I recently read a user story about how Harlequin—the publisher of romance novels—keeps its customers loyal. I don’t usually give a plug to a company like this but for what it’s worth, Stellar Loyalty provides technology to make loyalty happen. What’s interesting to me is how many of the ideas in my current book (“You Can’t Buy Customer Loyalty…” (I know another plug)) get put to good use by this publisher. The things that I think work really well include emphasizing a consciousness of customer loyalty, keeping things simple, and focusing on personalizing relationships and engagement.
Consciousness is relatively easy, but someone high in the org chart has to be willing to say, “This is important.” Other things might be important to this publisher too, like finding good writers and editors, but that’s in a separate realm. In the customer realm being conscious of working to maintain relationships is about as important as it gets because it becomes the animating principle for everything else.
I had always assumed a consciousness of maintaining customer loyalty and that works for me because it’s already my primary focus, but for lots of people in organizations that’s not true. People have jobs with concrete deliverables and expectations and unfortunately there aren’t typically metrics for individual customer loyalty promotion. It’s something the organization has to do together and as individuals so starting with consciousness is really a pretty smart idea because it leaves less to chance.
Simplicity is another big idea that comes from other research. Customers—you and I—have a lot on our plates and don’t always want or need a vendor’s extravagant display of affection to make us know we’re loved. What we crave is time and that boils down to simple processes and systems that we can get through on the march through the daily bucket list. In Harlequin’s case simplicity means having a mobile app that enables customers to scan receipts to notify the loyalty program of a purchase so that rewards points can be automatically tallied. Giving points for this activity is important to the publisher because it gives them insight into who is buying what and where and if you’re selling books, that’s pretty important. This also provides the data that enables personalization at a meaningful level.
More importantly though, Harlequin places equal emphasis on the ways customers reach out to them. You can’t ask for a better sign of customer loyalty than when a customer engages online such as by writing reviews or engaging on the company’s Facebook page or by answering a survey. This is the engagement that any company would want because more than a business’s outreach to customers (which can be ignored) this identifies things that customers reach out for.
Finally, Harlequin analyzes all of the customer data that it collects which helps it to both identify customer moments of truth and how well it is performing in them. That’s how you build constant improvement into a loyalty program—knowing what customers care about and then ensuring that’s where your people and automation focus.
Consider some of the metrics that the publisher shared in the use story,
- Percent of customers that engage with the loyalty program monthly and the direction of the trend.
- Percent of customers who redeem rewards and percent who have redeemed multiple times.
- Percent of members providing feedback and percentage that’s positive (much more useful than a Net Promoter Score).
- Time in the loyalty program and propensity to repurchase.
This isn’t hard to do and almost any company could benefit from a program like this with a few well-chosen metrics like these. My studies show that companies are increasingly moving in this direction and away from simply awarding points based on purchase transactions. The simple reason for the movement is that it takes much more than points to keep customers in the fold and more than simple transactions to diagnose vendor health.
That’s why loyalty programs are taking on greater prominence but not just any loyalty programs. Modern loyalty is based on customer engagement and understanding moments of truth so that vendors can be there when customers need them. If you’re wondering about your loyalty program, this is an approach to get you thinking different.
I’ve been saying for a while that we’re heading toward an era when process dominates and traditional transactions become just one part of those processes. Now, you might say that’s the way it’s always been and I won’t disagree. But historically, processes were more or less managed by employees who used information systems to inform their decision-making and the result was recorded as a transaction.
Today we are increasingly asking our machines to run the show and that’s fine but too often we expect the old systems that supported employee mediated processes to support customers. It’s a bad idea too because in my research, one of the greatest sources of customer unhappiness is a process that crashed because the customer didn’t know enough to use the transaction support system properly. Truth be told, Einstein might not be able to fathom some of these older systems and I know he’d be one of the first to complain. He once said repeating the same action expecting a different result is the definition of madness. So I wouldn’t expect old Mr. Relativity to take more than one crack at some of the transaction support systems out there today.
But there’s all kind of good news for process devotes like me these days. Two major customer facing processes have gotten the support they need and are writing CRM history—CPQ and Incentive Compensation. Another, the loyalty process is on the horizon.
Like many of today’s star processes, CPQ was a totally manual thing for a long time and it involved many spreadsheets. There were sheets for products and price lists, sheets for discount structures, and of course, proposals were generated on spreadsheets too. CPQ was a manual task that many sales reps found ways around that ultimately cost their companies money. For instance rather than generating new quotes for each customer, sometimes a rep in a hurry would change a few particulars on another quote and have something. This often took no notice of delicacies like one customer’s discount level against another’s. Sometimes prices changed and the changes weren’t reflected in the cloned proposals. Ooops!
It goes on and on but it’s nice to know that those days are in the past for any company that uses a modern CPQ system. Better yet, CPQ systems make it easy to include the boss in a workflow to check the discounts and configurations. So with all this CPQ became a process rather than just a bunch of loosely tied spreadsheets.
The biggest change in processes, I believe, comes in the incentive compensation space. Here’s a process that started in the back office and completely morphed before becoming a sales tool. Compensation was largely a financial department thing handled by the CFO’s team at the end of a quarter. They tallied up sales and cut checks and sometimes there was broad agreement between the back office and the sales reps. Other times, the reps found errors and were upset.
When automation took over it became very easy to come up with numbers at the end of quarters that everyone accepted. Incentive compensation systems replaced the overlapping spreadsheets that sales managers used to record attainment and incentivize reps, as well as the spreadsheets that the reps kept, often called shadow accounting.
Then something really interesting happened. Sales managers realized they could proactively plan the quarter or even the year using what had only been a retrospective financial and accounting tool. Not only that but they were also able to more finely tune incentives. Early comp plans stressed a dollar value for making quota but with a real system, managers found they could assign goals by product, profitability, or just plain revenue if they wanted to. The point is they suddenly had the ability to customize the ways they managed people.
We’re a long way from being done with this conversion too. Process centric systems like CPQ and Incentive compensation are becoming the places where back office meets front. CPQ is most effective when it can easily access back office data about what products a customer already has, the master product and price list, and the customer’s payment history. Incentive compensation can do a better job when it can integrate employee data from HCM systems, for instance.
In all of this we can see a discussion starting about the incentive process or the quoting process and not simply getting the goals and objectives or a quote out the door. That’s progress because it gets us closer to being in some very important moments of truth with our customers and our employees. What’s next? I am thinking a lot about a customer loyalty process these days. Loyalty is too often associated with a transaction—you buy, I give something, a “reward” in return—which I think is wrong because it doesn’t really promote loyalty. If what you want is some way of assuring yourself that a customer will behave loyally even when you aren’t giving something away, then you need to seriously rethink it. Hint: Apple doesn’t give rewards or discounts but its customers are among the most loyal. Why? That’s a story for another time.
One of the consistent themes of the technology market is the incessant march from one paradigm to another and tracking customer attitudes about vendors serves up a great example.
When we began tracking customer attitudes seriously in the last decade, we were looking at satisfaction. It was based on the assumption that a satisfied customer was some kind of nirvana. The customer asked for something and the vendor provided it whether product, service, information, or something else. What possible other configuration could a customer have other than satisfaction or its opposite? That question was usually derived from HIPPOs, the Highest Paid Person’s Opinion. But what did they know? Their frame of reference was person-to-person retail.
Indeed customer satisfaction was the standard for a long time, especially in retail where we dealt primarily with delivering the exact product a customer asked for. But things change, arms races take hold and a newer style of customer emerged that vendors wanted to cultivate, the loyal customer, one that will come back and buy something else.
Loyalty is good but it is hard to measure in a passive but satisfied customer or a hostile and simmering one, so it involves things like attitude, which can also be traced to satisfaction. Thus a satisfied customer could or could not be loyal depending on almost anything and so the Net Promoter Score (NPS) was designed by Fred Reichheld to help us measure whether or not customers were so loyal they’d recommend us.
Unfortunately, the NPS is forward looking. As buddy Paul Greenberg rightly points out, it doesn’t say if a customer has (past tense) recommended a vendor, product, or brand only that if the occasion permitted that the customer would (see, conditional future tense). Not good enough.
Today many vendors need a stable of customers who actively sing their praises in social environments like communities because so much influencing happens before a vendor can get into a sales cycle with a potential customer. These customers are labeled advocates because they presumably advocate for the vendor. But advocacy is a higher hurdle than either satisfaction or loyalty and it requires a greater commitment called bonding.
Bonding is the new black. It shoots past loyalty into a higher orbit that can only be reached if a customer has successfully engaged with a vendor and found it worthy. I like to point out that bonding is not a one-time thing, that customers have micro-decision points throughout their lifecycles. At each decision point, which I call a moment of truth, a customer makes a decision—what might even be a sub-conscious decision—like “This vendor rocks!” or “Who is this turkey and why did I buy that thing?” Add up the positives and subtract the negatives and you will know if you have bonded. But the rating scale is highly variable. Positive experiences (customers experience moments of truth) may not weigh as heavily as negative ones for the simple reason that the negatives have a tendency to derail the train while positive experiences simply get the train to the next station, no muss, no fuss.
Speaking of trains, Tolstoy knew this and a whole aphorism has grown up around this inequality called the Anna Karenina Principle. You could look it up if you wanted to.
So it’s bonding that counts because it drives advocacy and in contrast loyalty looks confused and so turn of the century. Nonetheless, there is a large and thriving loyalty industry that I think could use an injection of Anna Karenina and moments of truth. Where loyalty tends to be well intentioned but vague and dispersed, bonding and advocacy offer a direct path to a predictable and repeatable result.
Moments of truth and the Anna Karenina Principle form the basis of Customer Science, which you can read about here. It is a social science that gets to the heart of what motivates customers to act—the familiar structures of a relationship with, say, a vendor, or the impulse to take agency and find something better.
Loyalty still has its uses and it is a good term but with bonding and everything that underlies it, we at last have an approach that can deliver more predictable results.