Download CC 4Day Session 3 Shaping Customer Loyalty

Customer Service
Products and Services
JOY
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Customer Loyalty
To gain and improve customer loyalty and satisfaction,
many companies have developed different strategies.
Question:
 What is customer loyalty ?
 Is this really profitable for us? For customer?
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Why Do You Want Loyal Customers?
Exercise
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(brainstorming)
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What does loyalty mean to businesses ?
Repeat
Purchases ?
Retention of
Customers ?
Create Profitable
Customers ?
Acquisition of
Customers ?
More Information
on Customers ?
Just Another
Marketing Program ?
Reward Loyal
Customers ?
Reality …….….could be all of the above !!!!
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Customer hopes &
asks but doesn’t
expect; if met then
delighted. Unlikely
to cause
dissatisfaction. Build
customer loyalty
Customer tells
what is important;
satisfaction vs.
dissatisfaction if
met
Benefits above &
beyond expectations;
identify and suggest
innovations with new
products
Meeting basic respect
& courtesy needs;
dissatisfaction if not
met; indifference if
met
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Some key points on developing loyalty
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Since what was once unexpected/unstated becomes
expected/stated, you must keep innovating
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Performance excellence occurs by design, not default
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All parts of the organization are part of creating customer
loyalty
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Reliability: Keeping your promise, doing what you said you will do. Doing things right the first time.
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Assurance: Making the customer feel safe in their dealings with you, being thoroughly professional
and ethical.
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Tangibles: How the product/service looks to the client, the appearance of personnel and equipment, etc.
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Empathy: The degree to which the organization and service personnel understand the individual client
and their needs, the ability to adapt the service to each client, the willingness to 'go the extra' for the
client.
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Responsiveness: The availability, accessibility and timeliness of the service. The ability to respond to
enquiries and complaints in a timely fashion.
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Four different reasons for loyalty
should be promoted
 psychological;
 economic;
 technical/functional;
 contractual.
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How did it all start – the Loyalty Program way
 Trading stamps
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Accumulate stamps every time you shop for groceries, petrol, etc
Redeem them for “ free “ gifts
• Airline Frequent Flyer Programs
• Fly and earn points
• Redeem points for free flights
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Plethora of loyalty programs in different forms across industries
Frequent buyer, frequent flyer, frequent player, frequent dining, points-at-pumps
Interesting though not surprisingly……..
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Initial objective was to collect data on customer purchase patterns
2.
Simple proposition – Earn Points for future value hence loyalty
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What’s the Good News ?
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90 % Americans are active participants in at least 1 program ---- 75% have at least 1 loyalty
card. Are Loyalty cards effective in Eastern Europe? If no, how do we adjust and adapt?
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82% customers think Loyalty program marketers are more in touch with their customers
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66% of Loyalty program members do not mind sharing extra information about themselves
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Unconventional industries also bitten by loyalty bug
 Starbucks Card to store information of the Card members preferences.
 Nike Smart card allows them to design their own shoes
Loyalty programs are
1.
2.
3.
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Key drivers for enhancing customer experience.
Active point of differentiation
Help pinpointing individual buying patterns and predicting future customer behavior.
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What’s the Not-So-Good News ?
• Do customers perceive reward
programs making a difference ?
A lot of difference
Some difference
Little difference
Dont make much difference
Dont make any difference at all
Don’t Know
12%
23%
13%
24%
16%
11%
•
48% customers did not have any serious intention of repurchasing the brand
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55% customers accumulate points because they anyway come along with their purchases
Do Loyalty Programs work -- Not as well as they are intended to
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Some successful US programs – e-Bay
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Launched in in 2003,
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Teemed up with American Airlines,Hilton Hotels & eight other companies to offer called eBay
Anything Points:
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Points can be earned from one business & swap them for points at eBay.
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e Bay has more than 135 million registered members across the globe
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Program has 44 mln items listed for sale with 4 mln added daily.
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Success of e Bay Anything points is attributed to
• Linking online purchases with Travel & Airlines purchase.
• Enabling customers to redeem high ticket size points against lower value purchases
• Choice of redemption options.
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Some successful UK programs – Nectar
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Coalition & database-driven loyalty program --- launched in Sept 2002.
UK's largest Customer Reward Program -- > 50% of all UK households participating in the
program.
Launched with 4 partners, today it has 17 & Over 6,000 retail locations
Nectar customers can earn points on 40% of their household expenditure.
It has given back over 450m pounds worth of rewards since launch.
Sainsbury's, Barclaycard, BP and Debenhams, Thresher Group, Vodafone, Adams, Ford, e-Energy,
all:Sports, Winemark, Hertz, Magnet, Brewsters, Brewers Fayre, ebookers UK, and Beefeater.
Success of Nectar is attributed to
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Availability & Wider choice for redeeming points across relevant segments.
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Enabling customers to earn rewards more quickly
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At higher value than if they collected points from only one company.
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Some insights --- Customer & Company perspective
Customers new perspective of Rewards ( Loyalty )
1. Cash value
2. Redemption options
---- Immediate gratification
---- More Choice
---- Feel Good factor
3. Aspirational value
4. Relevance
5. Convenience
---- Does it make sense
---- Ease of availing reward
Loyalty initiatives are not short term marketing tools. They should
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deliver tangible value in proportion to the value the customer brings to the company
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offer right mix of Product, Price, Service Delivery & Relationship benefits
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Communication to be transparent, timely and focussed
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Consistent across all customer touch points
Loyalty initiatives must also be profitable
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Treat profitable and unprofitable customers differently
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Get your metrics in place ---- measure costs & returns
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What does loyalty mean to
Complete Customer
“ Relationship” Experience
the customer today ?
Customer cost of
using your product
Primary
drivers
Price
• Purchase price
• Effort
• Time
Product /
service*
Brand**
• Physical product
• Service product
• Service delivery
• Service environment
• Ethics
• Image
• Reputation
• Positioning
Relationship
• Loyalty Programs
• Co Brands
• Alliances
• Special treatment
• Affinity
• Customer community
Customers want an end-to-end relationship experience
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Customer Value Perception
• Life Time Free
• Transparency in
charges
• Value for money
Customer Relationship experience – Banking illustration
• Ease of availability
• Easy accessibility
• Speedy service
• Relevant Features
• Customer empathy
• Resolution of query
• Wide service range
• Aspirational value
• Flash Value
• Inspires confidence
• Understanding
needs
• Processes &
Service
Knowledge
the first time
• Preferential
offers
Price
• Fee Income
• Simplified product
offering
• Bottom line
Product /
Quality
• One stop Shop for all
financial needs
• Network
availability
• Best in class
Customer
Service
• % returns
/cancellations
• # service
calls/repairs
• # customer inquiries
• # billing queries
Brand
Relationship
• Strengthening
Brand image
• Customer
touch time
• Advertising
costs
• No. of
product
training
hours
Organization’s translation of Value
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Ask yourselves…..are you truly Customer Centric?
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Do you measure your customers ……
1. Lifetime Value & Cost to the business
2. Preferences, Dislikes, Usage Patterns
3. Satisfaction levels
 Can your Products & Delivery systems provide …..
1.
2.
3.
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End to end solutions / Address future needs
Competitive & flexible pricing plans
Ease of access / acquisition --- Options to use most appropriate services / channels
Are your business processes geared up for …..
1. Settling customer issues, with 1 phone call or web-site visit?
2. Responding immediately & appropriately to "moments of truth" when customers' business is on the
line?
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Do you monitor your Loyalty programs to see …….
1.
2.
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Address the right customers
If they are profitable?
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Enterprise approach to Loyalty
1st : Have a clear articulated Customer Loyalty Strategy
• Covers the entire customer experience during his lifecycle
• Covers all customer touch points
• Addresses his existing / potential relationship with the company
2nd : Must be in sync with Business Objectives
• Customer / Segment profitability
• Customer Contact strategy
3rd : Business Process to be customer centric
• Risk, Underwriting, Operational processes
• Acquisition, Customer service, Marketing
4th : Design Customer centric & Profitable Loyalty programs
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How do you
do it …….
 Lifecycle Experience ---- Define value proposition to customer segments
 Dynamic ---- Ability to react to changing customer needs and behaviors
• Targets ---- Program objectives clearly communicated
Business
Objectives
• Metrics ---- Measurement capability in line with objectives
Process
Changes
• Seamless --- across all Channels, Business Functions and touch points
• Flexible ---- Ability to accommodate changes without compromise
Loyalty
Programs
• Value & Choice ---- Value based on Customer Profitability & offering
relevant choice ( Bought-out or Co- Branded )
• Personalised ---- to the customer’s unique profile based on Analytics
• Branded ---- Bought-out or Co-branded to address emotional needs
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Role of Partnering & Co Branded Programs
Addresses the new customer need of
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Offering wider choice of involvement platforms
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Accrual / Redemption of Rewards across several relevant involvement categories
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Faster value accumulation compared to stand-alone programs
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Branding association to address aspirational & emotional needs
Addresses the companies need to
• Lower costs of loyalty through sharing
• Access partner customer touch points
• Access additional customer databases
• Improve Brand image
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Partnering or Co branding --- which option to choose ?
Success in Co-Brand partnership is higher, if
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Core value of the two partnering brands are related.
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Partner Co brand objectives are in congruence
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Each activity has consequent benefit to both partners
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Availability of Partners
Bought out approach works when
• No feasible Co Brand partners are available
• Feature / Service is commoditised
• Cost of feature low
• Partner not interested in Co branding
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Co-Branding in Credit Cards – Is it Profitable?
Purchase amount from Co-Brand Partner
Less
Dont know 9%
4%
Frequency of using CoBranded-Partner
Less often
8%
Dont know
2%
Purchase
more
23%
More often
31%
Same
64%
Same
59%
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Yes …… by a factor of 1.2 – 1.5 times
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Yes …… If you can get customers to aggregate all their usage on the co
branded program
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Yes …… If you can the relationship needs of the customer and show
value
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To summarise
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Loyalty is’nt created by a program……it can at best strengthen it.
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Loyalty is not about short term rewards…….it is about end-to-end customer
experience with your products / services
• Companies need to have a enterprise wide loyalty strategy backed by customer
centric processes to deliver value
• Co branded programs work --- Ensure you get the value proposition right
Loyalty has to be earned…..its hard work….but
at the end you have a profitable customer
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Measuring Customer Profitability
 Activity-based costing (ABC) is a technique that
allocates the cost of performing various services
to each customer (customer-specific costing).
 Through Customer Relations Management (CRM)
programs, one can relate revenues and costs to
each and every activity.
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Activity-Based Costing
 Employing an activity-based costing (ABC) process, one
can accurately assess the cost and profitability of each
customer.
 By linking financial information with transactional data
created in CRM programs, companies are able to
accurately calculate “cost-to-service” components to yield
customer profitability.
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Figure 3.3 The Whale Curve of
Cumulative Profitability
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Whale Curve & Profitability
 20/80 Rule says “20% of customer provide 80% of sales
 Whale Curve reveals:
 20% of customers generate 150–300% of total profits
 70% of customers break even
 10% of customers lose from 50-200% of total profits
 Leaving company with 100% of total profits
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High- vs. Low-Cost-to-Serve Customers
High-Cost-to-Serve Customers
Low-Cost-to-Serve Customers
Order custom products
Order standard products
Order small quantities
Order large quantities
Unpredictable order arrivals
Predictable order arrivals
Customized delivery
Standard delivery
Frequent changes in delivery requirements
No changes in delivery requirements
Manual processing
Electronic processing (EDI)
(i.e., zero defects)
Large amounts of presales support
(i.e., marketing, technical, and sales resources)
Little to no presales support
(i.e., standard pricing and ordering)
Large amounts of post-sales support
(i.e., installation, training, warranty, field service)
No post-sales support
Require company to hold inventory
Replenish as produced
Pay slowly (i.e., high accounts receivable)
Pay on time
Source: Robert S. Kaplan and V.G. Narayanan, “p. 8. Measuring and Managing Customer Profitability,” Journal of Cost Management 15, No. 5
(September/October 2001):
Customer Profitably
As mentioned previously, some customers are profitable and
some aren’t. To determine this, we look at the
cost/profitability structure with the plan to:
1.
2.
3.
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Keep profitable customers
Convert unprofitable ones to profitability
Fire those who are not profitable
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Managing loyalty and profitability
Source: Hadson & Hadson . Customer service for Hospitality & Tourism . Chapter 7.
Building and Maintaining Customer Relashionship. (Adapted from Kumar and Rajan, 2009,
p. 5)
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Managing Unprofitable Customers
Low margin / high cost customers offer the most challenge
for marketing mangers.
• Start with ways to reduce costs
• Next, work with customers to possibly change their
actions resulting in lowering costs or increasing
profitability
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Firing the Customer
 We must try everything to make a customer
profitable before firing them.
 If after trying, and the customer continues to be
reluctant to change, and the relationship remains
unprofitable, we can say outright, “YOU’RE FIRED!”
but…
 There are better approaches. We can let customers
‘fire themselves’ by raising our prices, reducing or
charging more for services, eliminating discounts,
etc., until they become profitable or find another
distributor.
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Useful links
 http://www.marketingdonut.co.uk/marketing/customer-care/customer-loyalty-schemes
 http://www.loyaltylab.com/what-we-do.html
 http://www.powershow.com/view/50-NmRkO/Building_Customer_Loyalty
 http://www.slideshare.net/PowerPoint-Templates/customer-loyalty-powerpoint-presentationslides
 http://prloyaltymarketing.com/customer-loyalty/what-is-customer-loyalty/types-of-loyaltyprogram-users/
 http://www.marketingdonut.co.uk/marketing/customer-care/customer-loyalty-schemes
 http://www.retentionloyalty.com/
 Fostering Loyal
Customer Relationships. Duarte B. Morais, Ph.D.
Assistant Prof. of Recreation, Park and Tourism [email protected]
Manage Customers for Profits (Not Just Sales)” B.P. Shapiro et al.,
September-October 1987, p. 104, Harvard Business Review. B.P.Shapiro
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hold!!!!
hold,
Hold,
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