Colloquy’s latest issue celebrates their 25 year anniversary and features commentary from Seth Godin, Don Peppers, Daniel Pink and yours truly on where loyalty marketing has been and where it is headed. Enjoy!
As a senior retail executive and consultant I’ve worked on more strategic growth and innovation projects than I can possibly enumerate.
Regardless of the size, industry sector or maturity stage of the company, every effort has had a common denominator: risk. And every one has had a common enemy too: fear–or, more specifically, fear of change. Fear of change is always the bogeyman to be conquered, the dragon that must be slain.
To be sure, some of my employers or clients have been better at managing change than others. Yet the fear of change is always there, sometimes lurking like a ravenous lion ready to pounce, other times it is right up in our faces, obvious for all to see. Unless conquered, progress simply doesn’t happen, innovation is stalled.
Years ago, despite what was espoused, most of these efforts were really seen as optional–as “nice to do’s.” Of course, we’d like to grow faster. Obviously we want to be seen as innovative. Naturally, more or different might be better. Yet as a practical matter, unless the initiative operated well within our comfort zone, the chances we’d actually take the plunge we’re rather small indeed.
Yet what’s different now–what matters more and more–is that change can rarely be viewed as optional. Increasingly, the status quo is a prescription for disaster. Legacy brands are being challenged by disruptive technology. Once stable customer loyalty bonds are fraying. What worked splendidly before is now merely a dim signal amidst the noise. The tried and true is anything but.
It’s becoming hard to ascribe a value or judgment to change. It is neither good, nor bad, neither easy, nor hard. It just is.
And, as a wise person once said “if you don’t like change, you’re going to like irrelevance even less.”
As retail consumers, let’s stop and think about the choices we had a decade or so ago.
With few exceptions, almost all products were purchased from a physical store during limited store hours. For the most part, we selected from what was in-stock; custom orders were generally time-consuming and expensive. If we wanted to shop for alternatives we had to get in our car, walk to another store in the mall or, if we lived in a small town, drive many miles to explore the competition. It was pretty much the same drill if we wanted to check prices. Product reviews came from neighbors and friends, if we were lucky, or from sales people, if we weren’t.
Until fairly recently, many of our shopping experiences were laden with friction, primarily driven by scarcity of choice. Sometimes we had decent alternatives. Many times we did not. Often we had to settle for good enough.
Today, if anything, we are overwhelmed by choices. At a macro-level, consumers are experiencing less and less friction all the time as selection expands, prices decline, access becomes easier and information is abundant. Technology is enabling retailers to root out the so-called pain points in the customer experience. Fierce competition is unlocking more and more value for consumers.
But for many retail brands, this can be quite problematic. Mediocrity in the customer experience is now laid bare. Uncompetitive pricing, stale merchandise, out-of-stocks, long call-center hold times and the like, have gone from mere customer annoyances to the reasons customers are bailing in droves to the competition.
It amazes me that so few retailers truly understand what drives customer loyalty and how they stack up against the evolving competition.
It stuns me that so many brands remain clueless about the sources of friction in the shopping experience, particularly among their most profitable customers.
Blather on all you want about omni-channel this and omni-channel that. But if you don’t really understand what’s going on for your customers at the intersection of choice and friction, chances are you’re wasting your time.
It seems simple enough if we want to win, right?
You have low prices, I’ll have even lower prices.
You have a big advertising budget, I’ll make mine massive.
You shout loud, I’ll shout louder.
You call me a dumb-ass, I call you a loser.
You have a gun, I get more and bigger guns.
You attack me, I attack you.
We’ve done it so much, for so long and so unconsciously it must work right? I mean the data must be pretty compelling, no?
The winners in price wars are consumers, not the brands or investors who start them.
The winners in a marketing pissing contest are the people pushing the creative and selling the media.
The winners in an arms race are the folks making the weapons.
Just about everywhere else the losers are our sense of decency, connection and humanity. And the collateral damage should not be under-estimated.
Let’s get a few things straight. Just because someone is a member of your loyalty program doesn’t make them loyal. Just because a customer takes advantage of loyalty program discounts or redeems reward points doesn’t mean they are loyal either. Just because your brand is a consumer’s preferred choice is not a reliable indicator of their loyalty. And owning a large share of wallet, or garnering high rates of customer satisfaction, does not guarantee loyalty either.
By now, hopefully we understand that loyalty goes beyond behavior. Loyalty is an emotion. Loyalty is what allows a brand to command a price premium in the face of similar competition. Loyalty is why we stay when an organization has the inevitable screw up. Loyal customers aren’t always looking around for a better option or shifting their spending to a competitor when they dangle a sexy offer. Loyal customers trust us. Loyal customers drive our profitability. Loyal customers amplify our story.
When I was at Neiman Marcus, analysts–and the private equity investors that eventually bought us–were very impressed that we generated over half our revenues from our InCircle Rewards loyalty program. Alas that statistic was largely meaningless. Many of those customers were far from loyal, as subsequent events proved out. Sears (another of my former employers) makes a big deal about having some 80% of its sales come from their Shop Your Way program. If you think most (or many) of them have even a modicum of loyalty to Sears, I’m afraid you are very wrong.
One of the key things to understand about truly loyal customers is that they perceive switching costs to be high. In the good old days–i.e. before the internet–switching costs were often high due to scarcity of choice, access, information and risk amelioration. Today, with a nearly infinite assortment of products and services available online, 24/7 shopping, a multitude of user review sites and liberal return polices, perceived switching costs, in many cases, have plummeted.
The rise of digitally driven business models is fraying traditional bonds. The potential for new concepts to dramatically lower the cost-to-serve customers (think Uber or Netflix) and these brands’ willingness to spend freely–and often uneconomically–to acquire new customers (think every venture-funded dotcom business) is shifting the balance of power between industry incumbents and the upstarts that seek to peel away their loyal base. The potential to deliver a radically re-designed shopping experience can fundamentally redefine the basis for customer relationships.
This means the loyalty we take for granted can often be eroded very quickly. And overestimating loyalty is now not only common, it is increasingly dangerous.
We overestimate loyalty when we confuse behavior with emotion.
We overestimate loyalty when we don’t understand switching costs.
We overestimate loyalty when we can’t see how an outsider can attack our vulnerabilities and eliminate friction in our shopping experience.
There are plenty of examples of brands that had a large and seemingly loyal following that evaporated virtually overnight (I’m looking at you Blackberry and Blockbuster).
Label customers as “loyal” with considerable care. Understand the roots of their loyalty deeply. Dissect your vulnerabilities objectively and relentlessly.
Most importantly, work hard to eliminate the friction from your customers’ experience. If you don’t, be sure someone else will.
And overestimate loyalty at great peril.
HT to Nicole for helping advance my thinking on this topic
There is something intensely appealing about revolutionary figures.
Their vision of a very different world often has a certain sex appeal that captivates our imagination. The sheer notion of shaking things up, fomenting rebellion, kicking those rascal outs, reinventing an industry or whatever clarion call the revolutionary rallies around can be deeply inspiring and plainly seductive.
The revolutionary may tap into real oppression or the zeitgeist of restless frustration. They may play on our aspirations or merely our desire to eschew the conventional and confront the status quo.
When we think about seismic changes in the world, innovations that redefined the business landscape, breakthroughs in scientific understanding, fundamental shifts in the way we experience the human condition or the redefinition of art, it’s hard not to attach the name of a revolutionary. Mandela and King. Bezos and Jobs. Galileo and Hawking. Gandhi and Pope Francis. Pollock and Cobain.
Of course, some revolutionaries are far more useful than others.
There are the revolutionaries who merely tap into fear. In their world, anyone who doesn’t see things as they do is an enemy who must be thwarted.
There are the revolutionaries who are really just critics re-branded. They find it easy to point out what isn’t working and to carefully label the “idiots” and the “losers” they deem responsible.
There are the revolutionaries who are long on vision, but short on details; whose sails are filled with the bluster of righteous indignation but who sorely lack the power of enduring human connection.
It IS useful to define the opposition and to draw clear lines. Calling out what we don’t like is a start. Throwing down the gauntlet can certainly command attention. Yet while anger may get us started, its utility as a means of sustaining fuel is highly questionable.
To be a useful revolutionary you need more than a picture of what isn’t. To be a useful revolutionary you need more than a list of enemies and a bloviating side-show. And you’ll need a whole lot more than a call to “take our country back” or a pitch deck that has “disruptive” in every other sentence.
You say you want a revolution? Well, we’d love to see your plan.
At some point, the clock stops for all of us.
The big one, the permanent one, the one that is both definitive and defining, will likely happen on its own terms. Despite our best efforts, despite our wishes and hopes that it might be otherwise, it is largely an immutable force.
But my guess is you know people for whom the clock has stopped when they remain very much alive. Maybe you’ve been there. I know I have.
The stoppage can be brought on by hopelessness or by The Resistance. We can remain stuck in resentment or paralyzed by indecision. We can avoid when we need to confront, hide when we need to leap, or simply decide to ride out the real or perceived storm. We can be the critic instead of the one in the arena.
It’s sad when we don’t realize we have a choice. And it’s sadder still when we don’t even realize the hands of our clock haven’t moved at all for quite some time.
Yes, accidents or medical conditions can come in to play. Sure, we can be trapped by others. But more times than not, we’ve chosen to be the victim, to live in the past, to refuse to walk through our discomfort, to be a consumer not a producer.
The poet says it better than I:
When it’s over, I want to say all my life
I was a bride married to amazement.
I was the bridegroom, taking the world into my arms.
When it’s over, I don’t want to wonder
if I have made of my life something particular, and real.
I don’t want to find myself sighing and frightened,
or full of argument.
I don’t want to end up simply having visited this world