If you’re confused about loyalty programs, it’s understandable. The vast majority of loyalty programs in the marketplace today are really nothing more than glorified discounting schemes. Whether it’s an active discount for a current transaction (the worst kind) or a promise of a future discount through accumulating points, miles or other tokens, it’s all the same. Such loyalty programs eat into profits without changing customer behavior, yet the objective is to get customers to return and buy more at a price you set without a massive discount. What’s wrong?
There’s ample research that shows when the discounts stop, so does the loyalty. So, is that really loyalty? You know the answer, but what do you do about it? I suggest taking a hard look at root causes and work forward. In this case I developed a small “equation” that illustrates the point:
Customer experience > Customer engagement > Customer loyalty > Profits
I use the arrow as a substitute for “drives” as in customer experience drives customer engagement and it’s really engagement that we should be focusing on and not loyalty per se. Loyalty is a natural by-product of engagement which I’ve written about in one of my books: so, in other words if nail the engagement aspect, loyalty comes along for the ride.
So how do you get to that point? Other research that I detail in a book, shows that it all starts with experience but not the kind that entertains the eyeballs, just the opposite in fact. A great customer experience is governed by serving customers’ needs as they see them. Often this means being prompt and accurate thus respecting customers’ time so that they can get on with their to-do lists. I know this sounds incredible but ask yourself this: Would you prefer to hear 10 minutes of your most favorite songs while on hold or to be able to get on with your life?
Once you have experience nailed think again about it because for the customer engagement is about a lot of experiences you are likely not supporting. For example, how often do you say thank you to a customer who demonstrates loyalty by endorsing your brand online or by helping a newbie to use a product correctly? It’s increasingly easy to discover these hidden acts of loyalty and if you do, saying thanks costs nothing but makes an impression that drives true loyalty.
Those hidden acts of loyalty can be encouraged and, if rewarded, can do much more work to promote loyalty in your world than all the discounts you can imagine. Think about it. A customer who displays a hidden act of loyalty might be out of budget or need and would likely not be ready to re-invest soon. But that customer can still be loyal and influence others’ behaviors to your benefit. That’s why rewarding them with discounts on future purchases often has little effect other than to function as discounting mechanisms that have no chance of resulting in observable loyalty.
So, the message is clear. To promote real customer loyalty, identify the experiences that really matter to customers and don’t forget praise, everyone likes praise and it costs nothing, unlike your expensive loyalty program. Promote engagement that matters based on your new thinking about experience. Then stand back and let loyalty happen as you reap the profits.
A couple of books ago I wrote about customer loyalty and how to get and keep it. The book was slightly ahead of its time, mostly because it’s easier to write books than code but also because a fair amount of research needs to happen before you write the right code.
My research convincingly showed that a customer’s experience drives engagement which in turn drives loyalty. There were examples of companies and their executives who tried to shortcut the process but found they couldn’t do that and get the desired results. Their idea was to ask customers to prove their loyalty by endorsing a product or brand prematurely via the net promoter score (NPS). The obvious problem was that no one in their right mind would do that. Nevertheless, some people performed as asked but in such small numbers it didn’t matter. In the process they managed to trash the reputation of the NPS which helped exactly no one.
One of the findings that I am most fond of is that customers highly value good execution on the bread and butter, run-of-the-mill, quotidian tasks. The data blows away the myth that customer experience must be something that wows customers. In truth, they don’t often get wowed; your ability to hang on to them stems from not wasting their time.
A great takeaway from this finding is that if we can systematize and regularize our interactions with customers making them efficient and reliable that’s often all it takes. And loyalty? That’s demonstrated when customers say nice things about you in your community or elsewhere or help others with questions, not necessarily when they buy more stuff because of the points they get.
Remember I mentioned writing the right software? Armed with this knowledge we can make software that handles the efficiency and reliability and sure enough, customer interaction software is becoming the next battleground among CRM vendors.
Spoiler alert, customer interaction software won’t get you to nirvana because there are other niches opening like customer identity. I’m working on a white paper to address this but for now let’s take a look at interaction.
Regularizing the customer experience is a good place to start for without that nothing else makes sense. You couldn’t collect and analyze data on wildly different experiences hoping to glean anything predictive from it. Jobs number 2 and 3 involve bringing disparate things together. First you need to provide omni channel communication, being able to address customers on the channels they on which they approach and then you need to bring together data that might be siloed in different systems.
In many ways these are three things we’ve been striving for in CRM for about a decade the difference now is that each now connects for a higher purpose. With all of this it’s possible to track customers across channels and lifecycles and make on-target offers by relying on a better understanding of customer journeys.
I was briefed recently on Salesforce’s Interaction Studio which combines these capabilities and came away impressed with the centrality of Journey Builder in coordinating all of this. Defining customer journeys, whether for sales or service, is elemental to standardizing and regularizing customer experiences but it’s not enough. You still need to connect what you know about the customer (your data and information produced by analytics) with your communications channels so that you can address customers (saving wear and tear on the customer) in the channels they decide are best.
That’s what the product is designed for. Standardizing journeys across channels and delivering useful information. All of this combines to enable a business to make good on its bread and butter promises. In the process customers feel well served, not spammed. There’s also much greater likelihood that the positive experience engages customers as they wish to be and that completes the engagement cycle. If engagement drives loyalty, then the heavy lifting is over for now at least.
My two bits
It’s nice to see experience and engagement realized through CRM. A lot of credit goes to the analytics engine in the background that acts on customer data as well as the machine learning algorithms that enable correct next best recommendations. All of that wouldn’t be possible without journey mapping to standardize processes.
It has taken a while to get all these moving parts in synch, but we’re not done. Time to start looking into how to protect identity so that suggestions and offers only go to customers when they’re wanted. This will build on the not wasting time issue. For this we might need a third party to manage personal data. Historically we haven’t done much in identity but it’s time to reconsider.
We can’t really expect the individual social network vendors to do that because they’re closed systems and it would result in either massive redundancy or chaos from competing systems and possibly both. There are also bigger issues involved like who pays to maintain data and how do we keep it safe? That’s why interaction and identity are some of the leading issues of our time.
We iterate toward solutions. A new technology surfaces and often we need time to appreciate its uses and to discover why we need it. Other times, we discover a problem first and spend many days sorting out off the shelf solutions that might work only to discover nothing does and we need a crafted solution. It’s been like this is the customer loyalty space, a problem seeking a solution.
For a long time, customer loyalty has been an elusive goal with numerous intermediate points that never quite jelled. Even before there was technology there were loyalty programs. The simplest programs gave script to purchasers (today they’re points) so that over time loyalty could be rewarded with something of value. A classic example is the frequent flyer program in which airlines try to build repeat business through awards for future free travel. Many other loyalty programs base themselves on the same transactional format.
But that has been the state of the art; transactional give-and-get points systems that generate the appearance of customer loyalty but it was only an appearance. Research shows that when you take away the points and the loyalty disappears. So, we’ve spent a lot of time and resources automating the points based loyalty program paradigm until it became a business in its own right. New systems make it possible to manipulate points and customers in various ways and to extract information from the mounds of customer data churned up in typical activity.
However, all of this automation has been at variance with customer loyalty research. If your dream is getting customers to come to you because they like or trust your brand you know the importance of building an emotional connection with them, of engaging them in ways that make them loyal to the brand regardless of incentives. This kind of loyalty inspires customers to do and say nice things about the brand when they don’t have to.
For instance, a customer might demonstrate loyalty when helping another customer in a community or by providing feedback about products, policies, promotions, and services. Conventional loyalty programs fall down here because they often don’t track these truly loyal behaviors and so they don’t reward them. That’s too bad.
On the other hand, many customers seek nothing more than transactional loyalty programs and who could blame them? Transactional loyalty has enabled airlines to cut service to the bone without worry over losing customers to competitors with better policies. They all have the same sad service, more or less, and customers have to be contented with their miles.
But now with the advent of chat bots, machine learning, notifications, and messaging we may have another chance to get loyalty right. Even in situations where customers are fine with transactional encounters, bots and algorithms can improve the experience and perhaps even engage customers so that they can be involved in meaningful transactions served for all sides. Capturing customer data during a transaction and using it in conjunction with other data, either historic or from a representative group and then analyzing it has given vendors many more levers for dealing appropriately with customers in an effort to promote their loyalty.
Perhaps the greatest contribution today comes from notifications. Its one thing to be able to analyze customer behavior and suggest actions but having the ability to notify a customer in real time and in a contextually relevant way is gold. A vendor that can be contextually relevant is a step ahead of the one that asks a perfunctory question—do you want fries?
Moreover, a notification that’s contextually relevant is not seen as a nuisance but as adding value. These and many other subtle changes are placing us on the cusp of a new vendor-customer relationship and making it possible to imagine much better engagement in the not too distant future. It’s a good time for CRM and its users.
I’ve been writing about customer loyalty a lot and not just to sell my book, though you can buy it any time you want. Seriously though, markets everywhere are cooling. Where they were once ripe with new categories and products, today everybody seems to have the new stuff and growth is falling back to the baseline of organic growth. That’s why loyalty is so important today and it’s also why there are so many questions about how to promote and improve it.
Loyalty is an up and coming part of the software business. On the established side, there are companies like IBM and SAS offering solutions and there is a healthy community of startups with names like Yotpo, SailPlay Loyalty, and Stellar Loyalty. I’m still learning the market so I don’t know every vendor out there but the thing that got me hooked on studying this area is the great chasm between conventional loyalty ideas, and the software that supports it, and what really works.
We’re all familiar with loyalty and rewards programs that provide points, miles, and other goodies when we make a purchase. Let me expose my bias here. That’s not how to promote loyalty. The data is conclusive: customers who shop for discounts and rewards are a fickle breed, able to change vendors on a moment’s notice.
Creating a transaction in which product or value goes one way and a reward follows is simply discounting. There’s nothing wrong with judicious discounting but when you make it a habit you enter a situation where you routinely give up margin and fail to make your profitability metric. The challenge for most vendors, especially retailers, has always been what to do to keep customers coming in if not for rewards. It’s an important question, especially today.
The answer is engagement, which is hard to do until you conceptualize a more full-bodied relationship model. I’ve listened to a lot of vendors tell me all about speed and accuracy, funky websites, and who knows what else in their efforts to define engagement. But that’s engagement from the vendor’s perspective and too often nobody studies the customer side.
In a true relationship there’s some amount of emotional bonding between the customer and the vendor. As a practical matter, your customers don’t want to have a beer with you, that’s a different kind of relationship. But they could get a warm feeling when thinking about doing business with you or more likely solving a problem using your solution. Certainly there are brands in your own life that you prefer. You might not care what gas you buy for your car, but you may have a favorite butcher shop or other business you preferentially seek out. I’d say the latter is a business you are engaged with.
It’s relatively easy to become engaged with a local vendor and much harder to similarly bond with a national brand, but it can be done. In my recent research I stumbled upon companies that have perfected bonding and while I’m obliged to not mention their names right now, they have developed unique ways to attract and develop emotional bonds with their customers.
For instance, they usually find ways to sponsor community activity between themselves and their customers. Some build community through a rather conventional software solution while others develop real life user interactions. In both cases customers bond with each other and with the brand around using the vendors’ products.
Another idea that works well is philanthropy. You might be familiar with the philanthropy model of Salesforce or Google in which the company donates one percent of its technology, employee time (on a voluntary basis), and resources. This can take many forms. For instance one company I know sponsors a fundraising arm to help groups sell products and make profits for worthy causes, much like the Girl Scout cookie model. However you do it, you can develop emotional bonds that drive engagement and it works.
An October article by Adrianne Pasquarelli in Advertising Age raises the idea of cohesive branding as a key element in the success of market heavyweights like Google, Apple, Amazon, and others. Cohesive branding is simply an integrated set of overt and subtle attributes that throughout the customer experience blanket the products, messaging, and customer touchpoints. According to the article, “…what makes brands like Apple valuable is their cohesiveness as a connected business system. Apple communicates with its customers through its hardware, software, and retail stores to deliver one consistent narrative or ecosystem.”
I’d go further and say that part of cohesion is engagement and by extension community. If messaging is implicit in products, services, and if messaging can lead to cohesion, then certainly things like community and one’s stance on philanthropy can too. The path to improving your loyalty numbers does not, thankfully, run through greater rewards or steeper discounts. It’s about leveraging engagement and for the first time in history we have the tools to do it in modern CRM.
Artificial Intelligence and Machine Learning (AI and ML) have taken the industry by storm with some saying they will usher in a new age of better business processes and customer orientation while others fret that automation will kill jobs. Both might be true.
There will definitely be jobs that no longer make sense for humans to do thanks to automation. Generally they’re entry level and not much fun but this begs the question of what, then, becomes an entry-level job. I took a briefing last week with, Conversica, a company that uses AI to do general-purpose triage for early stage sales leads. I am not affiliated with Conversica and I am simply reporting, but the technology seems pretty cool.
Conversica is essentially a bot that responds to things like email with appropriate information and then follows up. When a customer indicates a need to interact with a human, the bot makes the transfer. The bot is tireless and can work 24/7 so there’s a lot to like. This is a good example of automation replacing a human but I am told the bot simply makes it possible to redeploy the human to another job that requires real human thinking. I am sure it can.
Often when I see something like this it’s a new technology applied to an old problem and truth be told, that’s generally how new technology gets disseminated. For example, it has taken a long time for social media to establish a niche different from being a cheaper email platform. Some people haven’t made the leap in understanding but generally we’re there. So I fully understand employing modern AI technology to support the sales effort; sales is one of the first stops for new technologies.
But I’d like to divert your attention for a moment to some business processes that are nearly neglected where AI and ML could make real contributions. They would likely not replace anyone because a job isn’t being done in many cases. Customer loyalty is an area that could use some help, even the help of bots. Loyalty has always been a passive thing in which customers are expected to do something that demonstrates loyalty in the moment, rather than an active thing that businesses pursue.
We expect customers to do something loyal, usually making another purchase, for which we then give out rewards. That’s okay but it misses the point. Rewards are by their nature backward looking and loyalty ought to be something of the present and future. Say I advocate on behalf of a favorite product that may drive future business for the company. Often that’s not part of a business’ idea of loyalty and so it goes unrewarded even though it is a good loyalty indicator. Too bad.
Now imagine if you tuned some of your AI muscles toward loyalty. What if you had a bot that caught customers doing good things for which you rewarded that behavior? The reward, not associated with a purchase, might inspire more loyal conduct and all this could be done without human intervention. So this little exercise just 1) invented a job for a bot, 2) replaced no humans, but it did 3) improve business performance.
My point is that there are lots of incremental improvements like this example waiting to be discovered as we contemplate using AI. Many of AI’s early deployments will be like this, not very sexy but useful. That’s what happens on the far side of the hype cycle, after everyone’s tried applying the hot new technology to the oldest of problems. It’s maybe even after a lot of people have become mildly disenchanted with the failed promises that the new category couldn’t deliver.
I’ve seen this hype cycle movie before and I am wondering if we might be able to speed up the process. It’s really nothing more than imagining new processes rather than being happy pursuing a well-worn path.