BrainTrust Query: Making the Case for Loyalty to Senior Management
Through a special arrangement, presented here for discussion is a summary of a current article from the rDialogue blog.
For many companies, loyalty marketing is not high on the priority list. When it’s not, building a case for it may become quite a challenge for marketers. Without a strategic mandate to become more customer-centric (e.g., from the Board), competitive pressure or exasperation over the lack of accountability from existing marketing efforts, it can be futile. The result: low customer retention.
While organizations and their leadership teams have differing cultures and requirements for strategic decision-making, here are five fundamentals that make an effective case for loyalty:
- Loyalty is the most measurable driver of organic growth via incremental sales from existing and new (expensively acquired) customers, unlike most other marketing activities. These measures can be expressed with terms a CFO will support and CEOs always look to their CFOs for endorsement on significant and longer-term investments.
- Loyalty marketing creates efficiencies by correlating marketing and other resources to sales growth and profitability with precision. By definition, loyalty marketing is recognizing individual customers, understanding their value and investing accordingly. By contrast, many companies try to do everything for everyone.
- Loyalty yields insights for the entire business. It answers existential questions such as, "Why are my sales down?" by revealing which customers are the source of declining sales. Customer data is the ultimate business intelligence.
- Loyalty is not a program. It’s a common misconception to equate loyalty marketing with discounts, points and rewards. Loyalty is anything a company does to better connect, be relevant and deliver value to customers. Properly developed and executed, it’s a brand amplifier that costs measurably less than advertising.
- Finally, loyalty is a question of leadership. The majority of companies don’t lead with customer-centricity or loyalty. Ultimately, it’s a question for company top management to decide whether they want their company to lead or follow. The ones that do lead (Nordstrom, American Express, Amazon) outperform for customers and for investors.
Discussion Questions
How do you think marketers should make the case for a loyalty program internally to senior management? Which position do you think should be emphasized? Are there others you would add?
It’s hard to argue with any of the points raised here — but it’s even harder to bring them to life. The problem is that “loyalty” is a broad concept without a clear, well-accepted definition. It is more than just repeat purchasing; it has distinct attitudinal components that can’t be nudged upwards by the blunt implementation of a loyalty program. The complex combination of its behavioral and attitudinal aspects makes loyalty management/measurement just as challenging as it’s ever been.
So instead of trying to go after loyalty, per se, retailers should focus on the more easily measurable sub-goals, such as repeat purchasing, satisfaction, and switching costs (among others). It can never be boiled down to a single simple question, and attempts to do so will yield disappointing results.
Loyalty should be embedded into any customer-centric marketing strategies. I think a key point is recognizing that loyalty is not just a program for coupons and points. By making loyalty a broader effort, and purposefully including it in customer service, store design, and multichannel marketing programs, marketers should be able to position loyalty to management and internal stakeholders as a competitive advantage and a big (and often neglected) opportunity for great organic growth.
I don’t think loyalty is the question — it’s repeat business with a sense of brand equity that generates repeat in the face of competition. So I probably agree with Peter (above), but would be stronger in saying loyalty is the wrong concept.
I completely concur that loyalty is anything a company does to better connect, be relevant and deliver value to customers. Loyalty does NOT have to be discounts, or huge charges to branded manufacturers, etc. Loyalty does aim to measure organic growth, and that’s what needs to be sold to senior management.
Loyalty that lasts is not a program, but needs to be about retailers having a clear brand identity and delivering a quality relationship to consumers. This can take many forms. If senior management does not subscribe to this, marketers can try, but the deck is stacked against them and resulting programs may be superficial. True loyalty creates a base that doesn’t easily waver and continues to do business with you.
Here’s what we’re missing….
You won’t have sustainable customer engagement until you have sustainable employee engagement. It might sound like a lot of woo woo to some, but the energy within the organization determines the energy that goes into the products and service the company offers. That in turn drives customer engagement. Think of it this way, no matter how good the food and wine might be, no one enjoys going to the home of a couple who hate each other. Go to a home where love abounds and mac n’ cheese makes a banquet.
One 2011 Gallup article reports that 27% of employees are engaged, 52% are not engaged, and 21% are actively disengaged. And this is fertile ground for a customer loyalty program? Think of it…73 employees out of 100 don’t care and 21 of them are actively trying to destroy you. Yup — sign me up for that loyalty program.
How people are managed is how they treat customers. Get internal loyalty and you won’t have to worry about external loyalty.
We’re looking for love in all the wrong places.
I’d add that loyalty is one of the primary levers available to combat “showrooming” and aggressive price competition. A well executed, easy to understand loyalty program is one of the most effective ways to keep customers doing business with you and away from bargain hunting. ROI is the first thing you have to show when making a case to senior execs, but making an appeal based on competitive factors can help bolster the case.
I like Ian’s point about employee engagement as a critical component to loyalty. It’s a dimension of authenticity that needs to be there to make a loyalty program more than a discount scheme. If you think about a loyalty program as a “thank you” to shoppers that are highly engaged — and you can define that any way you like, certainly not exclusively by sales — rather than a tool to “create” loyalty, then you’ve got a shot at a successful program (and one that doesn’t break the bank in promotions and discounts).
It is my observation that loyalty as a marketing objective must be carefully implemented to the portion of customers that will insist on the product’s ability to provide abstract benefits in good times and bad. The reasoning for this demand is usually supportive in the customer’s perception of elevated social recognition and status with the use of the product/service. Prestige is not a sale for beginners or the typical order taker. The understanding of differentiation and it’s influence must be commonplace for all of the company’s sales and marketing efforts. Failure to get “everyone” on board is fatal in that a misstep in execution or timing will ruin the best of plans.
There are many companies that have weathered all kinds of economic conditions with continued growth without targeting customer loyalty for its added benefits. The companies that successfully implement customer loyalty marketing are easily recognized by their high profit dollars both in real terms and as a percent of sales.
Let the challenge fall to senior management to earn associates’ and customers’ admiration. While there is value to all of the programs listed, if senior management can’t be admired, it is difficult to be loyal to it.
Loyalty springs forth spontaneously from the hearts and minds of the people who believe in their company’s purpose and respect senior management for staying contemporary, leading with transparent integrity and making security-building things consistently happen. Thus, it seems to me, that loyalty is created by positive actions, not necessarily by programs alone.
Right on Phil, all of the above and more. It is important to add that marketers should hire/align themselves with experts that know how to do an expert job. Too often firms “go cheap” and hire pretenders that have “loyalty” on their website and purport to have the capability to address the scope/scale associated with an enterprise-wide initiative that a loyalty program represents.
Too often, CMOs explore and/or launch a program without addressing ALL of the foundation aspects associated with the business case. Thus, as shared here the program is not compelling, shallow, ill-conceived, not sustainable, lacks a vision for “what’s next” or worse of all is a drain on profits because nothing was changed on the markdown/discount side of the business.
A program whether you call it customer identification, customer recognition, customer appreciation, customer engagement or yes the common customer loyalty program should not be explored/launched without a comprehensive alignment with all internal parts of the enterprise along with the key front of house partners — associates. Make the case to the CEO and CFO, but if the head of store operations and their field team aren’t bought in, you will not succeed, at least in the early phases post launch.
I believe marketers should emphasize to management the value of the customer experience. A great customer experience is the best “loyalty program” ever invented. To achieve this, management should be encouraged to spend as much time and energy recruiting and training the very best employees possible. Management should be encouraged to work diligently to deliver the very best prices to their customers coupled with policies that are appropriate for the merchandise they are selling.
Management should be discouraged from considering the adoption of cards and/or clubs as they invariably result in a reduction of diligence in hiring, training and buying. Furthermore, these devices tell the consumer they must conform to your programs and practices and ignore the basic need for freedom of choice.
Ian and Nikki hit the nail on the head. Loyalty starts with the store employees. Look at Apple. I know that when I walk into a store I will get individual attention. That person will be very up beat and happy to see me and help me. Yes, it goes without saying that I love the products but so far I haven’t heard anyone talking about trying to find an alternative to going to the Apple store. It even takes a good bit more time than I usually want to spend in a store, but that doesn’t seem to bother us at all. Go figure….
Become more “customer centric”? If a company isn’t centered on its customers, I’m curious what they ARE centered on….
Hold on a second…I think this changes the goalposts on what “loyalty” means. Of course, retailers should “better connect, be relevant and deliver value to customers”. But lots of retailers do that, with or without a loyalty program.
A loyalty program as commonly known in retail MEANS that customers are tracked and rewarded. The tracking is expensive, up front and ongoing. The rewarding is expensive on an ongoing basis. The program, therefore, starts at a deficit and requires significant incremental customer spend to make it worthwhile. Delivering value to customers is motherhood-and-apple-pie; a loyalty program is not.
Certainly loyalty programs can be successful, and some are great. However, it is not clear that a loyalty program is always the best lever versus other ways of investing in merchandising, marketing, operations, and store experience to create a better environment for the customer. The only way to know is to understand the true ROI of various investments for your particular retail concept.
Think of the retailer and CPG Brands that have the largest value. These brands exhibit the essence of loyalty. It is nothing less than a corporate culture.
Loyalty is a position of leadership within the organization. Leading by example. This should trickle down to the stores, led by store management. When customer service is put ahead of all else, loyalty will follow, as with revenue and profitability. Just look at those brands in the study.
The case to senior management is perhaps expressed as “Customer Equity.” Most business professionals can recognize the nomenclature of assets, liabilities, and equities. However, they do not easily translate them into RELATIONSHIPS. Loyalty is a relationship component and while we can talk about “brand equity” and acquisition costs for new business/retention expenses for existing business, it is only through the lens of looking at it as “managing equities” that any of this will make sense to management. I recently wrote about this phenomenon.
Loyalty marketing is not a key driver for increasing true growth. For many companies, they do not need to have loyalty, especially those that lead with price (think dollar stores) or location (like 7/Eleven and other convenience stores).