Building Luxury Loyalty – Ditching the One-Size-Fits-All Strategy

I recently became Colloquy’s luxury retailing contributing editor.

As you may know, Colloquy is the go-to resource for loyalty intelligence with a publishing, education and research practice that brings together more than 50,000 loyalty practitioners from around the world. Colloquy is a division of Loyalty One.

Check out my first column by clicking on: Building Luxury Loyalty – Ditching the One-Size-Fits-All Strategy.

 

Inertial loyalty

True customer loyalty–as Bryan Pearson points out in his new book The Loyalty Leap–is a function of two dynamics: behavioral loyalty and emotional loyalty.

Behavioral loyalty relates to metrics like share of wallet, RFM score, duration as a customer and the like. Sometimes behaviorally loyal customers are very unlikely to switch. Other times, eh, not so much.

If you had the data you might conclude that I’m pretty loyal to my family doctor, my bank, my cell phone service provider and my most frequently used credit card because they all have a high share of my respective category spending and I’ve been with them a long time. But most of my perceived loyalty is, quite frankly, based upon inertia.

In fact, I have very little emotional loyalty to any of them; each meets my needs just well enough to retain me.  Because I’m busy, because I perceive it’s a big hassle to switch and because it’s not clear that my alternatives are demonstrably superior, I don’t make much effort to explore my options. Of course, if they were to take the time to collect Net Promoter Score (or similar) type data on me, they would realize that my business is fragile, they could understand precisely why that is the case and, most importantly, they could take action to build true loyalty (and perhaps build positive word of mouth while they were at it).

It’s not hard to imagine two potential scenarios that might effect a more immediate defection.

The first is that they screw up badly. When a brand builds emotional loyalty, they get the benefit of the doubt when the inevitable mistake occurs. My quartet of so-so providers won’t get the same pass.

The second is when a new alternative emerges that sufficiently tilts the value equation. Inertial loyalty is no longer tolerated when someone makes it easy and/or powerfully better to switch.

Blackberry looked pretty solid until the Iphone and Android came along.

Blockbuster had pretty compelling market share until NetFlix and Redbox emerged.

And so on.

If you are living off of inertial loyalty you might be in for a rude–and scarily fast–awakening.

 

 

The world’s best loyalty program

The world’s best loyalty program is no program at all.

If your value proposition is engineered to deliver a truly remarkable experience for your target consumers–and you’ve chosen to focus on segments that will allow you to make a profit–the result should be both behavioral and emotional loyalty.

Many of the world’s most powerful brands–Apple, Four Seasons, Louis Vuitton, just to name a few–have managed to thrive without such programs.

Let’s face it, most “loyalty” programs are some combination of ruses to collect customer data or serve as customer bribery schemes for the most promiscuous shoppers. Worse yet, many are simply me-too efforts that are knee jerk reactions to the competition which end up raising the cost of doing business without engendering true loyalty.

I understand that there are situations where loyalty programs have become competitive necessities. But before embarking on an expensive and complicated launch (or re-design) take a hard look at your underlying value proposition and customer strategy to make sure you are solving for the right problem.

 

Now you’re just someone that I used to know

Most senior executives will readily agree that it is expensive and difficult to acquire new customers.

Most will agree that it takes considerable time and investment to build deep insight, create trust and engender loyalty with a customer.

And most will agree that customer value is generally pretty well correlated with duration as a customer.

Most will therefore conceptually agree that retention of valuable customers should be a strategic priority.

So….?

So how come you can’t show me a report that details the % of sales and profits represented by customers that defected during the last 12 months?

So how come you don’t have any analysis of the drivers of defection, highlighting the addressable factors along with action plans to mitigate?

So how come your performance reviews and bonus plans don’t have any retention goals?

How is it that you can spend the shareholders’ money to create awareness, generate trial, promote repeat and progressively build a deeper, more personalized relationship and then just let them become someone you used to know?

Well?

“I believe these words came from the Pokemon movie…”

We are overwhelmed by choices. We are bombarded by information. Winning the battle for our precious attention gets more difficult by the minute.

Engage me from the outset, or lose the opportunity to build credibility, earn trust, cultivate a relationship.

Get to know me, show me you know me, show me you value me. Rinse and repeat.

So when you send me an e-mail encouraging redemption of my loyalty points when I don’t have any, you create an indelible message about your commitment to being personalized and relevant.

When your customer service reps initiate a conversation by emphasizing how much you value my loyalty, and then promptly do everything to show that those are hollow words, trust evaporates quickly (I won’t tell you who did this recently, but their initials are AT&T).

When you want to seen as a credible Presidential contender and you start a serious message with “I believe these words came from the Pokemon movie…” your fate is sealed (I’m going to miss you Herman!).

To win more than your fair share of attention, you need to start strong and engage quickly.

When you don’t, we stop listening to what comes next.

And the battle is lost.

“The List”

We all know that consumers are faced with a myriad of choices. And the continuing explosion of data and connectivity often serves to make the buying process overwhelming.

This is why focusing on “The List” is critical.

We all have our Lists. If I ask you what restaurants you are likely to consider for your birthday celebration, I bet you already have your List. If I ask you what brand of car or tablet or phone or running shoes you are likely buy next, you probably have that List too.

If a consumer is already familiar with–and active in–a category, their List is largely set. If you aren’t on it already, you have virtually no chance of making the sale. And chances are if you aren’t at or near the top of their List, your odds are pretty low as well.

To make “The List” a key part of your customer growth strategy there are a few key questions you need to answer:

  1. For your target customer segments where do you stand on their List?
  2. If you aren’t at or near the top of their List, what are the factors you need to address to get there?
  3. If you are currently at the top of their List, what are the drivers of preserving your position and distancing your brand from the competition?
  4. What’s your plan to get to, and stay at, the top of “The List?”

In a world where commanding share of attention and breaking through the omni-channel blur gets more difficult by the minute, I’d get started if I were you.

And I’d probably hurry.

 

 

Profitless prosperity

Ah, the era of “profitless prosperity” is back. I still have my Pets.com sock puppet to remind me of those once glorious times.

Barely a day goes by now that we don’t hear about a stratospheric valuation (actual or rumored) for some digital darling. From Facebook to Twitter to Groupon, it seems that unless your EBITDA multiple is either quadruple digits or infinite, you’re barely worth paying attention to.

To be fair, plenty of highly valued, enduring brands have gone through periods of losses ultimately to emerge with a dominant position and boatloads of cash generation. And there are perfectly good reasons a company might decide to pursue low or no profit sales for a period of time, in targeted circumstances or with certain consumer segments, including:

  • Generating trial among prospects with high potential lifetime value
  • Driving traffic to a store or website for consumers with a high propensity to cross shop or be up-sold
  • Creating positive word of mouth among highly influential persons (“You get a sock puppet! And you get a sock puppet!”)
  • Securing valuable customer relationships in a maturing market.

The companies that do this well have a clear understanding of customer economics by segment, a clear vision for how profits will develop over time and a disciplined process for measuring progress.

The brands that do this poorly are typically focused on revenue for revenue’s sake or obsessed with new customer acquisition with no way to tell whether those new customers can be profitable.

More dangerous still is falling in love with the “promiscuous consumer”–that customer that only goes for the best deal. They are often expensive to activate, they have little propensity for loyalty and you rarely break-even with them.

If your customer portfolio is comprised (littered?) with too many of these types, expect it to end badly. It always does.

Don’t you know who I am?

I have been a customer of the same bank for nearly 20 years.  Every time I use one of their ATM’s it asks me whether I want to use English or Spanish, despite my having made exactly the same choice hundreds of times.

Until recently I was getting emails from a well-known luxury retailer encouraging me to redeem my loyalty points.  One problem: I didn’t have any points to redeem.

For many years now, my daughters have been getting credit card solicitations from American Airlines and CitiBank. American “knows” how old my children are, since every time I make a reservation they ask for their ages.  I’m not sure how many 13 year olds they approve over there at CitiBank, but I’m guessing not many.

It’s one thing for companies that lack individualized customer data to employ mass marketing techniques and undifferentiated interaction practices.  For companies that possess extensive customer data–and whose brands should promise relevant, differentiated and personalized experiences–it’s at best a missed opportunity for competitive advantage.  At its worst, it’s inexcusable.

Customer-centric marketing has a simple mantra:

Uniquely identify me.

Get to know me.

Show me you know me.

Show me you value me.

Rinse and repeat.


Loyalty vs. Bribery

Do you have a loyalty program or a bribery program?

It’s one thing to recognize and reward a target customer for directing a large share of their wallet your way. It’s another thing to give blanket discounts to just about any random customer who signs up.

The best loyalty programs support a clearly articulated customer growth strategy, and use relevant and differentiated offers and experiences to retain and grow best customers. Let’s face it, customers are only truly loyal to your business when your value proposition meets their needs in a compelling and unique way–not because of a kick-back.

I’m not suggesting that cash-back and gift card promotions should not be part your promotional mix. Creating incentives for trial, to gain more customer insight or using reward points to direct specific behavior can be sensible, high ROI tactics.

But when you have to provide an extra incentive–i.e. bribe–someone to shop with you, you had better hope that you are on a trajectory to establish an on-going, profitable relationship. Signing yourself up to continually pay someone who doesn’t really fit your business model–or who is never going to be profitable–is an exercise in futility. Calling these efforts part of a loyalty program is delusion of the highest order.

October 5 Webinar: Reset! Engaging Customers in the New Normal.

With all the talk about the “new consumer” mindset, marketers are left asking what it all means.  Slow category growth and heightened competition put a premium on leveraging consumer insight to inform customer-centric growth strategies.

Next Tuesday October 5 at 1PM Eastern, Jon Giegengack of Chadwick Martin Bailey and I will conduct a webinar on this important topic.  Learn the 8 key strategies you can employ to take your customer engagement to the next level.

For more information–and to register–go to:

http://blog.cmbinfo.com/engaging-consumers-in-the-new-normal/