Silver Lining: Using the Economic Downturn to Win Sustainable Customer Loyalty

I bet everyone will agree that we are in a significant economic downturn. Consumer confidence is hitting all time lows. Their net worth is declining. Their costs are increasing. They are buying less and they’re focusing on what they need instead of what they want.

This is a problem for marketers. How do you create demand when your core constituent is running for cover?

I see most marketers doing the same thing that they’ve always done – looking to the past to find solutions for now and the future. Most of them are using ideas from the last millennium to try and solve problems of today.

No wonder they’re struggling. It’s like using an analgesic (an expired one at that) to treat a patient with terminal disease.

They are trying all they can to entice customers – using the same old and tired tactics and methods – rebates, promotions, low-price offers, blow-out sales, etc., etc., etc.

If numbers are a judge, this prescription doesn’t seem to be working. Results are mostly disappointing. Why is this?

Let me offer an explanation and solution.

The times have changed. Consumers have changed. It is no longer enough to get consumers to believe you have the lowest price or the most aggressive deals or that you’re willing to give it away… because everyone else is too. Given the environment, they’re just not willing to buy what they don’t need. That said, they’re not going to buy just because it is cheaper. There is an Eastern saying “if the horse isn’t thirsty you can sweeten the water all you want, it still won’t drink,” that is the business situation today.

To make consumers consider your proposition, you need to give them a compelling reason to buy and equally important, you have to give them a compelling reason to stay. These reasons have to be more than a sale or price-offs.

I’m sure you are saying, “sounds feasible but how do I do this?”

First, you need very good information — knowledge and insight into your customer base. And you need information that has the predictive power to minimize decisional risk. You can get this from creative use of transactional and behavioral data and combine it with attitudinal research among your core audience.

Second you need to use this information in conjunction with the overall environmental factors to find and solve some of the most critical pain points that exist for your customers. I am talking a real tangible proposition that is meaningful and not just generic marketing claims.

If you can do this, you will be surprised to discover that in addition to driving loyalty among your core customer group, this same solution will work to attract a large group of your competitor’s customers to your franchise.

Does this sound too good to be true? Here’s how it can work:

Say you are marketing a car brand. You have data on customers that have bought a car from you a few years ago. You know they only get 20 miles per gallon and spend $$$ on maintenance a year. Your 2008 model cars are more fuel efficient and require low maintenance compared to the older model. Instead of only offering $$$’s off as rebates, you can use part of this money to provide a clear proposition that makes upgrading to a new car a beneficial proposition. If you own a 2004 or earlier model of car, buy this 2008 model. With this new car, you can save $$$ on gas cost per year and with zero maintenance and a low monthly lease payment, you are making a better financial decision.

Say you are a property and casualty insurer. And, say you want to increase your footprint in the home insurance market. Based on your data you can identify customers that have not had any claims, they take care of their homes and are likely to stay there for a while. Because of this they are very profitable customers but possibly vulnerable. What if you mailed them a check to invest in their homes? Would this make them more loyal? Would this be compelling for others? When was the last time an insurance company sent you a check?

Let’s consider another example. Say you are a wireless phone company. You have data on your customer usage of the various services. Based on this data you will see a group of customers who don’t use what they pay for. They buy 1,000 minutes but only use 600. What if you sent a note telling the customer that based on their usage, you are either willing to reduce their monthly charge or they can apply the difference to other services. Experience shows that most of the customers will apply it to other services and their loyalty and spend with you will increase.

There are a large number of examples on how you can use the transactional and behavioral data that exists in the bowels of every organization. Marry this with pure human insight to solve real consumer problems. By providing your customers with real solutions that are relevant to them and their needs, you can acquire and retain more customers more profitably. And, build stronger, deeper and more meaningful loyal relationship with your brand.

Given the economic environment and the increasing competitive clutter, what would you rather do? Use the old, commoditized tactics from the last millennium or the new scientific approach to fulfill your customer needs in a highly differentiated manner?

The choice is yours. Make it wisely.

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Categories: brand strategy, crm, database, economic downturn, loyalty, marketing, measurable, segmentation

6 replies

  1. Zain- I think you’re right. Most businesses are freaking out right now and preparing for the worst. That’s why retailers like Wal-Mart and Target have started their holiday season in October. What most businesses don’t realize is by cutting corners with training and marketing , then logically the few companies who train their staff and market their products and services effectively will grow their market share, and profit, and in turn- increase loyalty. Loyalty is more important than ever in times like these. Nice article– keep them coming!

  2. Thanks, Erin. Loyalty will continue to be important, especially in today’s business and economic environment. Companies and brands that use their customer data to understand and solve their core needs will be the ones that win.

  3. I couldn’t agree with you more, Zain. The “lowest price offer” is a commodity in today’s retail environment. Companies using old strategies are marketing in “standard definition” — not leveraging the benefits of a “high def” world of information available to them. Marketers who smartly utilize customer data to generate customized, relevant offers and messages are the ones who will win now and in the long run. Curious as to who you feel is doing the best job recently?

  4. Zain. I think you are absolutely correct, and have the key chess move for strong companies of 2010 and beyond. many facts point to most companies dial down their marketing budgets during downturns. This is human nature. However, most companies that perform well out of downturns actually increase their budgets at these times.

    That is easy to say, especially now. I think what you have hit on is the information marketers need to make that jump. It can look risky, but with the right message, that risk can decrease significantly. lastly, one should not invest without a good strategy. maybe tat is why most marketeers do hold back on initiatives at this times. you are giving them a reasons to have confidence in that decision.

  5. Knowledge and insight is critical and when used right it is powerful in driving consumer behavior, which at the end of the day is what any consumer driven business is all about. However, consumer loyalty is much more of an idealism today than ever before. It has become a vicious circle. Consumers work for companies that have become less loyal to them and in turn consumers have become less loyal to businesses. We all want consumers to be loyal but consumers are living in a tough economic time and getting the best deal today means buying at the cheapest price (sales, rebates, etc). That is the reality. The opportunity ahead is for marketers to use data and the insights from that data in order to shift consumer thinking away from best deal in terms of price to best deal in terms of value. That’s when both sides will win.

  6. This is a good dialogue. The DMA has their annual conference in Vegas next week. There will be a lot of discussion about loyalty given the economic climate… I do hope that this discussion stays focused on the importance of businesses clearly understanding that they have an implicit contract with their customers.

    Loyalty works both ways. Equally, the best loyalty programs work as a mutually beneficial contract between the brand and the customer.

    In fact, loyalty programs are more about the brand showing loyalty to the customer as they are about the customer showing loyalty to the brand. And the reward to customers should be considered no more a bribe than the company’s dividend to its shareholders is a bribe.

    That is why companies and brands need to innovate using the data they have.

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