Tim Tyler's presentation at Loyalty Marketing Day 29th September 2009

1. Beyond the Marketing Department:Creating an Organizational Culture that Builds Loyalty Thinking of bolting on a Loyalty Program? Be careful…

2. Do you think this is an issue? Do Loyalty Programs always work?

3. Physics envy “In physics, it takes three laws to explain 99% of the data; in finance, it takes more than 99 laws to explain about 3%...Economists consequently suffer from physics envy.” Emanuel Derman “Beware of Economists Bearing Greek Symbols” HBR October 2005 marketing 1 Marketers

4. Loyalty physics – the dream Loyalty Program Marketing Strategy Loyalty Program Marketing Strategy

5. Customer Response

6. Making relationship marketing like this…

7. Alleviating Physics Envy Marketing’s Quantum mechanics Or – why should a Loyalty Program even be considered as part of my marketing strategy?

8. Underlying customer mechanism? Reciprocity

9. The type of gift matters Love Status Information Service Goods Money Particular Tangible

10. Obligation to return the gift in kind Receive discounts – repay with a transaction Tangible repays tangible Receive great service – repay with tendency to loyalty Intangible repays intangible Receive personalised relevant status gifts – repay with loyalty and recommendations Particularist repays particularist

11. Intangible, particularist gifts create advocates Particularist gifts require trust. It matters who gives the gift, both parties must know each other. This takes time and interaction, making these gifts more expensive than cash discounts. This is where loyalty programs fit – but ‘hands-off’ points & prizes not enough because Intangible gifts must be relevant to have value to the customer; insight into needs and preferences is required. “Loyalty programs are the price you pay for customer data. You make money through the careful use of this data.” Traditional

12. Customer loyalty; here’s the payload Impact of improving retention, acquisition cost, and margins on customer value Base Case: 70% customer retention Gupta, Lehmann & Stuart “Valuing Customers” Marketing Science Institute No. 01-119

13. Alleviating Physics Envy Marketing’s Quantum mechanics is reciprocity Marketing’s chain reaction

14. New Model of Value Creation Influenced to visit community. Some pass along. Pass Along No community visit, but positively influenced. Some pass along. New model: C2C Old model: B2C Each interaction is an impression 1000 impression = $10 $10 CPM = $0.50 CPI Pass along continues

15. Coca Cola, MSI presentation May 2008 From… to

16. Payload Recommendation Loyalty program customers are 70% more likely to advocate for the brand (Colloquy) 55% 32% Not in program In Program Loyalty Programs can help if WOM is your strategy

17. Alleviating Physics Envy Marketing’s Quantum mechanics is reciprocity Marketing’s chain reaction is WOMM Marketing’s Uncertainty Principle

18. Customer engagement & measurement changes behaviour “…customers we surveyed were more than three times as likely to have opened new accounts, were less than half as likely to have defected, and were more profitable than the customers who hadn’t been surveyed.” Paul M. Dholakia and Vicki G.Morwitz“How Surveys Influence Customers” HBR 2002 Hawthorne is a place in the UK and an important Marketing Principle

19. Some Australian brands are talking to their loyalty program members…

20. Some Australian brands are talking to their loyalty program members…

21. Some Australian brands are talking to their loyalty program members…

22. Some Australian brands are talking to their loyalty program members…

25. Customers are not paying attention to us Coca Cola, MSI presentation May 2008

26. They prefer to talk to each other… What happens in Vegas stays on YouTube, Flickr, Twitter, Facebook… There are over 200,000,000 Blogs 54% = Number of bloggers who post content or tweet daily Because of the speed in which social media enables communication, word of mouth now becomes world of mouth 25% of search results for the World’s Top 20 largest brands are links to user-generated content 34% of bloggers post opinions about products & brands People care more about how their social graph ranks products and services than how Google ranks them 78% of consumers trust peer recommendations Only 14% trust advertisements

27. Customers are generally less loyal 52% of high loyal consumers in 2007 had either reduced their loyalty or completely defected from the brand in 2008. © CMO Council & Pointer Media Network. 2009.

28. Good service is not enough “…75% of customers that defect to a competitor claim that they were satisfied with the enterprise [service] from which they defected.” Gartner Group, CRM analytics and personalization "No one wants to hear this, but there is very little evidence that customer satisfaction is related to loyalty. In our studies, 65-70 percent of all people dissatisfied with a call still will repurchase from that company. However, 40-50 percent of satisfied customers will go on to purchase from someone else." Yankee Group, reported in CRMDaily.com

29. “Consumers are like roaches, we spray them with marketing and for a time it works. Then inevitably they develop a resistance.” Bond & Kirshenbaum – “Under the Radar– Talking to Today’s Cynical Consumer” What’s the answer?

31. Word of Mouth

34. Trust

35. R satisfaction

38. Similarity

39. Relationship duration

40. Interaction frequency

43. Word of Mouth

46. Trust

47. R satisfaction

50. Similarity

51. Relationship duration

52. Interaction frequency

55. Word of Mouth

58. Trust

59. R satisfaction

62. Similarity

63. Relationship duration

64. Interaction frequency

67. Word of Mouth

70. Trust

71. R satisfaction

74. Similarity

75. Relationship duration

76. Interaction frequency

79. Word of Mouth

82. Trust

83. R satisfaction

86. Similarity

87. Relationship duration

88. Interaction frequency

92. Trust

93. R satisfaction

96. Similarity

97. Relationship duration

98. Interaction frequency

99. Conflict#3

100. Pesky customers not as predictable as sub-atomic particles Loyalty Programs work well here Personalisation required here Marketing Strategy

101. Building a customer loyalty culture

102. Customer relationship capability, a corporate competence, depends upon; Orientation: an organization’s priorities towards customer relationships & decision making criteria Information: including databases and CIF Configuration: the alignment of organization structures, accountabilities and incentives for customer retention. Day & Van den Bulte “Superiority in Customer Relationship Management: Consequences for Competitive Advantage and Performance”. Marketing Science Institute No. 02-123

104. Company memory

105. Consistent treatment across touchpoints

106. Shared objectives & customer insights

107. Integration of processes & systemsStrong link Sally in the Call Centre Company

108. Loyalty Remember The “virtuous cycle” Remember CustomerInteraction Customer Interaction(better)Customer tells you more Customer Interaction(even better)Sales more efficient,less waste, more profit Increasing convenience for Customer, “switching costs” escalate over time.

109. d i c i Relationships: Four implementation tasks 1. Identifycustomers, individually and addressably 2. Differentiate them, by value and needs 3. Interactwith them more cost-efficiently and effectively 4. Customisesome aspect of the enterprise’s behavior Peppers and Rogers

110. “Ten Lessons for Improving Service Quality” Leonard Berry, A. Parasuraman, V.A. Zeithaml Marketing Science Institute No. 03-001, 2003 Customer satisfaction still has a role

111. Making the relationship sequence critical CustomerAdvocacy RelationshipMarketing CustomerSatisfaction Quality Glen L. Urban, “Customer Advocacy – is it for You?” eBusiness@MIT Sloan School of Management Paper 175 Personalise for loyalty Pre-requisite: Trust

112. Simplified Checklist of critical elements

113. IBM Research found: companies with a customer loyalty Orientation have 5 elements CRM done right: executive handbook for realizing the value of CRM By: Steve LaValle and Brian Scheld

114. 1. A Business Case: Why a customer loyalty strategy? Return on investment; where is the money & how much? Where customer plans fit with other strategic projects; enough corporate resources for success?

115. 2. Change Management Plan Data driven System thinking Courage Letting go of old behavior Strategic Context for thinking Strategy Customer focused Trust Process Management Improvement Scorecard Trust Balanced view Blame-free environment Employee Behaviors Personalaccountability Open communication Management Behaviors Senior Executive Buy-in Explicit Change Management Project Plan

116. People make the difference: “Change Roles” Change Agent Change Target Change Advocate Change Sponsor Individual/group who legitimizes the change Individual/group responsible for change implementation Individual/group who actually changes (stakeholders) Individual/group who wants change, but lacks legitimization power

117. 3. Treatment Plans What types of customers do you have? Which are most valuable? How do they behave differently? How will we treat each type to optimise value to them and the company? What parts of the treatment plans can we deliver through Loyalty Program, eDM, DM, Contact Centre, Office staff etc What do our staff need, where is the value for them? What do our partners need, where is the value for them? Internal Stakeholder assessment & alignment

118. 4. Ideal Customer State:What work is to be done? A picture of strategy execution in the future, a blue print for, Organisation; the structure, support and development of our staff. Aligned reward systems. Process; the “way we do things around here”. Includes “what we measure”. Information; what data & insight do we provide to help our staff provide the optimum experience to customers Technology; what infrastructure support features do we need Capability gaps between current state and Ideal Customer State; this shows where the work is required to implement the strategy Risks; in closing the gaps Gaps and Risks are specific input into the next requirement….

119. 5. Customer Roadmap:Plan the work Plan to implement, task priority and ownership assigned. Project Governance formally in place.

121. Portfolio managers: authority versus responsibility

122. Authority for pricing, offer, communication flows

123. Responsibility for customer equity improvementCustomer portfolio managers worth a thought

124. Loyalty Marketing is not yet physics

125. Happy to take questions www.linkedin.com/in/timwtyler www.twitter.com/timwtyler Skype timwtyler tim@amateras.net www.strikeachord.com.au