Photo: RetailWire
Retailers fail to reward long-time customers at their own risk
Mike Giambattista, Editor in Chief
Through a special arrangement, presented here for discussion is a summary of a current article from The Wise Marketer, a website and newsletter serving the global loyalty industry.
With apologies for the broad-brush stroke being applied, tenured professors can see themselves as somewhat untouchable and can have a reputation for smugness and entitlement. That’s the downside of tenure.
The upside of tenure should, in theory, provide a context for a rewarded and mutually beneficial relationship between the tenure dispenser and the recipient. The nature of “rewarding” such long-term behavior may change (it needs to) in order to accommodate changing levels of maturity and expectations. But it’s hard to imagine both sides aren’t seeing some benefits. “Tenure” gets rewarded.
Shouldn’t that be the case in loyalty marketing? With a goal of maximizing the lifetime value of a healthy relationship, shouldn’t longevity be factored into the algorithm?
A recent phone call with my mobile carrier of 12 years tested this theory.
Twelve years is a lifetime in my book. We have come to know each other — our quirks and ticks, preferences and distastes. Certain expectations on both sides, as far as I could tell, were regularly being met — until I asked how I could reduce my bill.
In response to my question, I was told by a very friendly CSR that they valued my relationship but there was no way to make any real reductions and my best bet would be to stay on my plan. “Sorry, not much I can do.”
Doing the napkin math over my 12 years of monthly payments, they had effectively waived close to $30,000 in lifetime value in one call because they were not equipped to maintain and enhance a mature relationship — one showing every sign of long-term profitability.
The organization seems to have gotten stuck at acquisition and never developed segmentation that was rich enough to identify and reward someone like me.
Let’s face it, in the family hierarchy, acquisition always gets the bigger party. Nurturing newly acquired relationships into maturity can be a boring, tedious and relatively thankless process. But done well, it can provide the means — the platform — for growing spend, profits and genuine loyalty.
Postscript: I’m in a new (wireless) relationship now. We’re still in the honeymoon phase, but they seem to get me.
Discussion Questions
DISCUSSION QUESTIONS: Why do retailers seem to underplay rewards structures that support longer-term loyalty? What advice would you have for retailers and brands looking to retain “tenured” shoppers?
Poll
BrainTrust
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
Ian Percy
President, The Ian Percy Corporation
I don’t think retailers are confused about the importance of loyalty, but often the complexity and/or execution of these programs can be problematic for customers. Retaining and maintaining loyal customers should be a top priority for every retailer and brand. And for many it is, though it doesn’t always feel that way. My advice to retailers and brands: keep your loyalty programs simple and meaningful to customers. It’s a simple strategy that can be very difficult to execute effectively.
Most retailers have never measured the long-term value of a customer. I would bet they do not understand it. In fact, most retailers do not measure their customer acquisition cost. So they do not do the simple value equation of what it costs to get a new customer, what it costs to keep a customer and what it costs to lose a customer.
E-commerce retailers have always measured these KPIs because they have had to. This is one of the reasons e-commerce has been able to move customers away from traditional retail. This lack of understanding a retailer’s customers has lead to the retail issues we are seeing today with chains closing.
Retailers need to understand their customers to survive and thrive. New customers as well as long-term customers. The longer you retain a customer, the better chance you have of creating an advocate.
A retailer loyalty point system is pretty effective for most type of businesses to keep loyal shoppers from defecting. In addition you look to add in these little surprises or unique “thank you” moments or services: E.g. Japanese leading retailer Aeon not only offers a points reward system, it also allows its gold card members (based on spend and frequency) the option to relax inside their in-store lounge area (read newspapers and get free beverages and snacks) — a nice way of saying “thank you, you are special” and having them also try some new product samples.
I agree with the premise that a long-time customer should be recognized and possibly rewarded. The question is, what is an appropriate recognition and potential reward? In my opinion that would depend on a number of factors. What product or service was being purchased and what was the spend are just two of those factors. Companies such as Hertz and United recognize their long-time customers by thanking them for being a Five Star or President’s Circle member or Gold member or Million Miler and award then certain privileges. Others have similar programs.
The article doesn’t state whether the request to lower the cost was make in person at a retail location or over the phone. While AT&T and I have had issues over the many years they have provided home, office and mobile services I have had several instances when I called them and asked if there was a less expensive plan available. The CSRs always said let me do some research and often came back with alternatives. Admittedly it wasn’t because it was a long-time customer, but because alternatives were available.
What a frustration when we, as customers, are given the same treatment as last year’s financial statement and the relationship starts from today or something close to it. I fear that brands have bought into the fickle patron theory more than makes sense for some customers, who are fairly easily recognized from their loyalty points level or even their familiarity with the store and staff.
In some respects the luxury world has a better handle on this as they can quickly recognize how much a returning, engaged brand fan can be worth. The reward for this is the type of experience that we associate with luxury — personalization, staff who recognize and remember the customer, perks like free drinks, etc. It’s a recognition of value. It’s often harder to translate this down to other parts of retail where customer love is quite transient, which is probably why we’ve ended up with loyalty schemes based around stamps and return visits and the odd freebie.
What keeps someone coming back to Starbucks? Is there that much difference between its coffee or the next chain along the street? Or the pharmacy where you buy you shampoo? You might have been a “customer” of theirs for 20 years but there always feels like there’s not much stopping you from going elsewhere — a better offer, a different product range, etc.
I’ve talked about loyalty before and I do think that we’re moving more towards a membership model over points and stamps. And this may make it easier for retailers to reward long-term customers with better perks.
As a side note — mobile phone companies and banks and other service-orientated sectors are a different thing again. Because they’re providing a service and because you’re usually locked in for a certain amount of time or because you’ve done a lot of research to make an informed decision, it does feel like there’s a lot of scope to reward and retain long-term customers — in a way that they currently aren’t.
There are some true loyal customers in retail today, but that has been shrinking for many years as consumers have a wide variety of choices to buy the same product — be it online, at the local small business or the giant mega-stores. I don’t have any computer algorithm to key in on my top-tier customers, but I know almost every single one of them. They are thanked in many ways, whether I comp them a dessert or a salad from my deli or give them a discount on a special cut of meat for a big party. It is done all them time, and the rest of our customers are always treated well.
The loyalty for hardline goods and specialty clothing or home goods has its own reward system. Like Macy’s who treat my wife very well, or Joann Fabrics, who have friendly associates that build relationships with their loyal customers. You must recognize your high rollers and make sure they get exclusive pre-buy super deals (which goes a long way) and other types of promotions. Rewards that single out a store’s best shoppers are reasons why they stay loyal to that particular store.
This reminds me of a major airline that lost my $50,000+/year business to their chief competitor for a similar reason. I have had this happen with a major hotel chain for which I handed them my “loyalty” membership card when they refused to find me a room to replace the one they bounced me out of regardless of their “guaranteed” late arrival.
Bottom line, train your customer-facing staff to acknowledge the tenure of the person in question before they immediately default to the “sorry, we cannot help you” approach.
If brands want to retain tenured shoppers, they should incorporate lifetime value into their initial customer acquisition cost. It is common (and tempting) to simply focus on profiting off of their first purchase. But it’s also critical to analyze and identify revenue and profitability from the entire lifetime of a particular customer. You use the inflection points over a lifetime. Let’s say that once your customer makes a third purchase, then they become customer for life. Outstanding. Or perhaps it takes up to five purchases. Cool. Whatever that magic number is, craft your overall strategy around getting your customer to that inflection point as soon as possible. The honeymoon can’t last forever, but ask anyone who’s been married for more than five years. It gets better, but you have to work at it. 😉
Retailers have a tremendous source of insight into customers through their purchase history. In the mobile carrier example, the history can show if the customer has ever received concessions previously or if they have any activities that might make them less profitable. Conversely, the history may show that the customer is wildly profitable with multiple phones on the account, regular upgrades and insurance on all of them. The response should be based not only on tenure, but on value.
Customers appreciate being recognized and respected, even if you might not give them exactly what they are asking for. When they request something, the last thing they want to hear is NO. It would be much better to acknowledge the long-term relationship and thank the customer for their business. Then work hard to give them something to show that you genuinely want to keep their business going forward.
A couple of points to begin. One is that the university concept of tenure is, arguably, the absolute worse example of rewarding loyalty one could find. Rewarding longevity and rewarding loyalty are totally different things. Second, unless you have a dog, “loyalty” has pretty well gone extinct.
Several colleagues have commented on the long-term value of a frequent customer and how many retailers don’t give even a passing thought to that calculation. It really doesn’t take much for a retailer to do something that let’s a long-time customer know they are remembered and appreciated. But for goodness sakes, think of what the customer would appreciate and that would be of sustainable value.
Years ago I was a VERY frequent flyer on one airline and in thanks they sent me a star-shaped trophy saying so. I flew that much because I was speaking at corporate events all over the world and got hundreds of similar “trophies” — paper weights, business card holders, etc. — with the name of the event on it. Things you couldn’t give away at a garage sale.
My suggestions for rewarding long-time customers:
These last two, of course, mean you have to actually know your customer.
Traditional “rewards structures” are focused on instilling repetitive behavior through some form of a bribe. And while this is a successful acquisition strategy, at some point a deeper relationship between the customer and business must be formed – and most importantly – the business must recognize that this transition has taken place.
Think of it like you are dating someone. Initially you might be attracted to someone for their appearance (the product) and charm (the sweet sweet deals), but if your partner continues to tell you the same stories day after day, year after year (stagnant reward structure) and you see that they are spending just as much time and effort charming others that they are with you (no recognition of your investment with them) then you will become disillusioned. Unfortunately, this is the place where too many loyalty programs end. Focused solely on cost per point and wallet capture.
But successful relationships require ongoing discovery and mutual growth and too often companies view these more meaningful aspects of the relationship (customer service, targeted messaging, etc.) as outside of the Loyalty Program’s purview, which is not leveraging their full potential.
It is true, long-tenured customers expect more – and they should! A correctly designed loyalty program will help inform all aspects of the customer’s interaction with a brand to ensure the proper service-level is given, allowing employees to meet those expectations. Because like any relationship, the more you have invested, the longer you are together, the more jarring it is when you feel let down – heck you might even write an article about it, right Mike?
Telco’s (landline and cellular) have a long history of buying customers in acquisition and then taking loyal customers for granted afterwards. In the long run, constantly refilling a leaky bucket is a losing strategy compared with patching the bucket and focusing on customer retention (loyalty).
Retailers are hyper-focused on new customer acquisition as it has the greatest impact on immediate sales. This priority has traditionally been a culture for retailers, especially publicly traded companies, because success is measured on monthly and quarterly sales increases and not Lifetime Value (LTV).
To help improve long-term loyalty, retailers need to consciously make it a priority. A good start would be to appoint a chief customer officer (CCO) that is focused on customer satisfaction and long-term loyalty and establish KPIs that measure average loyalty length and identifies attrition of loyal customers. Improving loyalty also requires marketing campaigns and loyalty programs that reward cumulative purchases. A good example to emulate is the airline rewards programs that have progressively better rewards for more purchases and stretch goals to achieve life-time benefits. The reality is that LTV is a big KPI. Research has consistently shown that 20% of customers account for 80% of sales. That 20% of good customers is not static. Customers go in and out of the 20% good category constantly, based on good or bad customer moments. Nurturing these relationships with “tenured” customers is the key to retail success.
All shoppers are “tenured”. Any new shopper can bring as much money in the future as an existing shopper. The true question here is rewarding and getting shoppers to return on a regular basis so that they become return customers. Most retailers do this, but few do it well. Regular communications, creating a “family” effect, keeping individual values in-line with retailer offerings, highlighting important products or services for your customers, etc. all play an important role in customer loyalty and return customers.
Loyalty is often taken for granted. But it need not be this way. Engaging marketing and customer support can keep long tenured customers from defecting .
1. Engage marketing. Marketing campaigns should target long term customers, not just prospects. Create a premier tier or VIP segment to retain valuable high-spend customers. Provide educational and training materials to make buyers smarter as well as give them new ways to use your products.
2. Engage customer support. Make help channels easy to find and use, especially online. When trying to increase loyalty, use a proactive support strategy. Long term customers are not equal in value. Cater to the customers with higher spending patterns.
Retailers must find a balance between bringing in new shoppers while simultaneously retaining current ones. The problem that can occur with loyalty programs is that they lack the ability to meet each shopper’s unique needs. I recommend that retailers and brands develop a program or system that acknowledges and rewards long-term customers’ loyalty in a way that differs from the rewards new customers see as they begin their customer journey.