The Top 3 Myths (vs. Reality) Associated with Customer Loyalty and Customer Loyalty Programs

Customer Loyalty Myths vs. Reality

                                 Customer Loyalty Myths vs. Reality

The Top 3 Myths Related to Customer Loyalty & Customer Loyalty Programs

The Harsh Reality About Customer Loyalty

                          The Harsh Reality About Customer Loyalty

Achieving High Degrees of Customer Loyalty is Even More Elusive Than Ever

The Harsh Reality About Customer Loyalty - Continued

                          The Harsh Reality About Customer Loyalty – Continued

 

Customer Loyalty is Declining Across the Board for Many Industries

Revealed: Root Causes for Customer Defection

                             Revealed: Root Causes for Customer Defection

 

Why Customers are Defecting to Other, Competitor Companies

Customers Feedback on the Major Factors that Drive Their Continued Loyalty

           Customers Feedback on the Major Factors that Drive Their Continued Loyalty

What Factors Drive Customer Loyalty The Most

 

Myth #1: Understanding Customer Satisfaction is Enough to Predict Loyalty

 

Customer Satisfaction is Only One Insight in Determining both Short-Term and Long-Term Customer Loyalty

Customer Satisfaction is Only One Insight in Determining both Short-Term and Long-Term Customer Loyalty

Holistic Insights You Must Have to Drive Effective Customer Loyalty Programs – Part 1

Customer Satisfaction is Only One Insight in Determining both Short-Term and Long-Term Customer Loyalty - continued

Customer Satisfaction is Only One Insight in Determining both Short-Term and Long-Term Customer Loyalty – continued

Holistic Insights You Must Have to Drive Effective Customer Loyalty Programs – Part 2

 

360° Loyalty Insights Enable High Degrees of Loyalty

                           360° Loyalty Insights Enable High Degrees of Loyalty

Effective Customer Loyalty Programs Are Highly Tailored Based on Multi-Dimensional Customer Loyalty Insights Shown Above

 

Customer Loyalty Management is Multi-Dimensional

Customer Loyalty Management is Multi-Dimensional

Effective Customer Loyalty Programs are Multi-Dimensional in Their Approach and Focus on Many Program Objectives

Customer Loyalty Management is Multi-Dimensional

 

Customer Loyalty is Established & Maintained by Nearly Every Department within the Company

Customer Loyalty is Established & Maintained by Nearly Every Department within the Company

Customer Loyalty is Everyone’s Responsibility within the Company

The end

 

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The Loyalty Program Toolkit: Lessons Learned & Best Practices Enabling Break-Away Competitive Advantage

The content of this blog is a customer loyalty toolkit containing a host of loyalty program development ‘how to knowledge’ including best practices, project plan, business case, pros/cons, customer loyalty definition, customer loyalty benefits, loyalty program communications plan, loyalty program change drivers and loyalty program development lessons learned.

Sample Blog Content

                                                               Sample Blog Content

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The market is currently saturated with customer loyalty programs that are either marginally effective or that actually represent an inconvenience to the very customers they are trying to retain. If you are even thinking of launching a loyalty program, consider the Ten Commandments of Loyalty Programs listed below.

Ten Commandments of Loyalty Programs:

  1. The rewards of the loyalty program must be so compelling that customers are actually driven to defect from your competitors and organically refer other customers to your program
  2. The rewards from the loyalty program must be so super-simple to redeem, the customer can do it without any unnatural and inconvenient steps: finding their card, remembering their rewards number, etc.
  3. The rewards from the loyalty program maximize customer choice for redemption: Cash back, points with cash payments, merchandise, travel, buy points, donate points, transfer points, etc.
  4. Company employees are empowered to distribute points to customers based on need such as distributing points to make up for a customer service issue or for a customer’s good will toward the company
  5. Top Tier Customer loyalty achievers for each year are recognized in special ways: Meet with company CxOs to get their feedback; special in-person awards ceremonies, extra unannounced super-perks the following year, etc.
  6. The pre-launch company rewards program is designed such that rewards programs rating agencies (Freddie Awards, Flyertalk), pre-determine the program to be top in class prior to launch based on the design concepts, rewards program content, etc. Ongoing reviews ensure top program billing following the program launch
  7. Rewards program acquisition strategy must include conversion of a customer’s competitor points to join your company’s rewards program at the same level as your competitor(s). (a.k.a. a lateral join)
  8. Any loyalty program should not even be considered without first leveraging Advanced Predictive Modeling Techniques (APMTs) to determine an overall program cost estimate. These APMTs tend to be much more responsive and accurate, quickly reflecting the impacts of all available information on the program liability. Without this APMT component, the program must be cost prohibitive and drive your product/services costs up to unsustainable levels.
  9. The loyalty program must enable communications with its members via the member’s communication channel of choice without burdening members will annoying and redundant member information requests. 
  10. The loyalty program should encourage family company loyalty to the extent of top market leaders (USAA insurance for military service members) such that rewards can be transferred to family members, left to family members after death, allow entry at preferred reward program loyalty levels for select family members of top earners, etc.
Loyalty Program Strategic Drivers & Levers

Loyalty Program Strategic Drivers & Levers

Any world-class loyalty programs that I have helped establish and/or evolve at Macy’s, Bank of America, Wells Fargo, Starwood, Marriott, and American Airlines ALL contain (at least, as a common denominator) the above seven (7) strategic levers as part of their loyalty program. 

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Loyalty Program Levers

Reasons People Leave Companies

Reasons People Leave Companies

 The Relationship Between Customers Treatment & Retention

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 Benefits of Customer Loyalty

Benefits Of Customer Loyalty

Benefits Of Customer Loyalty

Company Benefits of Customer Loyalty

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Loyalty Definition

What Is Customer Loyalty

What Is Customer Loyalty

A Good Definition for Customer Loyalty

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 Change Drivers for Loyalty Programs

Change Drivers For Customer Loyalty Programs

Change Drivers For Customer Loyalty Programs

Drivers (Reasons) for Creating a Customer Loyalty Program

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Objectives & Desired Behavior Of A Loyalty Program

Objectives & Desired Behavior Of A Loyalty Program

Loyalty Program Corporate Objectives

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Loyalty Program Approach

                                Loyalty Program Approach

Customer Loyalty Program Approach

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Positioning The Loyalty Program

Positioning The Loyalty Program

Customer Loyalty Program Requirements Development

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Loyalty Program Type & Content Examples

Loyalty Program Type & Content Examples

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Loyalty Program - Balancing Benefits With Company Costs

Loyalty Program – Balancing Benefits With Company Costs

Loyalty Program Customer Benefits & Company Costs

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Loyalty Program Business Case

                            Loyalty Program Business Case

Loyalty Program Business Case and Reward Financial Model

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Loyalty Program Communications Plan

Loyalty Program Communications Plan

Customer Loyalty Program Communication Plan Structure

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Loyalty Program Point Collection Simulator

Loyalty Program Point Collection Simulator

Customer Loyalty Program Reward Point Redemption Simulator

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Loyalty Program Point Redemption Calculator

Loyalty Program Point Redemption Calculator

Loyalty Program Reward Category Point Redemption Volume Estimates

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Loyalty Program Business Case & Project Plan

Loyalty Program Business Case & Project Plan

Loyalty Program Business Case & Project Plan

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Loyalty Program Pros and Cons

Loyalty Program Pros and Cons

Customer Loyalty Program Pros & Cons

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Loyalty Program Lessons Learned - 1 of 3

Loyalty Program Lessons Learned – 1 of 3

Customer Loyalty Program Lessons Learned & Best Practices (1 of 3)

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Loyalty Program Lessons Learned - 2 of 3

Loyalty Program Lessons Learned – 2 of 3

Customer Loyalty Program Lessons Learned & Best Practices (2 of 3)

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Loyalty Program Lessons Learned - 3 of 3

Loyalty Program Lessons Learned – 3 of 3

Customer Loyalty Program Lessons Learned & Best Practices (3 of 3)

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Bottom Line: If you are ever considering implementing a customer loyalty program, please take the above lessons learned and best practices into account as these were all developed after having successfully implemented several of these loyalty programs at Fortune 500 companies across the globe.

The 80/20 Customer Profitability Rule

Develop intelligent customer service & customer management programs based on customer value insights…

Has your business ever performed an analysis of your customer base to determine any of the following:

1)      Which customers are frequent visitors and have the greatest repeat business?

2)      Which ones rarely do business with your company?

3)      Which ones are the most valuable and profitable to your company?

If you haven’t then you really don’t have the insights necessary to really develop an effective customer service, customer management and/or loyalty program.  In performing analytics and customer analysis for nearly 10% of the Fortune 500 companies in the United States, I have found a very revealing and astonishing pattern (rule) in this customer analysis that holds true company after company.  The pattern is as follows:

80% of all company profits are derived from ~20% of your customers

Take the chart below (Chart 1) from one of the top US banks that shows 20% of their customers are responsible for 82% of their profitability and that a full 47% of customers are actually unprofitable and not worth having as customer as each transaction costs the bank more than it is worth (each customer interaction/transaction actually drives the bank further away from profitability) {Click on Chart for a larger/clearer image}:

80% of all company profits are derived from ~20% of your customers

80% of all company profits are derived from ~20% of your customers

When I presented this customer profitability analysis to the bank, the bank executives were amazed at the results and of the customer profitability distribution. (Note – The deciles were developed using a SAS generated RFM analytics model whereby Recency (How recent customer have visited/purchased), Frequency (How frequently customers have visited/purchased and when they visited/purchased) and Monetary spend (How much they spend and on what types of products/services they spent their $$ on). The RFM model was then used as input into a profitability model, using actual profit data for each product/service/customer using a unique customer id to match the profit data to the RFM score.)Why are these insights and analytics so important and what might the bank or any other business do to manage customer relationships more effectively?  These insights are key in developing a customer relationship management (CRM) and loyalty program that is tailored and specific to each customer group. 

Note: The 80/20 rule applies to companies that have higher transaction volumes, a diverse set of product & services and a heterogeneous customer base.

Ask yourself the following questions:

  1. Should your company treat your best and most profitable customers differently than other, less profitable customers?
  2. Should your company develop special customer programs so that the 20% most profitable customers are not lured away by competitors?
  3. Do you think your company’s most profitable and valuable customers want to be shown appreciation for their repeat and profitable business in a way that makes them feel welcome and special?
  4. Is it in your company’s best interest to want to develop strategies and programs that turn unprofitable customers into profitable or at least revenue neutral customers?

The answer to all four questions should be a resounding YES!

Armed with the above insights and analysis a company can start to architect customer intimacy and loyalty programs such as the following:

  1. Offer most profitable customer special discounts or accelerated loyalty rewards earning rates
  2. Conduct special top customer, by invite only, appreciation events
  3. Deliver occasional special top customer gifts or recognition when they interact with you in-person or on-line
  4. Invite your top 1-5% of customers to participate in an invite only customer advisory board or insights group event every year at an exciting destination where most or all expenses are paid for by your company
  5. Develop unprofitable customer management programs such that these customers become more profitable, cost less per company transaction and/or they are effectively ‘encouraged’ to migrate to competitors.

Take the same chart above and now overlay customer treatment programs to each customer decile and sub-segment (Chart 2) {Click on Chart for a larger/clearer image}

Effective Customer Management Programs Based on Profitability Insights

Effective Customer Management Programs Based on Profitability Insights

Even though decile #1 (10% of all customers) has been identified as the most valuable customer segment generating 65% of all company profits, the decile can then be further sub-segmented based on further profitability analysis/decomposition.  In this particular case:

  1. The top 5% of the top profitability decile customers generated 42% of all profits
  2. The remaining 5% of the top profitability decile customers generated 23% of profits

As shown in the ‘golden’ box (#1) above and below, these top tier customers should be given special access and special attention and made to feel totally appreciated and a partner of the company. The golden box also demonstrates the types of special programs you might want to provide to this top profitability group. It is of your utmost importance to do everything in your company’s power not to lose these most valuable/profitable customers. These suggested treatments are just a sample, but ones I have developed for many clients in the past, including top tier banks, retailers, life sciences companies, telecommunications providers, etc. {Click on Chart for a larger/clearer image}:

Top 5% of Customers Receive Platinum Plus Customer Programs

Top 5% of Customers Receive Platinum Plus Customer Programs

The next (Green) group of profitable customers highlighted in box #2 (below) can receive special treatment as well, but not quite the golden treatment as the most profitable 5%. These next valuable set of customers would still receive top customer treatment, but not quite the platinum access that the most valuable 5% would receive. You wouldn’t want to lose these valuable customers either, so their treatment would still be special, memorable and differentiated vs. your competitors. {Click on Chart for a larger/clearer image}:

Next Top Set of Customers Receive Top Treatment, but not Special Access, Handling Like the top 5% (Platinum) Group

Next Top Set of Customers Receive Top Treatment, but not Special Access, Handling Like the top 5% (Platinum) Group

The blue box (#3) in the chart below speaks to customer migration programs that incentivize customers to spend more, visit your company (physical or online) more, purchase higher value items, buy in bundles, etc. {Click on Chart for a larger/clearer image}:

Effective Customer Management Programs Effectively Transition Customers into More Valuable Customers Over Time

Effective Customer Management Programs Effectively Transition Customers into More Valuable Customers Over Time

One very effective way to do this is to develop what I call modeled incentives. In that, if a loyalty program is to be effective there should be an incentive for the customer to model the behavior to achieve the next loyalty reward level and the following must be present:

1)      Every customer group must know what they need to do to achieve the next loyalty rewards level

2)      Customers need to feel the next loyalty rewards level is significantly more valuable than their existing level

3)      There should be prestige and/or notoriety associated with achievement of the next loyalty rewards level so that customers feel privileged, special and differentiated from regular customers.

Lastly, the red box (#4) below speaks to customer management programs that need to either turn these unprofitable customers into profitable customers or find ways to reduce the cost to serve these unprofitable segments. Some strategies including limiting these customers to self-service, providing incentives to transact during off hours, incentivizing them to seek lower cost providers, etc. {Click on Chart for a larger/clearer image}:

Effective Customer Management Program Also Address Unprofitable Customers

Effective Customer Management Program Also Address Unprofitable Customers

The bottom line is that, through customer insights and analytics, you will find that not all customers are the same in terms of profitability (the 80/20 rule), therefore it makes no sense whatsoever to treat all customers the same. Through a robust customer insights program you will then be able to leverage these insights and develop a sophisticated and custom loyalty and retention program in order to accomplish the following:

  1. Develop break-away tier 1 (Platinum) loyalty programs that stand alone in the industry such that your top 1-5% most valuable customers would not even consider defecting to another provider
  2. Develop programs to retain your most profitable customers and make them want to remain a loyal customer
  3. Develop a loyalty migration path for customers to want to achieve the next loyalty rewards level (Silver, Gold, and Platinum) so that they simultaneously feel more recognized/special/connected to the company while providing your company great value/profits/monetary return.
  4. Develop programs to mitigate expenses when dealing with your least profitable customers (more self-service, helping them ‘discover’ lower cost competitors, offering more limited services, etc.) (the other 80%)
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