial models when making investment decisions. Our own research found that incorporating customer satisfaction into standard models used in investment finance significantly improved the ability to pick winners versus losers. And the winners dramatically outperformed the market by 2 to 1. Marketing needs to do a better job of focusing on current customers. Today, customers are increasingly



polygamous—they buy competing products from multiple companies with seemingly no real loyalty. In other words, customers divide their wallets among competitors. Consequently, one of the most important elements in improving financial performance is getting customers to allocate a larger share of their wallets to the firm. Research demonstrates that the strongest driver of share of wallet is customer loyalty, defined in its true sense. Operations needs to do a better job of making certain that company-defined quality, and customer-perceived quality are aligned. We must always remember that the customer did not design the process, and they don’t care that the system we have designed makes our lives easier. It needs to make customers’ lives easier. So when designing and implementing any process, we need to experience the offering as customers do (i.e., shop our own stores). Human Resources needs to do a better job of establishing a climate for service in the organization. By this we mean the procedures, and behaviors that get rewarded and supported within the company with regard to customer service. Research

consistently demonstrates that service climate is positively linked with lower turnover, higher customer satisfaction, and improved financial performance. Finally, we as managers have to recognize and accept that not every customer has the potential or desire to be a Profitable Loyal. But we should make it easier for those customers who have the potential and the willingness to do so. To begin, managers need to research and discover what is keeping customers being the desired profitable, loyal customers we all want. And managers have to recognize the yin-yang aspect of meeting customer needs and meeting profit objectives. Creating and nurturing real customer loyalty requires satisfying customer needs and wants at a sustainable profit. Too often, customer-loyalty experts have ignored the latter in the belief that loyalty and profitability are synonymous. Unfortunately, the marketplace has irrefutably shown that this is not true. A winning strategy focuses everyone in the organization; accounting, marketing, finance, human resources and operations to come together for one cause: to profitably create and keep a customer. L

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Engaging Customers for Long-Term Success Emotion Throughout the Customer Life Cycle by Scott Bauer – Hallmark Business Expressions

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Like any relationship, a consumer’s connection with a business has ups and downs. These natural rises and dips often hinge on how the consumer interacts with the brand along the way, from a face-to-face transaction and online point of sale to other more intangible measures such as reviewing other customer ratings, seeing advertisements or receiving e-mail or direct mail solicitations. Each of these interactions provides an opportunity for the business to build and strengthen its connection with that customer. From the moment consumers become aware of the brand, these experiences become an important part of their brand perception and affect their emotional connection to the business.

CUSTOMER EKG The dotted line below illustrates emotional peaks and valleys that can occur in a customer relationship. The solid line demonstrates how greetings can maximize high points through affirmation & celebration and minimize low points through accountability & incentives. Enthusiastically Recommends

Loyalty

Responds to Incentive

Feels Appreciated

Impressed by Product/Service

Retention

Win Back

Apathy

Acquisition

Accepts Apology

Interest Wanes

Enticed by Competitor

O

ver time, these experiences begin to look like an EKG, plotting the highs and lows of the consumer’s relationship with the business. Companies, through their sales, marketing and customer service efforts, have the ability to maximize the highs and minimize the lows by employing a strategy that creates an emotional connection which helps foster engagement and build loyalty across all phases of the customer lifecycle. Brands that are strategic about using emotion during all phases of the customer lifecycle create mutually beneficial relationships with their customers and even out the peaks and valleys inherent in any business relationship. It is important to establish and continually reinforce an authentic emotional connection between you and your customer with every touchpoint. The essence of that connection is this: “We understand, appreciate and recognize your value to our company and intend to make every effort to please you.” This approach encourages a

Feels Taken For Granted Experiences Product/Service Failure

receptive mindset for any promotional or transactional message that is to follow. A word of caution—while it can be tempting to jump quickly to the transactional or promotional message, or even combine them with the emotional message, it is vital that the balance between emotional connection and selling be preserved. Companies cannot afford to risk even the appearance of insincerity. Successful companies endure because they understand engagement and advocacy requires more than just customer satisfaction. They know establishing a relationship with customers which reinforces the consumer’s emotional drivers—feelings of self esteem, contentment, recognition and appreciation by a business—can turn a one-time buyer into a long-term advocate, a true brand ambassador who not only supports the organization, but also recommends it to others. By positively engaging consumers you can drive behavior and create long-term ROI for your business.

A recent independent national consumer attitudinal study completed by Hallmark Business Expressions underscores the benefits of developing a customer engagement strategy that uses emotional drivers as part of the marketing mix. The study revealed businesses using greeting cards—traditionally a consumer relationship-building effort—can engage customers. Among the findings, the study showed that:

n 85% of consumers say that receiving a business greeting card after a purchase strengthens their relationship with that business n 50% of consumers who receive business greeting cards are more likely to do future business with the sender n 45% of consumers receiving business greeting cards will say something positive about that business to others The study also showed that greeting cards can ratchet up the trust factor between businesses and their customers. Employing marketing tactics that drive trust helps to establish a relevant connection with customers. L

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LOYALTY PROGRAM PROFILE:

Chase Ultimate Rewards Amid many changes in the banking and lending industry, including cut backs of benefits and reductions in credit lines, in June, J.P. Morgan Chase & Co. launched a new card-rewards program—Ultimate Rewards. We decided to take a closer look at this bold move. To learn more about this program, we visited www.ultimaterewards.com. On the landing page we’re invited to take a tour of the program. At first glance it appears prospective cardholders have to choose a program style: merchandise rewards, cash back or travel. This can be an unfortunate misinterpretation and lead potentially interested players away. Once you choose your path the introduction goes beyond what others are doing to explain program benefits and create excitement for the Ultimate Rewards program. You find out here, that the program is in fact

“All merchandise in the Ultimate Rewards program is sourced and fulfilled through Amazon.com—offering members the latest models and largest selection of products available.” all encompassing. If you take the time to listen to the short audio accompanied dynamic slide show, program benefits are explained in detail. This is what makes it nice. This short commercial feels like someone is there sitting with you to chat about how the program works and why it is great. It’s inviting, easy to use and understand and very different than I’ve seen with other cards (or programs for that matter).

Benefits of Ultimate Rewards: Point Earning: n E arn points on every purchase—1 point for virtually* every $1 you spend n E arn extra points when shopping through the Ultimate Rewards Mall online n E arn double points when you book flights on the Ultimate Rewards website n There are many levels / card products with the Ultimate Rewards program attached; some products have additional benefits and further earn options Added benefits: n U nlike a number of programs in the marketplace, points do not expire n You can purchase additional points; up to 5,000 additional points per month

Redeem points for: n M erchandise: Historically card reward programs provide a limited merchandise selection, sourced once a year, limiting access to current products such as electronics. All merchandise in the Ultimate Rewards program is sourced and fulfilled through Amazon.com offering members the latest models and largest selection of products available. n Travel: The online travel redemption allows cardholders to use points or a combination of points and your Chase credit card. So if you don’t have enough points for your flight, you can pay for the rest via your Chase credit card. n Cash: Cash redeems at 100 basis points; use 1,000 points and receive $10. Note, redemption checks do expire! You have 120 days to cash the check. All this and there’s no annual fee on most cards! Some cards, the Chase Freedom cardholders who want to earn a fixed 3% on gas, grocery and fast food have a $30 annual fee. And the Chase Sapphire Preferred card has a $95 annual fee—for this fee the cardholders get Ultimate Rewards plus the ability to transfer points to other travel reward programs.

RECOMMENDATION

In reviewing other available credit card programs, we give Ultimate Rewards The ability to easily earn additional points, the fact that points don’t expire, the cash value and most exciting, the large and current merchandise selection, make this program stand out!

Each issue we’ll be sending our secret shopper out to experience a particular brand first hand. Our shopper will sign up for the loyalty program, if one is available, and interact with the company at least 3 times, then share their experience with all of us. Your suggestions for the next brand review are welcomed: email your suggestions to [email protected]. * You will earn 1 point for each $1 of net purchases. You will earn an additional 1 point for each $1 of eligible airfare net purchases made online through the program booking tool. You do not earn points on balance transfers, cash advances, cash-like charges such as travelers checks, foreign currency, and money orders, any checks that are used to access your account, overdraft advances, interest, unauthorized or fraudulent charges, or fees of any kind, including fees for products that protect or insure the balances of your account. L

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SAVE THE DATE FOR THE 2010

JUNE 6-8, 2010 OMNI CHAMPIONS GATE ORLANDO, FLORIDA

www.loyaltyexpo.com

THE CONFERENCE BRINGING PEOPLE TOGETHER TO

FOCUS ON MAXIMIZING CUSTOMER, EMPLOYEE,

& CLIENT RELATIONSHIPS INTERESTED IN SPEAKING OR BOOTH SPACE? Contact Erin Raese at [email protected]



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LOYALTY

PRSRT STD Prsrt Std U.S. U.S.POSTAGE Postage

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NOVEMBER 18 & 19, 2009 Sheraton Chicago Hotel & Towers Chicago, IL • engagementexpo.com The Engagement Expo will take a deeper look at the best

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as traditional media — and how to leverage these as part of your marketing communication mix. If you're interested in sponsoring at this conference, please contact Mark Johnson at [email protected]