1.
The Loyalty Report Make identifying your profitable customers and building lasting relationships as easy as child’s play… moe! meeney mineyeeney

2.
Executive SummaryEvery day you hear about a new loyalty program. Another companychasing after the elusive pot of gold at the end of the loyalty-marketingrainbow. Colloquy’s 2009 Loyalty Census discovered a total of over1.8 million loyalty programs in the U.S., with each American house-hold belonging to an average of 14.1 programs — but how well do theywork? That depends on who you ask.Talk to marketers at Air Miles Travel Company, Target Corporation, TescoCorporation, Harrah’s Entertainment Inc., eBay Inc. and a handful ofothers and they’ll say that their loyalty programs are key to new revenuegrowth. Armed with a 360 degree view of customers, they put customer S A L L I E B U R N E T T interests first, personalize the shopping experience, and convey mes- Strategist. Leader. Innovator. sages that bolster the customer’s affinity with the brand. At day’s end,they address not just purchasing behaviors but the fundamental drivers With over 20 years’ experience in stra-of customer loyalty. They succeed despite tough economic times and tegic marketing, sales management and customer relationship manage-cutthroat markets. But the majority of companies are still struggling to ment, Customer Insight Group founderget it right. Sallie Burnett has built her vanguardDelivering on the one-to-one promise is not a one-time exercise. It’s an reputation by crafting solid customer-ongoing pursuit that is continuously measured and refined. Our experi- centric strategies that drive bottom-lineence with clients in a variety of industries has shown that there are ten success for her clients. Renowned forcritical success factors to cultivating profitable customer relationships. her out-of-the-box thinking and wealth of experience, she’s been sought outWe share these with you as key benchmarks to any successful loyalty by many of the nation’s top compa-marketing program. nies to engage, keep and grow their customer relationships at every point along their customer relationship journey. Her insight results in better aligned sales, service and marketing, while generating the greatest return on investment based on the voice and value of the customer.Sallie S. BurnettPresidentCustomer Insight Group, Inc. C U S T o m E R I N S I g h T g R o U p, I N C . Customer Insight Group is a strategicCustomer Relationships — Engage.Keep.Grow. marketing company that uses customer information to help its clients engage in successful and profitable long-term rela- tionships with each and every customer. It provides marketing strategy, customer research, data analysis, program devel- opment, implementation and refinement of customer-centric programs including: loyalty, social media, customer engage- ment, retention, win-back and new cus- tomer acquisition.© 2010 Customer Insight Group, Inc. | |

3.
Building Customer LoyaltyWhat is customer loyalty? Testing the Losing a customer on the other hand, is even more expensive.Loyalty — it’s one of those intangible Loyalty Waters According to studies by theconcepts that ultimately has Fostering customer relationships Technical Assistance Researcha different meaning depending on takes time, consistency and a Programs Institute, 91 percent ofthe type of relationship and the strategy to nurture and capture unhappy customers will never buycircumstances surrounding it. If a individual preferences and habits. again from a company that hascustomer has a limited number of To assess your progress, you may displeased them and will also voicecompanies to purchase from, they measure the intensity of the cus- their dissatisfaction to at leastmay purchase from your company tomer bond through: seven other people.by default with minimal loyalty. In Customer repeat buying behavior In fact, a Gartner study revealedcomparison, if a person chooses your Customer referrals to friends that more than 75 percent of 600company from a large list of compa- and colleagues enterprises surveyed rated customernies and has a very satisfying experi- loyalty as more important than salesence, they may have a greater affinity Customer emotional commit- to new customers (See Exhibit 1.) Aand loyalty to you. In this case, ment to the relationship recent CRMGuru survey of businesscustomers showing an emotional Customer satisfaction leaders found that 80 percent feltattachment to your company can Customer spending more over that loyalty was either “extremelydefine loyalty. Research shows that time (LTV) important” or “very important” tothose customers who demonstrate top management. Of those samea preference shown through repeat Your customer relationships are your respondents only 45 percent ratedbuying behavior, referrals or a enterprise’s primary asset. Retention their businesses’ efforts at man-personal connection or bond with a of valuable customers is the hallmark aging customer loyalty as “good” orbrand/company over time will spend of success for your company. “excellent”.greater share with the company. Growth rate soars for those withPerhaps the best way to understand Why is loyalty important? an adept hand at loyalty. Frederickthe principles of loyalty is to first A company’s retention rate is theagree that loyalty in business is not gateway to the future and the fore- E x h I B I T 1 : a solitary relationship where a con- most predictor of strategic success. S T A T U S o f L o yA LT y p R o g R A m Ssumer will do business with only one Rest assured that the odds are Currently Implemented or Planned incompany. Instead, loyalty is more stacked in your favor. According to the Next 12 Monthsabout a customer choosing to favor the Customer Service Institute, 65 Percentage of Respondents Others Leadersa select number of companies to percent of a company’s business 100%which they will do business. Loyalty comes from existing customers,occurs at many levels. You want your and it costs five times as much to 80%customers to have a satisfying attract a new customer than to keepexperience that brings them back an existing one satisfied. A study by 60%to buy regularly. Your customer Customer Satisfaction Research Marketing Metrics found the averageshould feel that they can trust your company has a 60 to 70 percent 40%company and that your company probability of selling again to existing Retention Monitoring Attitudinal Surveyswill meet their needs. And ideally, Loyalty Marketing customers and a 20 to 40 percent Churn Modeling Loyalty Scoringyour customers will sing your praises probability of successfully selling to 20%by saying, “That’s my company” or lapse customers. That’s greater than“If you’re looking for XYZ product, the probability of selling to a new 0%this is the company to get it.” prospect, 5 to 20 percent. (Source: The Loyalty Connection, Bob Thompson) | | The Loyalty Report

4.
10 Critical Success FactorsReichheld, author of The Loyalty refers to the progression of steps like Chief Customer ExperienceEffect and Loyalty Rules, found your customer goes through when Officer or Integrated Customerthat loyalty leaders grow on average considering, purchasing, using and Relationship Manager.more that twice as fast as the maintaining loyalty to a product, Encourage employees to thinkindustry average across a wide service or company (See Exhibit 2.) like a customer. Ask your front-variety of industries. The importance of managing the line employees what they think customer relationship throughout might improve customer loyalty.While we know that mastering the the life cycle increases when your Take their feedback, evaluate theart and science of loyalty marketing customers make their needs, pref- financial viability of implementingis well worth our time, executing erences, and interests known to the best ideas and recognize theit effectively still proves to be a you, which you can then adapt your employees’ contribution to thechallenge for most companies. products and services to meet more company’s success.The first step is to narrow in on of your customer’s needs. This helpsthe key factors to successful Incorporate customer focus into you meet your goals to keep cus-loyalty marketing. training and hiring. Recognize tomers satisfied, increase growth, and reward employees that uphold1. decrease defection, and optimize Loyalty Is Not the customer service philosophy customer lifetime value. a Silver Bullet of the organization.A loyalty program is not a silverbullet to solve a company’s coreweakness such as shoddy products, 2. Create a Shared Internal Vision To create a customer-centric 3. Set Realistic Goals and Objectivespoor customer service, noncompeti- In general, loyalty programs are organization, the vision has to betive prices, nonintegrated distribu- often developed with good inten- clear and embraced by all within.tion channels or lack of communi- tions, but unclear objectives. This Companies that have successfullycation with customers. Instead, a can sabotage your program from the implemented customer loyaltyloyalty program should be thought start. A program cannot be massof as a part of your integrated programs have created ways to and exclusive, loaded with benefitscustomer relationship marketing reinforce the goals with employees. and cheap. Take a critical look atprogram — one that helps you to Over-invest in coordination with your primary business objectives.proactively manage the customer and across all functions. Work o y o U w A N T T o E x p A N D Dlife cycle. The customer life cycle closely with the various stakeholder m A R k E T I N g C h A N N E L S E x h I B I T : groups regarding the program w I T h D I R E C T C A p A B I L I T I E S L o y A LT y p R o g R E S S I o N objectives, strategies, areas of T o I m p R o v E E f f I C I E N C y departmental impact and associ- A N D m E A S U R E R E S U L T S ? Customer Life Cycle Stages ated expenditures. o y o U w A N T T o C o L L E C T D Loyalty Advocate Encourage employees to partici- D A T A T o B E L E v E R A g E D A S Bonding pate in the program. Employees A C o R E B U S I N E S S A S S E T ? Commitment become advocates when they o y o U w A N T T o B U I L D D Relationship of Favoritism experience firsthand the value in S T R o N g R E L A T I o N S h I p S Relevance Purchases the program. w I T h h I g h v A L U E A N D h I g h g R o w T h C U S T o m E R Create high-level positions with 1st Purchase S E g m E N T S ? the sole purpose of leverag- Awareness Expectation ing customer data across the Successful program execution is organization and to serve as the based on working toward a primary No Awareness customer advocate. Consider titles business objective. For example,© 2010 Customer Insight Group, Inc. | |

5.
Harrah’s casinos uses predictive then to go directly to the source. Include a feedback loop — themodels to treat different customers Ask your customers what they want, voice of the customer — within yourdifferently. David Horton, VP of what they like and dislike. Include program communication. This isloyalty marketing, noted in an inter- customer surveys on your Web your way to regularly assess andview with Peppers and Rogers, site, at point-of-sale, statement analyze customer needs, prefer-“By looking at the particular seg- and package inserts. In addition, ences and perceptions of currentments instead of the aggregate, conduct focus groups with your best experiences. Customer feedbackthat’s where you really drive customers and potential high value should provide actionable insightprofitability.” Harrah’s has over customers to generate ideas that geared toward continuously refining25 million Total Reward members, will enhance the customer experi- the program and ensuring that theand of those, 6 million are active. ence. Investigate what really matters program’s customer-centric focusWith 70 percent of the company’s to your customers and what they does not become static.revenues tracked on the card, consider worth the cost. Focus in 5.Harrah’s loyalty program hascontributed over $100 million on the features, program structures, Know Yourdollars in revenue since its and rewards they would add or Customersinception. Each of the company’s remove if they were to (re)design Look at the customer from a holisticobjectives drive the features your loyalty program. Analyze how perspective and then segment cus-and strategic execution of their pro- these benefits contrast with existing tomers that are similar. Create agrams (See Exhibit 3.) offers/promotions. Based on your loyalty profile by ranking your cus- customers’ feedback, determine the4. tomers by their value to your Ask Customers What business impact of the requested company, and then differentiate They Want benefits. Is it financially viable, them by their customer lifecycle andThere’s no better way to determine sustainable and does it ultimately needs. The profile should be a 360what will drive customer behavior achieve your business objectives? degree view, combining customerExhIBIT : kEy LEvERS By CompANy oBjECTIvE oBjECTIvES CompANy fEATURES Embrace High Value Neiman Marcus Small high value spending group American Express Centurion Card Exclusive aspirational offers Exclusive Resorts Target Priority Segments Harrah’s Entertainment Inc. Several important segments with dif- Staples, Inc. ferentiate needs Hilton Honors Tailor value proposition (e.g., pricing service levels) based on behav- ioral insights to better meet needs Engage Mass Market Target Corporation Provide everyday extra value AirMiles Travel Company Strong core brand alignment Safeway Build ongoing connection point to Discover Financial Services encourage purchases and differen- tiate offer Deliver Superior Experience Amazon.com Multiple touch points, channels Tesco Corporation Able to identify high value/high priority individuals to deliver superior experience across touch points | | The Loyalty Report

6.
7. Create a Distinctiverelationship elements of purchase customer’s individual interests. Onebehavior, customer attitudes, of the largest banks in the United Customer Experiencesatisfaction, demographics and States employs segment-specific While discounts are important tolifestyles. The loyalty profile provides service queuing by catering to high some customers, for others advance value bank customers with personalyou insight that helps you establish notice of sales, personal attention attention from their banker, exclu-what type of program and rewards and convenience are the factors sive teller lines, free ATM cards, etc.structure would most impact core that create loyalty. Your customerscustomers. Once you’ve created A recent Deloitte Loyalty Quest are diverse, consequently yourthe loyalty segments, prioritize study revealed that bank customer program needs to acknowledgethem to focus on their potential relationships are molded by conve- these unique customers attitudes,economic impact. Avoid rewarding nience, value and service. Banks behavioral drivers and needs by“free riders” — loyalty members combining these three elements are speaking differently to each of them.that join your program, but give more likely to acquire and retain a The better you understand youryou nothing in return, and instead greater number of customers. customers, the better you can pushfocus your efforts on profitable, 8. the most appropriate levers for theloyal customers. specific customer. For example, high Customer Centric Organization6. value, more affluent customers may Attainable and find personal recognition, special As once stated by Bill Gates in Realistic Rewards access and privilege of greater Business @ The Speed of ThoughtAny incentive offered within the importance. These soft benefits are (1999), “The best way to put dis-bounds of a customer loyalty more difficult for a competitor to tance between you and the crowd isprogram must be realistically attain- duplicate and are ordinarily more to do an outstanding job with infor-able within a reasonable time influential in reducing churn in your mation. How you gather, manage,period. Typically customers expect top deciles. In addition to soft bene- and use information will determineto earn an award about seven fits, successful loyalty programs use whether you win or lose.”months after joining a program. data-driven marketing techniques to Successful loyalty programs leverageConversely, members of retail deliver more personalized rewards customer insight to:programs expect a reward within based on the customer’s valuefive months. By design, a loyalty to the bottom line. A leading con- Attract profitable customers,program is a balancing act between sumer catalog company segmented Determine allocation of resourcesoffering some low-cost, easily attain- their loyalty members using three to improve ROI,able short-term rewards that can dimensions: demographics (age, Evaluate how individualbe redeemed early in the program gender, income, etc.), merchandise customers react to specificwith more highly valued aspirational propensity (products purchased, promotions,(and more costly) rewards that can seasonality, etc.), and relationship Deflect competitive challenges,be redeemed later in the program. (customer tenure, risk, channel pref- Identify trends and opportunities,While the short-term rewards are erences, and profit). Based on eachused to encourage enrollment and segment’s distinctive characteristics Increase customer conversionongoing participation, the aspira- rates. and behaviors, the catalog thentional rewards serve as an incentive deployed a successful segment-spe- Tesco, number one in the UK groceryfor your customers to consolidate cific strategy to personalize offers business, embraces its customerpurchases and award you greater and create an enticing mix of soft knowledge as a key differentiatorshare of wallet. and hard benefits targeted to the and leverages it to deliver and tailor© 2010 Customer Insight Group, Inc. | |

7.
its customer value proposition and tions and perceived benefits to your promotions, events and customerloyalty program offerings. Tesco’s customer. In developing your cus- communication, long-term successcorporate mission is to “Create tomer communication plan, leverage is measured by RFV — recency,value for customers to earn their each touch point to reinforce the frequency and value. Recency islifetime loyalty.” Its company values value proposition and focus on what the measurement of when the cus-includes, “Understand the cus- really matters to your customer tomer last purchased. Generallytomer better than anyone,” and — creating concise, relevant and it is a good indicator of potential“Share knowledge so that it can be compelling messages that build defection. Frequency is a measureused.” Tesco’s customer insight has relationships based on your cus- of how often a customer shops; itevolved to a level where microseg- tomers’ needs. The key to success is gauges how robust the relationshipments based on lifestage have been to embed your loyalty program into the total customer experience with is between your customer and theidentified and meaningful “sub-clubs” have been created to address your company. company. Value indicates profit-specific customer needs and deliver ability of the customer; a decline Optimize results from your customerrelevant, personalized informa- in value can represent a decrease interactions by first calculating eachtion. The Food Club appeals to in transaction size and your share customer’s current value, and thenconsumers who are fanatical about of wallet. Measuring value is more build a model to predict customerfood; Baby Toddler Club offers spending in the coming year. These than looking at one transaction;parenting tips, expert advice and two pieces of information can be instead it is a measurement of yourcoupons based on the child’s exact used to understand customer spend/ customer’s perceived value in thelife stage; Tesco Clubcard Wine Club value migration and enable you to relationship. As Frederick Reicheldfeatures coupons, wine tips and develop strategies to upgrade cus- explains in The Loyalty Effect,expert wine advice; Healthy Living tomers. In addition, by tracking when “Creating value for customers buildsClub provides practical healing solu- customers historically purchase, you loyalty and loyalty in turn buildstions from leading experts and pre- can create a predictive model to growth, profits and more value.”ferred product coupons. determine when customers would be RFV provides you a actionable9. most inclined to spend in the future. measure for enhancing and refining Relevant and This kind of modeling will enable you your loyalty program. Consistent to deliver on the promise of one-to-Communication one — the right message, to the right Begin Your Pursuit customer, at the right time.There are more communica- The quest for loyalty is a worthy 10.tion channels than ever before.Depending on your business, Measure one with bottom-line rewards for those who prevail. As unique ascustomer touch points include mail, Success your customers are, so will be yourtelephone, fax, text message, e- Customer satisfaction and loyalty challenges and successes as youmail, instant messaging, Internet metrics should be prominent in per- build and refine your program alongchat rooms, catalogs, point-of-sale, formance dashboards andsignage, Web sites, and online bul- visible to the company’s leadership, the way. The pursuit for customerletin boards. New forays in Internet- including the board. You should insight is not one to be taken lightlybased systems include blogs, social measure results in both or without long-term dedication.media, video conferencing, podcasts the short-term and the long-term. Dig in. Dedicate for the long hauland meeting-sharing systems. Each While short-term success is mea- and discover the treasure of truetouch point has its own cost implica- sured by evaluating the results of customer loyalty. | | The Loyalty Report

8.
6711 SecreSt circle ArvAdA, cO 80007 USA 303.422.9758 www.cUStOmerinSightgrOUp.cOm