Transcript Frequency and Loyalty Marketing

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Customer Loyalty Marketing
Stowe Shoemaker, PhD
University of Houston
[email protected]
www.stoweshoemaker.net
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
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Goals Seminar
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Discuss definition of marketing
Difference between frequency and loyalty
Customer Relationship Management and loyalty
How to calculate life-time value of a customer
How to create customer loyalty within your
organization
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Definition of Marketing
• Identifying evolving consumer preferences, then
capitalizing on them through the creation,
promotion and delivery of products and services
that satisfy the corresponding demand. This is
done by solving the right customers’ problems,
giving them what they want or need at the time
and place of their choosing, and at the price they
are willing to pay.
Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008
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Contextual Marketing
• Give the customer what she wants and make
it useful and accessible so she can take action
when it matters to her
• Widget: widgets are basically little websites
that display directly on the Dashboard, rather
than in a web browser.
Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008
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Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008
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Marketing Strategy and Interactive Marketing © Stowe Shoemaker, Ph.D February 17, 2008
WOM
Consumer Buying Process
Brand
Advocate
Repeat Purchase
Trial (Initial Purchase)
Pre arrival contact
Loyalty
Circle
Components
Dissatisfaction
Barriers
a.
b.
c.
Satisfaction
Switching costs
Perceived risks
Lack of information
Need
Recognition
Awareness/
Search/Evoked Set
Complain
Switch
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Why Switch?
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Evolution of How Marketing Defined
4 P’s
7 P’s
14 C’s
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Four P’s of Product Marketing?
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P
P
P
P
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Seven P’s of Services Marketing?
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P
P
P
P
P
P
P
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Fourteen C’s of Marketing – help create
value
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•
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•
Customer
Categories of offerings
Capabilities of firm
Cost, profitability and
value
• Control of process
• Collaboration within
firm
• Cost to the customer
• Customization
• Communications
• Customer
measurement
• Customer care
• Chain of relationships
• Competition
• Capacity
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Customer Loyalty/Relationship
Marketing Does Not Equal Frequency
Marketing
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Frequency . . . Focusing on Behavior
When customers give you a greater share
of their transactions than they might
have without the program, usually in
exchange for accumulating miles, points,
or other surrogate discounts.
You ask: Aren’t we quibbling here, isn’t that
loyalty?
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Commercial on Frequency
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Drawbacks of Frequency
• Exclusive focus on behavior ignores the emotional
and psychological factors that build real
commitment.
• Without that commitment the customer focuses on
“the deal,” not the brand or product relevance.
• A behavior focus makes bribing the customer
irresistible.
• Erodes the brand and diminishing product
differentiation.
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Commercial on Loyalty
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Loyalty . . . Focusing on Emotion
When the customer feels so strongly that
you can best meet his or her relevant needs,
your competition is virtually excluded from
the considered set, and the customer buys
almost exclusively from you — referring to
you as “their restaurant” or “their hotel.”
Winning maximum share of heart, mind and
wallet.
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Like a Marriage
• “The sale merely consummates the courtship.
• Then the marriage begins. How good the
marriage is depends on how well the
relationship is managed by the seller.
• It is more a matter of what the buyer wants.
• He wants a vendor
• who will keep his promises,
• who'll keep supplying and stand behind
what he promised.
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The Benefits of Real Loyalty
• “Loyal customers tend to maintain their positive
expectations relatively longer than low-loyalty
consumers, so they are not likely to adjust
expectations based on episodic factors”
• “Loyal customers tend to show:
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•
•
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a special preference, attachment, commitment,
positive WOM,
low switching to competitive brands,
willingness to pay premium price”
(Youjae and Suna, 2004).
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The Benefits of Real Loyalty
• The customer focuses on your brand, offers and
messages to the exclusion of the competition.
• Price is no longer the dominant consideration, but
one component in the larger value proposition.
• Loyalty provides critical inoculation.
• Competitive offers face a higher hurdle.
• The customer becomes more forgiving — goodwill
equity.
• Loyalty begets loyalty.
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Lessons Learned From Research in Hotels
Restaurants and WOM
• A loyal customer in a restaurant tells a
median of 10 people
• A loyal customer in a luxury hotel tells a
median of 12 people
• 52.3% claimed that they would go out of
their way to mention restaurant when the
topic of restaurants comes up
• 19.3% claimed that they would go out of
their way to mention hotel when the topic
of hotels comes up
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Lessons Learned From Research in
Restaurants
• 69% read the communication (letters, emails, promotional material) they receive
from the restaurant to which they are loyal
(8,9,10 rating)
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Lessons Learned From Research in
Restaurants - tipping
1 to 10 scale, with 1 being “I tip much less” to 10 “I tip
much more,”
• 47.2% among the total sample chose the
top three boxes.
• Ten or more visits in the past three
months, 56.1% chose the top three boxes
• Five to nine times (49.1%)
• Three to four times (41.5%)
• Less than three times (43.1%)
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.63*
.66*
Certainty
Value
.97*
.63*
.51*
.17**
What Impacts
Loyalty in Hotels
.55*
Switching Costs
.17*
Trust
.24*
.41*
-.13**
Benefits
Opportunistic
Behavior
.43*
Relationship
Commitment
.47*
Product Usage
.83*
Voluntary
Partnership
at .01
Creating Customer Loyalty* Significant
(c) Stowe Shoemaker,
Ph.D
** Significant at .05
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What Is CRM?
“Customer Relationship Management should us to contact
and treat customers better than anyone else -- establish,
strengthen, and convert relationships”
CRM entails the following:
• Customer-centric marketing and operations approach
• Technology-enabled, automated business processes
• Consistent brand experience across all touch points
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What Is CRM?
CRM entails the following:
• Real-time response to customer stimuli
• Every customer interaction begins where the last one left off
• Tight integration between marketing and operations
• Understanding customer-level profitability
• Having an overall vision and building the solution in stages
• Anticipatory as opposed to reactive
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The Evolution of Building Loyalty
Profitability
Sales
Strategic
Tactic
Push traffic,
no targeting,
discounts, little
measurement.
Still push,
discounts,
some
measurement.
“Price” driven,
segmented,
transaction
based.
Added value to
product, support
price, customized,
strengthen brand.
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Knowledge,
Help support
VAR in
loyalty
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Word of Mouth
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Word of Mouth
• The One Number Firms Should Be
Concerned About
• Critical in services because of variability and
heterogeneity – customers discount
advertising, PR, and the like
• WOM comes from friend, associate, family
member
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Word of Mouth - continues
• Questions to ask:
• How likely is it that you would recommend
_______ to a friend or colleague?
use a 0 to 10 scale
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Word of Mouth - continues
• Net Promoter: calculate
• % of people who respond with a 9 or 10 (promoters)
• % of people who respond with a 0 – 6 (detractors)
Net Promoter Score = Promoters – Detractors
(E-Bay, Amazon, USAA 75% - 80%
Median 400 firms in 28 industries was 16%)
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Lifetime Value of the Customer
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Life-Time Value
• Definition:
• The net profit you will receive from transactions
with a given customer during the time this
customer continues to buy from you
• In today’s dollars/Euro/Yen
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Life-Time Value - continued
• Life-time value of a customer increases as
defections decrease
• Life-time value needs to be calculated for
each market segment
• Should be used in marketing strategy
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Life Time Value Information
•
Calculate the following:
a. Gross profit of an average purchase:
b. Average number of purchases per year by customer:
c. Average number of years customer will continue to
purchase:
d. Probability customer will continue to purchase:
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Formula:
LVIC = a*b + (a*b*c*d)
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Example Campground
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Know the following
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Sale price $35
Fixed cost $3
Variable cost $12
Average stay 2.5 days
Customers come for about 12 years
Return customers 3,500
Total customers 8,000
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Calculations
•
Calculate the following:
a. Gross profit of an average purchase: $35 - $12 = $23/day
b. Average number of purchases per year by customer: 2.5
purchases
c. Average number of years customer will continue to
purchase:12
d. Probability customer will continue to purchase:
3,500/8,000=.437
•
Formula:
LVIC = a*b + (a*b*c*d)= (23*2.5)+ 301.53=359.03
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
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Word of Mouth: Incremental Customer
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Need to know the following
a.
b.
c.
d.
e.
•
Likelihood that customer will refer
Number of people to whom the recommendation will
be made
Percent of referrals that are empathetic (i.e., have the
ability to act on what they hear)
Probability of those who are empathetic who will buy
the service
LVIC
Formula:
WOM = (a*b*c*d*e)
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Word of Mouth: Incremental Customer
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Need to know the following
a.
b.
c.
d.
e.
•
Likelihood that customer will refer 8 out of 10 satisfied
Number of people to whom the recommendation will be made 3
Percent of referrals that are empathetic (i.e., have the ability to
act on what they hear) 2/3 or .667
Probability of those who are empathetic who will buy the
service 14%
LVIC=359.03
Formula:
WOM = (a*b*c*d*e)= $80.46 (note, if ignore A then
value is $100.58)
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
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Negative Word of Mouth: Incremental Customer
•
Need to know the following
a. Number of people dissatisfied customers tells
b. Percent of people that are empathetic (i.e.,
have the ability to act on what they hear)
c. LVIC
•
Formula (a*b*c) = $
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
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Negative Word of Mouth: Incremental Customer
•
Need to know the following
a. Number of people dissatisfied customers tells
10 people
b. Percent of people that are empathetic (i.e.,
have the ability to act on what they hear) .667
c. LVIC=$359.03
•
Formula (a*b*c) =$2,394.73
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Calculations
• Average number of years customer will
continue to purchase:
• 1. Look at by market segment: locals,
groups, etc
• 2. Look in data base to see how long they
have been buying from you
• 3. How likely are you to continue to visit
this property in the future? If scale 1 – 7
and they rate a 6 then 6/7 = probability of
repurchase
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How To Create Loyalty
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Creating Loyalty
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Static
Fluid
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Communication
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Sales force
Outlets
Reservations
Direct Marketing
Electronic Commerce
Mobile Commerce
Employees
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Information-Driven Marketing- The Complete Model
Marketing Strategy
Marketing Tactics
Awareness
Publicity
5 Degress of Customer Bonding
Identity
Relationship
Community
Relationship
Direct
General
Sales
Programs Marketing Advertising promotion
A dvocacy
Point-ofpurchase
InformationExchange
Data Processing
and Storage
The Information Core
-DatamotionInformationExchange
Applications of Data
New Product Life-time-Value Crystal Ball New Customer Partnership Information
Indcubator
Enhancer
Predictor
Attractor
Stimulator Accumulator
Information from the information core feeds back to the tactical level of the system, providing guidance for future activities
Creatingopportunities,
Customer Loyalty
Shoemaker,
on new busienss opporetunities, partnering
routes (c)
forStowe
enhancing
lifetimePh.D
value, information acquisition,
anbd market predicting
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Other Keys to Successful Communication
via E-Mail*
1.
Be selective as to who is added to your list or you will
create more work for yourself;
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•
•
2.
Use double op-in
Make it easy for people to opt-out
Put privacy statement on website and follow it
Use HTML instead of text
•
•
Make sure it can be easily read without graphics appearing as some
graphics blocked and if read off-line graphics will not appear
Give customer choice as to how they would like to receive
information
* From Right Now Technologies
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Other Keys to Successful Communication
via E-Mail*
3.
Make e-mails relevant and extremely valuable;
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•
•
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4.
50% e-mail now spam
From: represents your brand
Subject: represents timely and relevant proposition
Personalize
Use past buyer behavior information to target offers
Let customer choose how often they would like to hear
from you
•
•
See www.landsend.com for their policy
Do not send overnight so gets lost in morning clutter
* From Right Now Technologies
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Other Keys to Successful Communication
via E-Mail*
5.
Keep e-mail short and packed with value;
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•
•
•
6.
Use bullets
Use lots of space
“come on, I am easy to read”
Print out and see what it looks like, as many recipients will do that
Make it distinctive and appear as if they cannot get
anywhere else
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•
Subscribe to competitive lists to see what is being done
Develop own voice and distinctive style
* From Right Now Technologies
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Other Keys to Successful Communication
via E-Mail*
7. Do Not Make e-mail visual circus;
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•
•
•
Make focal point of e-mail obvious
Many people do not scroll
Design to be seen in preview pain
Print out and see what it looks like, as many recipients
will do that
8. Test Everything
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•
Benchmark yourself
Split test
* From Right Now Technologies
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Other Keys to Successful Communication
via E-Mail*
9. Multimedia e-mails;
• Know your audience
• Useful or just showing off?
• Do not assume audience wants multi media
* From Right Now Technologies
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
Other Keys to Successful Communication
via E-Mail*
10. Types of responses;
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•
•
•
•
Valid response
Hard response (e-mail no longer in existence or
address error)
Mail box full
Spam filters
Out of office replies
* From Right Now Technologies
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Other Keys to Successful Communication
via E-Mail*
10. Create and Think Customer Experience;
11. Make privacy part of brand promise
* From Right Now Technologies
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Creating Loyalty
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Static
Fluid
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The Four Components of the Process
Physical
Product
• Whatever the organization transfers to the
Customer that can be touched
• Must be Customer-Oriented (create value)
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
The Four Components of a Service
Process
Physical
Process
Product
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•
•
•
Service
Product
Core performance purchased by the Customer
Includes all interactions with the Customer
“Plan Your Work”
Incorporate RATER system into each plan; e.g. in-room
dining
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Plan Your Work
• Scripts for each service encounter
• Hostess:
• “We will be asking you throughout your visit how we can do
things better. Please be aware that our goal is to provide a
wonderful dining experience; if we fall short of that goal, please
do not hesitate to tell us.”
• Wait person:
• “We have great desserts here. They are made locally by a
woman named Cynthia. Cynthia has lived in area for ages and
follows a family recipe.”
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Plan Your Work
• Scripts for each service encounter
• About Our Fish
• As you may know, one should not eat oysters in months that
have an R. Therefore, we will not be serving oysters tonight as
we only serve the freshest fish here. ”
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
The Four Components of a Service
People
Process
Service
Product
Service
Delivery
Physical
Product
• Refers to what happens when your Customer
interacts with employee
• “Work Your Plan”
• Example: What is said to the customer
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Work Your Plan
• Goal is to incorporate some aspect of the
RATER system in each interaction
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The Four Components of the Process
Service
Product
Service
Delivery
Physical
Product
Service Environment
• The physical backdrop that surrounds the service
• 3 Elements: ambient conditions; spatial layout; and
signs, symbols, & artifacts
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CUSTOMER
Expected Service
GAP 5
Perceived Service
Service Delivery
COMPANY
GAP 4
External
Communications
to customers
GAP 3
GAP 1
Customer-driven service designs and standards
GAP 2
Company perceptions of consumer expectations
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Reasons for GAP # 2
• Complete exercise starting on next page:
• Use following scale:
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•
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•
1 Very True
2 Somewhat True
3 Not applicable
4 Somewhat untrue
5 Very untrue
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Questions
1.
2.
3.
4.
5.
6.
We do not know what our customers require of us
______
Policies exist for the convenience of the organization, not
the customer ____
Everyone has a specialized job function and is not allowed
to intrude in others’ areas___
Customer contact people do not have the power to make
decisions ______
Service polices are arbitrary ______
We are more interested in making a profit than in building
a loyal customer base _______
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Questions continued
7.
8.
9.
Employees are not trained in people skills____
Management does not solve problems creatively _____
Employees do not seem to realize that customers want to
be treated well ____
10. The organization is focused on solving problems rather
than preventing them
11. We know how to handle complaints, but not how to serve
the customer
12. The organization does not formally value and reward
employees _____
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Transfer scores to here
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
____
____
____
____
____
____
____
____
____
____
____
____
TOTAL _______
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Interpretation
12-21 Your organization does not seem concerned with
customers
22-31 Your organization seems to regard customers as an after
thought
32-41 Your organization seems about average in thinking about
customers
42-51 Your organization seems concerned with customers, but
could improve its system with dealing with them
52-60 Your organization seems very customer friendly
From: Joan Koob Cannie: Turning Customers into Gold. NY:
American Management Association
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Creating Loyalty
Exit
Process
Exit
Value
(Added
and
Recovery)
Communication
Exit
Static
Fluid
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Value
• Seeks to create new value for customers and then share
the value so created between producer and
consumer.
• Value is created with customers, not for customers.
• Requires that a company design and align its
business processes, communications, technology
and people in support of the value individual
customers want.
• Types of Value
• Value Added
• Value Recovery
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Lessons Learned From Research in
Restaurants
• When asked to choose the top three benefits
respondents would like to receive as part of a
loyalty/frequency program, the benefits that received
more than 20.0% are:
•
•
•
•
•
Complimentary Meals (55.4%)
Coupons/ Discounts (45.5%)
Reward Certificates (37.5%)
Gift Cards (24.8%)
Call-ahead seating (for restaurants that do not accept
reservations) (20.9%)
• Complimentary Appetizers (20.3%)
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Components of Value -continued
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Financial
Temporal
Functional
Emotional/Psychological
Experiential
Social
Trust
Identification with organization
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Value Recovery
• Complaint Management
Complaints Define What Customers Want
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
From: A Complaint is a Gift
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No Product or Service Failure
No Product or Service Failure
Customer does not say
anything
Customer dissatisfied and
speaks up
Celebration
Proactive Customer
Education/Research
Product or Service Failure
Product or Service Failure
Customer does not say
anything
Customer dissatisfied and
speaks up
Encourage Complaints
Service Recovery
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How Well Are You Doing?
• 1 = Not using strategy at all
• 2 = Using the strategy but have had problems
implementing it
• 3 = Using the strategy but with no noticeable results
• 4 = Using the strategy and have noticed positive
results
• 5 = Using the strategy and judge it as a highly
effective tactic for maintaining ongoing
communication with customers
From: A Complaint is a Gift
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Strategies
• 1. Train staff to view complaints as a gift ___
• 2. Market the fact that you are looking for
complaints ____
• 3. Evaluate your internal complaint structure ___
• 4. Set up listening posts ___
• 5. Make customer comment forms available ___
• 6. Create staff comment forms to capture
customer complaints ___
From: A Complaint is a Gift
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Strategies
• 7. Let customers complain in private ___
• 8. Set up customer confidants ___
• 9. Do not be satisfied with the first response your
customers give you ___
• 10. Go after the ones that do not respond to your
customer surveys ___
• 11. Randomly ask for feedback ___
• 12. Ask for value and quality ratings ___
• 13. Hang out with your customers ___
From: A Complaint is a Gift
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Scores
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1.
2.
3.
4.
5.
6.
7.
____
____
____
____
____
____
____
•
•
•
•
•
•
•
8. ____
9. ____
10. ____
11. ____
12. ____
13. ____
TOTAL ______
Your Total/65 = _________
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Problem Impact Tree
Please indicate if you reported any problems during your visit and
how they were resolved.
No problems experienced . . . . . . . . . . . . . . . . . . . .1 SKIP X
Problems reported and were resolved in a friendly
effective manner . . . . . . . . . . . . . . . . . . . . . . 2
Experienced problems, but didn’t report to staff . … 3
Problems reported and were not resolved in a
friendly, effective manner. . . . . . . . . . . . . . . . . 4
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FIGURE II: TOTAL SAMPLE (n=4259, 100%)
Experienced Problems (n=683, 16%)
No Problems Experienced (n=3576, 84%)
Problems Not Reported (n=262, 38.4%)
Problems Reported (n=421, 61.6%)
Problems resolved in a friendly and
effective manner (n=295, 70.1%)
Problems not resolved in a
friendly effective manner
(n= 126, 29.9%)
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FIGURE IV:
IMPACT ON OVERALL EXPERIENCE
No Problems Experienced (n=3435)
Percent Rating Overall Experience a “5” = 38.0%
Problems Not Reported (N=253)
Percent Rating Overall Experience
a “5” = 9.9%
Problems resolved in a friendly and
effective manner (n=284)
Percent Rating Overall Experience
a “5” = 22.5%
Experienced Problems (n= 658)
Percent Rating Overall Experience
a “5” = 14.8%
Problems Reported (n=405)
Percent Rating Overall Experience
a “5” = 18.0%)
Problems not resolved in a
friendly effective manner (n=121)
Percent Rating Overall Experience
a “5” = 7.4%
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Goals Seminar
•
•
•
•
Difference between frequency and loyalty
Customer Relationship Management and loyalty
How to calculate life-time value of a customer
How to create customer loyalty within your
organization
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Questions?
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D