Customer Loyalty

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Customer Loyalty Marketing
Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D
Goals Seminar
Discuss definition of marketing Difference between frequency and loyalty Customer Relationship Management and loyalty How to calculate life-time value of a customer How to create customer loyalty within your organization
Definition of Marketing
Identifying evolving consumer preferences, then capitalizing on them through the creation, promotion and delivery of products and services that satisfy the corresponding demand. This is done by solving the right customers problems, giving them what they want or need at the time and place of their choosing, and at the price they are willing to pay.
Marketing Strategy and Interactive Marketing Stowe Shoemaker, Ph.D February 17, 2008
Contextual Marketing
Give the customer what she wants and make it useful and accessible so she can take action when it matters to her Widget: widgets are basically little websites that display directly on the Dashboard, rather than in a web browser.
Consumer Buying Process Brand Advocate Loyalty Circle Components
WOM
Repeat Purchase
Satisfaction
Trial (Initial Purchase) Pre arrival contact
Barriers
a. b. c. Switching costs Perceived risks Lack of information
Dissatisfaction
Complain Switch
Why Switch?
Need Recognition
Awareness/ Search/Evoked Set
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Evolution of How Marketing Defined
4 Ps
7 Ps
14 Cs
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Four Ps of Product Marketing?

P P P P
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Seven Ps of Services Marketing?

P P P P P P P
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Fourteen Cs of Marketing help create value

Customer Categories of offerings Capabilities of firm Cost, profitability and value Control of process Collaboration within firm Cost to the customer Customization Communications Customer measurement Customer care Chain of relationships Competition Capacity
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Customer Loyalty/Relationship Marketing Does Not Equal Frequency Marketing
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Frequency . . . Focusing on Behavior

When customers give you a greater share of their transactions than they might have without the program, usually in exchange for accumulating miles, points, or other surrogate discounts. You ask: Arent we quibbling here, isnt that loyalty?
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Commercial on Frequency
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Drawbacks of Frequency
Exclusive focus on behavior ignores the emotional and psychological factors that build real commitment. Without that commitment the customer focuses on the deal, not the brand or product relevance. A behavior focus makes bribing the customer irresistible. Erodes the brand and diminishing product differentiation.
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Commercial on Loyalty
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Loyalty . . . Focusing on Emotion

When the customer feels so strongly that you can best meet his or her relevant needs, your competition is virtually excluded from the considered set, and the customer buys almost exclusively from you referring to you as their restaurant or their hotel. Winning maximum share of heart, mind and wallet.
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Like a Marriage
The sale merely consummates the courtship. Then the marriage begins. How good the marriage is depends on how well the relationship is managed by the seller. It is more a matter of what the buyer wants. He wants a vendor who will keep his promises, who'll keep supplying and stand behind what he promised.
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The Benefits of Real Loyalty

Loyal customers tend to maintain their positive expectations relatively longer than low-loyalty consumers, so they are not likely to adjust expectations based on episodic factors Loyal customers tend to show:
a special preference, attachment, commitment, positive WOM, low switching to competitive brands, willingness to pay premium price
(Youjae and Suna, 2004).

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The Benefits of Real Loyalty

The customer focuses on your brand, offers and messages to the exclusion of the competition. Price is no longer the dominant consideration, but one component in the larger value proposition. Loyalty provides critical inoculation.
Competitive offers face a higher hurdle. The customer becomes more forgiving goodwill equity.
Loyalty begets loyalty.
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Lessons Learned From Research in Hotels Restaurants and WOM

A loyal customer in a restaurant tells a median of 10 people A loyal customer in a luxury hotel tells a median of 12 people 52.3% claimed that they would go out of their way to mention restaurant when the topic of restaurants comes up 19.3% claimed that they would go out of their way to mention hotel when the topic of hotels comes up
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Lessons Learned From Research in Restaurants

69% read the communication (letters, emails, promotional material) they receive from the restaurant to which they are loyal (8,9,10 rating)
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Lessons Learned From Research in Restaurants - tipping
1 to 10 scale, with 1 being I tip much less to 10 I tip much more,
47.2% among the total sample chose the top three boxes. Ten or more visits in the past three months, 56.1% chose the top three boxes Five to nine times (49.1%) Three to four times (41.5%) Less than three times (43.1%)
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.63* .66* Certainty Value .97* .63* .51* .17** Switching Costs .17* .24* .55* .41* Benefits .43* -.13** Opportunistic Behavior Trust
What Impacts Loyalty in Hotels
Relationship Commitment .47* Product Usage .83* Voluntary Partnership
* Creating Customer Loyalty SignificantShoemaker, Ph.D (c) Stowe at .01 ** Significant at .05
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What Is CRM?
Customer Relationship Management should us to contact and treat customers better than anyone else -- establish, strengthen, and convert relationships
CRM entails the following:

Customer-centric marketing and operations approach Technology-enabled, automated business processes Consistent brand experience across all touch points
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What Is CRM?
CRM entails the following: Real-time response to customer stimuli Every customer interaction begins where the last one left off
Tight integration between marketing and operations

Understanding customer-level profitability
Having an overall vision and building the solution in stages

Anticipatory as opposed to reactive
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The Evolution of Building Loyalty

Profitability
Sales
Tactic
Push traffic, no targeting, discounts, little measurement. Still push, discounts, some measurement. Price driven, segmented, transaction based. Added value to product, support price, customized, strengthen brand.
Strategic
Knowledge, Help support VAR in loyalty
We have a customer base of 40,000 satisfied customers We touch approx 30,000 expecting parents per month pan India, of SEC type A+, A & B We cover 150 towns across India with a sales force of 400 We conduct more than 100 ANCs across the country per month
Benefits of Joining hands

We would spread awareness of your products by way of Virtual Portal Loyalty Programs Sales pitch Word of mouth
Win Win Situation

We seek to sell your child & mother care products on our portal It would help increase your product sales and awareness Brand building for both companies A success Virtual marketing portal
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Word of Mouth
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Word of Mouth
The One Number Firms Should Be Concerned About Critical in services because of variability and heterogeneity customers discount advertising, PR, and the like WOM comes from friend, associate, family member
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Word of Mouth - continues

Questions to ask:
How likely is it that you would recommend _______ to a friend or colleague?
use a 0 to 10 scale
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Word of Mouth - continues

Net Promoter: calculate
% of people who respond with a 9 or 10 (promoters) % of people who respond with a 0 6 (detractors)
Net Promoter Score = Promoters Detractors (E-Bay, Amazon, USAA 75% - 80% Median 400 firms in 28 industries was 16%)
Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D
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Lifetime Value of the Customer
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Life-Time Value
Definition: The net profit you will receive from transactions with a given customer during the time this customer continues to buy from you In todays dollars/Euro/Yen
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Life-Time Value - continued

Life-time value of a customer increases as defections decrease Life-time value needs to be calculated for each market segment Should be used in marketing strategy
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Life Time Value Information

Calculate the following:
a. Gross profit of an average purchase: b. Average number of purchases per year by customer: c. Average number of years customer will continue to purchase: d. Probability customer will continue to purchase:
Formula: LVIC = a*b + (a*b*c*d)

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Example Campground
Know the following

Sale price $35 Fixed cost $3 Variable cost $12 Average stay 2.5 days Customers come for about 12 years Return customers 3,500 Total customers 8,000
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Calculations
Calculate the following:
a. Gross profit of an average purchase: $35 - $12 = $23/day b. Average number of purchases per year by customer: 2.5 purchases c. Average number of years customer will continue to purchase:12 d. Probability customer will continue to purchase: 3,500/8,000=.437
Formula: LVIC = a*b + (a*b*c*d)= (23*2.5)+ 301.53=359.03

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Word of Mouth: Incremental Customer

Need to know the following
a. Likelihood that customer will refer b. Number of people to whom the recommendation will be made c. Percent of referrals that are empathetic (i.e., have the ability to act on what they hear) d. Probability of those who are empathetic who will buy the service e. LVIC
Formula: WOM = (a*b*c*d*e)

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Word of Mouth: Incremental Customer

a. b. c.
d. e.
Likelihood that customer will refer 8 out of 10 satisfied Number of people to whom the recommendation will be made 3 Percent of referrals that are empathetic (i.e., have the ability to act on what they hear) 2/3 or .667 Probability of those who are empathetic who will buy the service 14% LVIC=359.03
Formula: WOM = (a*b*c*d*e)= $80.46 (note, if ignore A then value is $100.58)
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Negative Word of Mouth: Incremental Customer

a. Number of people dissatisfied customers tells b. Percent of people that are empathetic (i.e., have the ability to act on what they hear) c. LVIC
Formula (a*b*c) = $
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Negative Word of Mouth: Incremental Customer

a. Number of people dissatisfied customers tells 10 people b. Percent of people that are empathetic (i.e., have the ability to act on what they hear) .667 c. LVIC=$359.03
Formula (a*b*c) =$2,394.73
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Calculations
Average number of years customer will continue to purchase: 1. Look at by market segment: locals, groups, etc 2. Look in data base to see how long they have been buying from you 3. How likely are you to continue to visit this property in the future? If scale 1 7 and they rate a 6 then 6/7 = probability of repurchase Customer Loyalty (c) Stowe Shoemaker, Ph.D Creating
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How To Create Loyalty
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Creating Loyalty
Exit Process Exit Value (Added and Recovery)
Communication
Exit
Static
Fluid
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Communication
Sales force Outlets Reservations Direct Marketing Electronic Commerce Mobile Commerce Employees
Information-Driven Marketing- The Complete Model

Marketing Strategy Awareness 5 Degress of Customer Bonding Identity Relationship Community A dvocacy
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Marketing Tactics
Publicity
Relationship Direct General Sales Programs Marketing Advertising promotion
Point-ofpurchase
InformationExchange
Data Processing and Storage
The Information Core -DatamotionInformationExchange
Applications of Data
New Product Life-time-Value Crystal Ball New Customer Partnership Information Indcubator Enhancer Predictor Attractor Stimulator Accumulator
Information from the information core feeds back to the tactical level of the system, providing guidance for future activities Creating Customer Loyalty for enhancing lifetime value, on new busienss opporetunities, partnering opportunities, routes (c) Stowe Shoemaker, Ph.D information acquisition, anbd market predicting
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Other Keys to Successful Communication via E-Mail*

1. Be selective as to who is added to your list or you will create more work for yourself;
Use double op-in Make it easy for people to opt-out Put privacy statement on website and follow it
2.
Use HTML instead of text

Make sure it can be easily read without graphics appearing as some graphics blocked and if read off-line graphics will not appear Give customer choice as to how they would like to receive information
* From Right Now Technologies

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3. Make e-mails relevant and extremely valuable;
50% e-mail now spam From: represents your brand Subject: represents timely and relevant proposition Personalize Use past buyer behavior information to target offers
4.
Let customer choose how often they would like to hear from you
See www.landsend.com for their policy Do not send overnight so gets lost in morning clutter

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5. Keep e-mail short and packed with value;
Use bullets Use lots of space come on, I am easy to read Print out and see what it looks like, as many recipients will do that
6.
Make it distinctive and appear as if they cannot get anywhere else

Subscribe to competitive lists to see what is being done Develop own voice and distinctive style

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7. Do Not Make e-mail visual circus;
Make focal point of e-mail obvious Many people do not scroll Design to be seen in preview pain Print out and see what it looks like, as many recipients will do that
8. Test Everything
Benchmark yourself Split test
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9. Multimedia e-mails;
Know your audience Useful or just showing off? Do not assume audience wants multi media


10. Types of responses;
Valid response Hard response (e-mail no longer in existence or address error) Mail box full Spam filters Out of office replies
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10. Create and Think Customer Experience; 11. Make privacy part of brand promise
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Creating Loyalty
Communication
Exit
Static
Fluid
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The Four Components of the Process

Physical Product
Whatever the organization transfers to the Customer that can be touched Must be Customer-Oriented (create value)
The Four Components of a Service

Process
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Physical Process Product
Service Product
Core performance purchased by the Customer Includes all interactions with the Customer Plan Your Work Incorporate RATER system into each plan; e.g. in-room dining
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Plan Your Work

Scripts for each service encounter
Hostess:
We will be asking you throughout your visit how we can do things better. Please be aware that our goal is to provide a wonderful dining experience; if we fall short of that goal, please do not hesitate to tell us.
Wait person:
We have great desserts here. They are made locally by a woman named Cynthia. Cynthia has lived in area for ages and follows a family recipe.
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Plan Your Work

Scripts for each service encounter
About Our Fish
As you may know, one should not eat oysters in months that have an R. Therefore, we will not be serving oysters tonight as we only serve the freshest fish here.
The Four Components of a Service

People Process
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Service Delivery Physical Product
Service Product
Refers to what happens when your Customer interacts with employee Work Your Plan Example: What is said to the customer
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Work Your Plan

Goal is to incorporate some aspect of the RATER system in each interaction
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The Four Components of the Process

Service Delivery Physical Product Service Environment Service Product
The physical backdrop that surrounds the service 3 Elements: ambient conditions; spatial layout; and signs, symbols, & artifacts
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CUSTOMER
Expected Service
GAP 5
Perceived Service
COMPANY
GAP 3
Service Delivery
GAP 4
External Communications to customers
GAP 1
Customer-driven service designs and standards
GAP 2
Company perceptions of consumer expectations
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Reasons for GAP # 2

Complete exercise starting on next page:
Use following scale:
1 Very True 2 Somewhat True 3 Not applicable 4 Somewhat untrue 5 Very untrue
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Questions
1. 2. 3. 4. 5. 6. We do not know what our customers require of us ______ Policies exist for the convenience of the organization, not the customer ____ Everyone has a specialized job function and is not allowed to intrude in others areas___ Customer contact people do not have the power to make decisions ______ Service polices are arbitrary ______ We are more interested in making a profit than in building a loyal customer base _______
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Questions continued
7. 8. 9. Employees are not trained in people skills____ Management does not solve problems creatively _____ Employees do not seem to realize that customers want to be treated well ____ 10. The organization is focused on solving problems rather than preventing them 11. We know how to handle complaints, but not how to serve the customer 12. The organization does not formally value and reward employees _____
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Transfer scores to here

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
TOTAL _______
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Interpretation
12-21 Your organization does not seem concerned with customers 22-31 Your organization seems to regard customers as an after thought 32-41 Your organization seems about average in thinking about customers 42-51 Your organization seems concerned with customers, but could improve its system with dealing with them 52-60 Your organization seems very customer friendly From: Joan Koob Cannie: Turning Customers into Gold. NY: American Management Association
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Creating Loyalty
Communication
Exit
Static
Fluid
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Value
Seeks to create new value for customers and then share the value so created between producer and consumer. Value is created with customers, not for customers. Requires that a company design and align its business processes, communications, technology and people in support of the value individual customers want. Types of Value Value Added Value Recovery
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When asked to choose the top three benefits respondents would like to receive as part of a loyalty/frequency program, the benefits that received more than 20.0% are:
Complimentary Meals (55.4%) Coupons/ Discounts (45.5%) Reward Certificates (37.5%) Gift Cards (24.8%) Call-ahead seating (for restaurants that do not accept reservations) (20.9%) Complimentary Appetizers (20.3%)
Lessons Learned From Research in Restaurants
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Components of Value -continued

Financial Temporal Functional Emotional/Psychological Experiential Social Trust Identification with organization
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Value Recovery
Complaint Management
Complaints Define What Customers Want
From: A Complaint is a Gift
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No Product or Service Failure Customer does not say anything
No Product or Service Failure Customer dissatisfied and speaks up
Celebration
Product or Service Failure Customer does not say anything
Proactive Customer Education/Research

Product or Service Failure Customer dissatisfied and speaks up
Encourage Complaints
Service Recovery
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How Well Are You Doing?

1 = Not using strategy at all 2 = Using the strategy but have had problems implementing it 3 = Using the strategy but with no noticeable results 4 = Using the strategy and have noticed positive results 5 = Using the strategy and judge it as a highly effective tactic for maintaining ongoing communication with customers
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Strategies
1. Train staff to view complaints as a gift ___ 2. Market the fact that you are looking for complaints ____ 3. Evaluate your internal complaint structure ___ 4. Set up listening posts ___ 5. Make customer comment forms available ___ 6. Create staff comment forms to capture customer complaints ___
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Strategies
7. Let customers complain in private ___ 8. Set up customer confidants ___ 9. Do not be satisfied with the first response your customers give you ___ 10. Go after the ones that do not respond to your customer surveys ___ 11. Randomly ask for feedback ___ 12. Ask for value and quality ratings ___ 13. Hang out with your customers ___
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Scores
1. 2. 3. 4. 5. 6. 7. ____ ____ ____ ____ ____ ____ ____ 8. ____ 9. ____ 10. ____ 11. ____ 12. ____ 13. ____ TOTAL ______
Your Total/65 = _________

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Problem Impact Tree

Please indicate if you reported any problems during your visit and how they were resolved. No problems experienced . . . . . . . . . . . . . . . . . . . .1 SKIP X Problems reported and were resolved in a friendly effective manner . . . . . . . . . . . . . . . . . . . . . . 2 Experienced problems, but didnt report to staff . 3 Problems reported and were not resolved in a friendly, effective manner. . . . . . . . . . . . . . . . . 4
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FIGURE II: TOTAL SAMPLE (n=4259, 100%)
No Problems Experienced (n=3576, 84%)
Experienced Problems (n=683, 16%)
Problems Not Reported (n=262, 38.4%)
Problems Reported (n=421, 61.6%)
Problems resolved in a friendly and effective manner (n=295, 70.1%)
Problems not resolved in a friendly effective manner (n= 126, 29.9%)
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FIGURE IV:
IMPACT ON OVERALL EXPERIENCE
No Problems Experienced (n=3435) Percent Rating Overall Experience a 5 = 38.0%
Experienced Problems (n= 658) Percent Rating Overall Experience a 5 = 14.8% Problems Reported (n=405) Percent Rating Overall Experience a 5 = 18.0%)
Problems Not Reported (N=253) Percent Rating Overall Experience a 5 = 9.9%
Problems resolved in a friendly and effective manner (n=284) Percent Rating Overall Experience a 5 = 22.5%
Problems not resolved in a friendly effective manner (n=121) Percent Rating Overall Experience a 5 = 7.4%
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Goals Seminar
Difference between frequency and loyalty Customer Relationship Management and loyalty How to calculate life-time value of a customer How to create customer loyalty within your organization
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Customer Loyalty Marketing

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Consumer Buying Process Brand Advocate Loyalty Circle Components

Trial (Initial Purchase) Pre arrival contact

Awareness/ Search/Evoked Set

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Evolution of How Marketing Defined

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Four Ps of Product Marketing?

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Seven Ps of Services Marketing?

Fourteen Cs of Marketing help create value

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Customer Loyalty/Relationship Marketing Does Not Equal Frequency Marketing

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Frequency . . . Focusing on Behavior

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Loyalty . . . Focusing on Emotion

The Benefits of Real Loyalty

(Youjae and Suna, 2004).

The Benefits of Real Loyalty

Loyalty begets loyalty.

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Lessons Learned From Research in Hotels Restaurants and WOM

Lessons Learned From Research in Restaurants

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Lessons Learned From Research in Restaurants - tipping

1 to 10 scale, with 1 being I tip much less to 10 I tip much more,

What Impacts Loyalty in Hotels

Relationship Commitment .47* Product Usage .83* Voluntary Partnership

CRM entails the following:

Tight integration between marketing and operations

Having an overall vision and building the solution in stages

The Evolution of Building Loyalty

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Benefits of Joining hands

Win Win Situation

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Word of Mouth - continues

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Word of Mouth - continues

Customer Loyalty and Frequency Marketing (c) Stowe Shoemaker, Ph.D

Lifetime Value of the Customer

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Life-Time Value - continued

Creating Customer Loyalty (c) Stowe Shoemaker, Ph.D

Life Time Value Information

Formula: LVIC = a*b + (a*b*c*d)

Know the following

Formula: LVIC = a*b + (a*b*c*d)= (23*2.5)+ 301.53=359.03

Word of Mouth: Incremental Customer

Formula: WOM = (a*b*c*d*e)

Word of Mouth: Incremental Customer

Formula: LVIC = ab + (abcd)

Formula: LVIC = ab + (ab*cd)= (232.5)+ 301.53=359.03

Formula: WOM = (abcde)

Formula: WOM = (abcde)= $80.46 (note, if ignore A then value is $100.58)

Formula (abc) =$2,394.73