Frequency vs. Loyalty: What’s the right answer?

The issue of customer loyalty and the role of loyalty marketing continues to be a big issue being discussed in almost every company right now. With smaller budgets, smaller marketing departments and a focus on customer retention, it is no surprise that marketers are trying to figure this out.

A large number of them have been reacting in a knee-jerk manner – creating and launching loyalty programs.

But, are loyalty programs really necessary? Is loyalty really an achievable goal for most brands in most categories?

I have a very clear point-of-view. Most brands don’t really need a loyalty program. What they actually need is a frequency marketing program – a program that will bring their customers back more frequently than they currently are. That’s what most marketers want. And, that’s actually what they need (to drive transactions). But, there is enough confusion in the definitions that very few marketers are distinguishing between the two.

In an attempt to simplify the discussion, I have provided some thoughts on distinctions between frequency and loyalty.

Frequency is about getting more transactions than you currently get from your existing customers.  If someone comes once-a-month (12X a year), can you get them to come one more time? Loyalty is about deepening the relationship that they currently have with you.

Frequency is behavioral while loyalty is attitudinal.  Behaviors drive transactions and make the cash register ring.  Attitudes make for nice charts in tracking studies.

Frequency is easier to effect with more relevant communications and offers – timed right.  Loyalty is harder to gain.  Changing attitudes to the deeper level takes significant level of time and resources.  It is also a goal that is unachievable in most categories.

Increasing frequency has the potential to create loyalty – you have to use the simple equation (2RL+2RC+RW=CL) – but execute consistently over time.  It also assumes that your category has the level of emotional cachet to allow those bonds to be made.

Frequency marketing programs are easier to execute.  They do not create liabilities on your balance sheet and can be evolved and refined at the company’s discretion.  Loyalty marketing programs, on the other hand, require a long-term commitment that becomes a big factor for the company and the balance sheet.  It becomes extremely hard to refine and evolve the program without the agreement of your customers.

Frequency can be executed by marketing with some support of other departments.  Loyalty programs require alignment across the entire organization.

None of my arguments above should constrain your aspirations to generating loyalty. I posit that if you can begin to improve frequency levels among your core customers, with the appropriate attitudinal beliefs, you will create loyalty.  It will be the outcome of a strategic frequency marketing program and will be cheaper and faster to execute.

Given that reality of time being our worst enemy, it’s the way to have a quick and immediate impact on the business.

A Simple Equation for Loyalty Marketing

This economic environment is encouraging marketers to focus on shifting their spend from traditional acquisition marketing to efforts that generate value from their existing customers. The marketing paradigm is clear – it costs significantly less to retain an existing customer versus trying to acquire a new (and reluctant) one.

This issue is leading to many conversations about developing and executing loyalty programs. However, based on the quality of the discussions with companies across multiple categories, I see a significant level of misunderstanding. There is a lack of clarity about the role of loyalty programs as well as the components that make up a successful loyalty program.

Let’s first tackle the role issue. In my opinion, the most important role of a loyalty program is to engage with the brand’s core customer group and learn how it can best serve their needs. Brands need to serve these customers in a completely differentiated manner from its competitive set. Marketing applications are just the tip of the iceberg. The knowledge and insight gained from customer behaviors should be used to improve their experience with the brand. The end result is to have these customers become bonded to the brand. This is the secret of success for Tesco and Harrah’s, arguably the two best loyalty programs in the world today.

However, considering most companies don’t have a decade (Harrah’s) or fifteen years (Tesco) to develop and refine their program, here is a simple formula to help create an effective loyalty program.

2RL + 2RC + RW = Loyalty (Two parts Relevance plus 2 parts Recognition plus one part Reward equals Customer Loyalty.)

Relevance is essentially providing your customers with information and offers about products/services that would be the most appropriate to them based on their past transactional behaviors. For example, I buy my jeans from Old Navy. Don’t ask me why, but they fit me better than any other brand. If they send me offers/communications offering new styles of jeans or sweaters that coordinate with my recent purchases, it is relevant to me. Not necessarily the specific items – adjacent categories are still relevant. Unfortunately, Old Navy does not do this. Instead, I receive emails from them offering me great deals on baby and maternity clothes.

Recognition is about letting the customer know that they are important to you. Best Buy does a good job by recognizing their customer’s business with them. Not only do they provide their customers with additional value, but they also communicate with them in a very personal way. They use the data from their Reward Zone program very effectively to build better relationships.

Reward is the specific offer. While this is very important, it is only a small part of the effort to encourage your customer to truly behave the way you would like. A meaningful offer can drive significant results. It doesn’t have to be monetary in nature, either. Here is an example of this that I read in a recent issue of Business Week magazine. Researchers at Britain’s Nottingham School of Economics worked with a large German wholesaler that sells goods on EBay, tracking the lukewarm or negative comments posted on the site by the company’s customers over six months. They then responded to 632 complaints. Half of the e-mailed responses offered a brief apology. Half offered instead a “goodwill gesture” of a small cash rebate. All e-mails asked customers to remove the comments they had posted online. For those offered the rebate, it was a condition of receiving the cash. About 45% of customers receiving an apology withdrew their so-so or negative ratings, compared with 21% of those offered money to do so. To me this shows that a relevant human approach that recognizes their customers’ goodness can deliver a strong response.

So if you are looking to drive loyalty among your core customers, follow this simple formula (2RL + 2RC + RW = CL) and you’ll see some pretty strong results.

Extreme Makeover: Brand Edition

When it comes to brands and their positioning and packaging, marketers get bored of them long before consumers even get used to them. Unlike their customers, marketers think about, talk about and look at their brand all day long. Even the most loyal customers don’t have this kind of relationship. Then, often sooner than necessary, marketers suggest a change to keep the brand “fresh.” This is a tricky thing to do, however, and often occurs long before it needs to.

A good example of this is the recent Tropicana orange juice packaging redesign. When Tropicana debuted new packaging and brand identity for its Tropicana Pure Premium orange juice, consumers responded with passionate complaints and outrage. After less than two months, the company decided to respond to their customers’ demands and return to the original packaging.

Interestingly, the sheer volume of consumer response was not the reason for the switch. According to Tropicana NA president Neil Campbell in a recent New York Times article, it was because it came from “some of [their] most loyal customers.” I think this is a great point. There will always be dissatisfied consumers, but marketers need to focus on their best and most loyal customers in order to continue to move the brand in the right direction. This is something that most companies don’t spend enough time doing.

In the article, Campbell also stated “I feel it’s the right thing to do, to innovate as a company. I wouldn’t want to stop innovating as a result of this. At the same time, if consumers are speaking, you have to listen.” While innovation is the key to keeping up with your customers, it needs to be smart and well-executed – not just innovation for the sake of innovation.

In times like these, when consumers are changing their minds and their behaviors almost hourly, marketers need to use real-time data and analytics to continue to learn about their customer-base and their evolving needs and wants. Then, when they are really ready for a change, marketers can give it to them. Until then, marketers should avoid giving their brands a makeover when their most loyal customers still love the original.

Is Smarter Spending Here to Stay?

The current recession is on everyone’s minds right now – business leaders, politicians, marketers and consumers alike. Constant reminders of economic doom in our professional and personal lives have clearly changed the way we behave. Consumers are shopping differently. They are acting more frugal, researching each purchase and avoiding impulse buys. At this point, this change is old news.

But when our economy returns to its normal, pre-crisis state, will shoppers’ behavior revert as well?

As referenced in a recent Ad Age article, this issue is on the mind of many marketers. According to the article, this recession has had a much bigger impact on people than the last big crash in 1987. People really fear for the future. Thanks to vanishing retirement funds, people are being forced to work much longer than they had ever anticipated. In fact, 40% of people over 55 are currently in the workforce – a 10 year high, according to Barron’s.

As a result, people are re-thinking about what’s important to them and, in a sense, returning to more traditional values. Their attitudes may be the same – they still want that new car – but they are behaving differently – they aren’t necessarily buying it. People are being much more practical and focusing on saving for the future.

I believe, however, that the American consumer’s mindset is not changed forever. The frivolous spending and over-the-top consumerism that was prevalent over the last 30 years may be gone for good, but people innately like to shop. Consumers will likely make more of an effort to find good deals on significant purchases, but I think that impulse shopping will continue to be a part of the American culture.

The current economic downturn may permanently impact American values and shopping behavior, but eventually consumers will return to some of their old ways.

Practice What You Preach

It is always important to practice what you preach, especially when it comes to marketing. A fundamental example of this is a direct marketing piece I created and sent out this past month.

The piece was basically a box designed to hold a cell phone with my telephone number programmed into it, as well as some written information about Euro RSCG Discovery. Recipients were encouraged to call me to discuss Discovery’s marketing and business solutions first and read the material second.

Rather than simply reading about our company, this piece got people to behave the way we wanted, right from the start. They engaged in a conversation about it, which provided a deeper, more relevant perspective of who we are. And it worked – we had a 70% response rate!

Many companies send out direct mail and expect people to read and believe everything they have to say about a product or service. At the end of the communication, recipients are urged to call for additional information. However, it typically does not work that way. Many times, recipients do not read the material and do not come away with a better understanding of the company’s offerings. Because it is a passive, one-sided communication, it is not nearly as effective as getting people to act first.

Encouraging a behavior first allowed me to connect with prospects in a different way. After the call, these people then went back and reviewed the written materials in the package and fully understood our value proposition. Our conversation made the content even more personal and relevant.

The old model of message first and behavior last is no longer effective. It is incredibly important to engage your customers and encourage them to behave first. That is the best way to serve your business.

Webinar This Thursday, May 7th

I will be conducting a free webinar this Thursday, May 7th at 12:00 pm CST / 1:00 pm EST. In the webinar, I will talk about the new approach to marketing that I call Brand Rituals™.

If you would like to attend, please email me for additional information.

A Sign Of The Times – Companies Changing Their Marketing Focus

It takes a fundamental change in the environment for marketing models and approaches to change. In the current environment, we’re seeing a significant number of companies begin to use the principles of retention marketing (over acquisition marketing alone).

Banks are leading this paradigm. Given their unique situation, they have recognized the benefit of retention-based marketing strategies over typical acquisition-driven efforts. Last week, Mintel Compermedia reported that banks registered a 57% increase in direct mail geared toward selling additional products and services to current customers. A very big shift.

Banks also increased CRM-related mailings by 37%, including loyalty messages, renewal notices and upgrade offers to entice current customers. In fact, 94% of all bank emails in 2008 were sent to existing bank clients. The number rose from 89% in 2007, while acquisition-based emails dropped from 10% to 6%.

While acquisition-directed mail still accounted for the overwhelming majority of all bank direct mail, the percentage dropped from 85% in 2007 to 81% in 2008. Conversely, retention-based mailings increased to 15% last year.

Banks are clearly beginning to realize the importance of focusing on their existing customers. In today’s tough economic environment, it is more difficult than ever to acquire new clients and much more expensive. Companies in other categories need to learn from this and do the same. Especially retail, where most marketing departments are still being asked to drive traffic by acquiring new customers and very few have organized retention marketing programs.

This shift in your strategic focus – protecting your current customers and getting them to buy additional products and services is the best way to drive profitable growth at this time. And by communicating with them and engaging them in a deeper relationship with your brand, you can build valuable customer loyalty in a time of financial uncertainty.

Think current customers. Think retention first. You will see better results.

Why Attend Conferences?

“He who learns but does not think, is lost! He who thinks but does not learn is in great danger.”
- Confucius

As a frequent conference attendee and speaker, I thought I would focus on the value of these types of events for this week’s post.

There are many reasons to attend conferences, the most obvious being education. As a professional, it is important to continue to learn. Today’s marketing world changes daily, so what you learned back in college or your first few years on the job may not apply today. You can gain more from one day at a conference than from all of the blogs and articles you can read in a month.

Learning through conferences is also great for personal development. It keeps you fresh, energized, inspired. There is nothing like being in a huge banquet room in a beautiful hotel filled with people who share your same passions. The energy is undeniable. Pulse is an essential part of that. You miss out on context with blogs, trade publications and the like. Seeing the reactions of those around you helps you keep an eye on the pulse of the industry. The experience of actually being there to participate in the discussion makes it much more worthwhile than your everyday podcast or webcast.

In that sea of like-minded individuals can even be your next client, colleague or friend. The networking at conferences is yet another valuable element. Contacts made while grabbing a coffee or lunch between sessions can be well worth the time and cost of the conference alone.

For these reasons – and many more, I make a habit of attending all of the conferences that my schedule will allow. I hope to see you all at my next event – the Retail Advertising Conference in Las Vegas on Feb. 25-27 – where I would like to buy you that cup of coffee. Please don’t hesitate to contact me if you will be in attendance.

RAC 2009

If A Customer Behaves In The Forest And No One Is Around To Analyze It…

According to the Annual Marketing Survey by Alterian, companies will continue to invest heavily into online marketing in 2009, but less than half of marketers plan to use analytics to measure their campaigns.

Online direct marketing will also increase this year, with 62% of organizations planning an increase in that budget. Additionally, companies will look towards social networks, email, SEO and pay-per-click advertising. Yet, only 47% of those surveyed will use analytics to measure the success of this activity.

The data gathered around these types of consumer behaviors can be extremely valuable. It is this kind of information that can help you recognize your best customers and how they respond to your brand’s communications. Analysis of customer behavior can help refine your marketing campaign, increase customer loyalty and ultimately drive profits in today’s challenging economic situation.

So why aren’t more of you doing it?

Black Friday Behavior Versus Attitudes

For the last few months, retail industry experts and research firms have been predicting some pretty grim holiday sales numbers. It is no secret that our country is experiencing tough economic times. However, this “Black Friday” surprised many with an increase in sales of 3 percent from last year, according to research firm ShopperTrak RCT Corp. Reportedly, sales rose to $10.6 billion. This is the smallest increase since a decline of 0.9 percent in 2005 – compared with an 8.3 percent surge last year.

While the increase is smaller in years past, it is still an increase in sales. This is just another example of how people tend to focus on consumer’s thoughts or attitudes rather than their behavior. American shoppers behaved. They still shopped this weekend, despite their more frugal mind-set.

What does this mean? Have prices finally gotten low enough that customers are buying all of the things on their list? Could this mean that consumer confidence is not as low as we once believed? Is behavior outpacing attitudes?

What do you think?