Why Some Loyalty Programs Work and Others Don’t?

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Three week intensive course of CRM class uncovered the basics of customer loyalty aspect: loyal customers add more lifetime value (LTV) and we marketers should be focused on it and court them as they are less expensive (they are knowledgeable about your service and product and thus take less time and money to service, they might even educate your prospects and refer). Well, it all makes sense and this week we discovered the opposite! According to Werner Reinartz and V. Kumar article on “The Mismanagement of Customer Loyalty“, customer loyalty focus only can be a big mistake.

Studies show that loyal customers could be rather demanding and not willing to upgrade, buy more or pay a premium. How about the obvious resentment in some consumer industries that loyal customers experience when they are hogged or bombarded with upsell messages? I might buy the product more frequently, but why should I pay a premium or extra as I know exactly what the product value is. Why do I want to spend $70 a year just for 2 day free shipping if I can continue buying my books on Amazon in triplets to use a free shipping option of purchase order that exceeds $ 30? It works well, why change? Thus, loyal customers can be quite price-sensitive.

In business-to-business industries, loyal customers can be expensive to serve: as they buy in large volumes and dictate the terms. A closer look should be taken at the relationship between the loyalty and profitability. One of the solutions provided is time-driven activity-based costing. It allows to uncover the costs of business activities and all the time spent on them.

What about endorsement? Supposedly, loyal customers are your product evangelists. But, looking just at the purchase behavior is not enough. It is a combination of attitude and consumption that makes an average heavy user an endorser.

The bottom line is that the link between loyalty and lower costs = profitability is industry specific. Consistency in purchasing behavior and attitude/emotional connection to the product make the best referral agents from your customers. To choose an appropriate loyalty strategy, segment your customers by longevity and profitability.

Web 2.0 Expo, Day 2 and Day 3, Experience Takeaways

Filed Under Creative Marketing, Web Technology, Effective Communications, CRM, Conference | 2 Comments

It took me 2 days to get into my normal routine after such a whirlpool of knowledge sharing and social networking using traditional and web technology methods. Instead, I am still catching up with all the people I met. However, I thought I would quickly put my notes in this post. So what happened within those 2 days and what and who inspired my curious mind?

I. Behavioral Targeting, a session led by Basem Nayfeh, explored the world of web analytics and database marketing that allows to target your customers based on their behavior. It is not a new technique, but I was happy to see how pronounced the topic becomes. The complexity and at the same time, the solutions it brings are worth exploring by every marketer in any given organization. It allows to make a pause and ask a question where consumer attention is and follow it. Paying attention to customer steps on your page or online allows to be an effective marketer. An interesting fact that 60 % of content is posted by someone “we know”, “you know”, exemplifies well that our social behavior does not change dramatically on the web. Behavioral segmenting is intelligent segmenting and qualifying people based on their actions: (searches made, product interests, articles they read, navigation, geography, keywords, workplace attributes). Behavior is captured and targeted message is delivered, new knowledge about your product is discovered, etc.

II. Web Analytics and Internet Marketing Solutions session by Akin Arikan touched upon similar topic. He also shared a free whitepaper that illustrates well the major points on how to optimize your online marketing campaigns. The Web Analytics Recipe Cards provides an overview on how to maximize the number of qualified leads captured online, maximize online and offline revenue and increase brand awareness. Another document that is worth reading, shared by Unica, summarizes how today’s marketers can anticipate, understand, help their companies profit from the web transformation.

III. Social media discussions were quite popular and interactive. I am “delegating” this topic to Jeremiah and Mario, as lots of coverage can be found at their prominent blogs: Marketing Nirvana and Web Strategist.

IV. The best part of the entire event for me was meeting a number of brilliant people. The social aspect of the conference attendance left the most satisfaction. People who make a difference in this industry being in either big or small companies is the biggest asset of web.2.0 revolution and evolution. I had a lot of fun meeting people at the expo, at the after event parties and during live upstreaming opportunity with Podtech. The combination of knowledge and social capital gained definitely exceeds the projected ROI. Web 2.0 expo 2007 is money and time well spend.

V. (Added on April 29, 2007)
And I also wanted to express my joy and thanks to Marcelo Paiva who volunteered to help me fix my style sheet issue when I discovered it at the event. I still cannot help but smile every time I see my new blog design! People would point me out that due to some coding my blog content would show up crookedly in Firefox. This was rather embarrassing since most of the web 2.0 crowd uses Firefox and while sharing and introducing myself I had to make a disclaimer. Not any more! Social media got another outcome of connecting people that might never be due to geographies and other restrictions. If it were not for Jeremiah’s live blogging and video casting at the event, I would never have a chance to get fast help and collaboration right away. Moreover, we used Skype to do virtual collaboration and remote desktop access tool VNC to fix the problem! This was a very empowering experience, collaboration on the user level where you get the same results as if you work in big corporations with virtual teams, but here you use basic web 2.0 tools that enable individuals!
Marcelo also created my new logo, which I find rather a perfect fit. Talking about branding on one’s feet and Skype!
Finally, we discovered similarities in professional interests (user design, marketing, CRM, segmentation) that allowed both of us developing another value-add professional connection, which we completed via registering it at LinkedIn. :)

Web 2.0 Expo Day 1, Knowledge Nuggets and More Inspiring People

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Day 1 was so good: the energy of people I met and the knowledge I got kept me so invigorated and excited throughout 18 hours of stimulation.  Before the next wave of events hits my “ship”, I wanted to set in stone the nuggets for Day 1 at web 2.0 expo.

I. Web Technology

Google Analytics and all the magic you can do with this free tool was shared by Brett Crosby. Get your web metrics into the order, get your data and make your site more effective, analyze your marketing campaigns ROI.(Example: Paris Hilton Commercial, was produced normally in a ad agency, but distributed through the web (YouTube). The effect is beyond what a TV ad of the same caliber can do. Due to the viral effect, people actually went online themselves (control of content/infomation consumption) and watched it on average of 6 times. Where else do you get such coverage, reach and ROI? It was cheap to place on the web!) The package is free, delivers on the promise and can make a difference in your web communications. Spend a few minutes and learn more how you can optimize your web site. You do not need to be a statistician to get the maximum benefit. (I am going to deploy it for my blog and once I have enough experience I will share my recommendations).

  1. Google Analytics = track your traffic and ROI on marketing campaigns
  2. Google Webmaster Tools = know your audience and optimize your site
  3. Google News = free way to make images searchable
  4. Google Maps
  5. Google Earth
  6. Google Catalogs = upload your catalogs, get the content out, make it discoverable
  7. Google Website Optimizer = great tool to track PPC, does not hurt organic search (was considered during the development stage), you can even start your free multivariate testing to learn more what your audience is doing on your site and how to make them do what you want them to do!

II. More Web Analytics

Avinesh Kaushik shared his insights on how you can test the effectiveness of your site, optimize your conversion rate based on real feedback from your customers! I must confess, it was the best session so far, as much as, Avinash promised at the start. Using Multivariate Testing, marketers and web strategists can expose their customers to variations of web site design (multiple pages produced automatically by a tool) and get feedback (behavioral feedback!) on what works and what does not to arrive at the site that generates sales or delivers what you want your audience to do on this site. Most companies do not know why their customers come to the site. Avinesh’s golden rule is testing, testing, and more testing. One cannot get the same information on what works through the traditional focus groups, surveys and interviews of the customer base. “Customers yell out problems and do not provide solutions”. At the same time, our bosses think that they represent the customers and know how the site should look like to deliver the best and their decision influences the final product that might not be user-friendly at all. Even if it does, it could be not as optimal in delivering to the bottom line. Even the userbility testing is not as effective. “They way we do userbility is isolating a sample of people in a room, putting a bunch of devices on them and ask them to act normal. People do not act normal in such conditions and they would be extra cautious, biased or wierd.” You can get the basic ballpark, (maybe, maybe not) on your testing. With multivariate analysis you are measuring the entire consumer experience, even when they are shopping on your site in their pijamas. Little Ajax script is all you need to get your testing set up. It creates variations of your site for further testing. You can test all the ideas you have, not just 2-3.

Avinesh is planning to publish a book in the near future, called “Web Analytics, An Hour A Day” (which I will definetely read!). You can even pre-order it at Amazon.com. All the proceeds (100%) will go to local charities.

III. Great ideas from the Keynote

Keynote was very well put together and this video called Digital Ethnography by Michael Wesch launched the discussion. I could not help but share this video, it illustartes so well the evolution of the web and though, I am not a geek, it stimulates my mind and heart. 

There was lots of fun speeches at the keynote and Richard MacManus covers it well on his blog.

My favorites were 3 launch pad ideas:

Spock.com = allows you perform human search! You can now get the full scoop! (My KGB roots make me so excited about this one! :))

Npower.com = finally, a web 2.0 application for intraverts! and people who care a lot about personal growth, allows to measure your actions towards your goals, incorporates training and coaching knowledge with a web 2.0 capabilities of interactivity and user content generation. Unfortunately, I have no URL for it to share.

IV. Social Mingle Afterwards

It was a lot of fun to explore web 2.0 social mingle scene and parties afterwards. The best part is to meet the personalities and simply personable people to close the day. Special thanks to Jeremiah, other Podtech crew and Mario for being hospitable hosts! Anytime, you are in Portland, OR, please let me know and I will show the city at its best and I am very good at it!

Attending Workshops at Web 2.0 expo - Community Evangelism

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I started my Sunday morning with a workshop at Web 2.0 expo on Community Evangelism with Deborah Schultz and Anil Dash. I thought I can get away without much effort of focus on a Sunday morning and I did not bring my laptop. Well, once you see Jeremiah Owyang running around with a camera video-streaming live the event and Mario Sudhar liveblogging, one cannot get away from the energy those folks generate.

What are the takeaways from this workshop? Why should we care about community evangelism? Here are the ideas that Deborah and Anil shared with us.
Community Evangelism is an ideal customer referral program made feasible to execute via various web technologies like blogs, forums, podcasts and other social sites. It allows companies reaching their customers and transform transactional customers into loyal ones through building the relationship, making an emotional, personal connection.

Persistence and awareness are the key to maintain relationships online. If you ventured a blog for your company, you engage into a social contract, a sort of committment to ongoing conversation with your customers. This implies a continuous sharing of value content. You expand your relationship with a customer into a more enriching experience.  Continuity of a two-way communication process provides for creating meaningful life moments that your customer records in his/her memory. A good example would be books, CDs, movies that we buy or get as gifts from other people and might never read, watch but keep being attached to them as they connect to someone we care about. Connectedness, continuity and non-disposability = all due to the value of a relationship that carries it through.

Awareness is not just about notification. Providing your customers with a control to chose how they get information about the product and services - this makes your communications effective. Why? Think about products people absolutely love: iPod, TiVo, Wii. They empower consumers to be in control when to consume content, service, product. So, do the same with your marketing communications to make them more effective - provide those in RSS, blogs or other format that your customer can choose to control both in the reception phase and content scope.

What’s Evangelist? He/she is a

  • customer advocate
  • educator
  • among the people interacting with the community where they live
  • human face of the company
  • cross-functional, not just a marketer
  • a foil for the company

Human skills needed to be successful as a community evangelist:

  • listener
  • connector
  • catalyst
  • critic
  • partial geek
  • detective
  • diplomat
  • juggler
  • driven by relationships
  • approachable
  • intuitive
  • inquisitive

Pursue evangelism with passion, be present where your customers are mentally and physically. Use what you got and have fun!

P.S. I just found out how messed up my blog looks like in Firefox! Tried to contact technical support and it is temporary closed! What do I do? I have to fix it, otherwise it is simply embarrassing.

The 24 Essential Techniques of Database Marketing

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While, immersing myself into the knowledge of CRM and Database Marketing, I wanted to share a great checklist Arthur Hughes provides in his Strategic Database Marketing book.  This list will help visualize the breadth and scope of this approach. At the same time, it will allow you to serve as a great keyword framework while you are building your informational library about the subject.

  1. LTV (Customer Lifetime Value) = Net worth of your customers, almost like ABC marketing segmentation
  2. RFM (Recency, Frequency, Monetary Analysis) = allows to predict the success of your promotional efforts
  3. Customer Communications = personalized customer communications based on the data, love this part!
  4. Appended Data = all the demographics, psyschographic data we get from “zip code profiles” providers
  5. Predictive Models = one can build based on item 4 and communications, helps to increase response rate and decrease attrition rate
  6. Relational Databases = form of the database that allows instant useful info to make marketing decisions, something you have to have set up right from the start!
  7. Caller ID = helps CRMs to do their magic = boding experience via instant info and response
  8. Web sites = helps your customers to experience your product/service, bond with it and provide their behavior pattern data for good purposes obviously, allows engage into conversations. Jeremiah has loads of nuggets in this area.
  9. Email = allows effective communication, leads to retention and increased sales. Allows to reach your customers, still does!
  10. Tests and Controls = use test groups to see the effectiveness of your customer loyalty programs
  11. Loyalty Programs = customers are delighted to participate in those! Airlines are a good example
  12. Business Intelligence Software = allows you to have “hands on” your marketing activities before, during and after, well - anytime
  13. Web Access = for your relational database for all functions within your company (management, CRS, sales, marketing, operations, etc.)
  14. Rented Lists = allows to get direct response (mail) data easily than you think
  15. Campaign Management Software = speeds up your execution phase from the planning to doing
  16. Address Correction Services = made modern database marketing possible
  17. Profitability Analysis = allows you to change your pricing and marketing strategies to increase your profits
  18. Customer Segmentation = allows to create useful segments based on demographics and behavior based on the actual data, helps to create targeting communications!
  19. Status Levels = allows to provide special services for special customers (Platinum, Gold, Silver)
  20. Multichannel Marketing = more sales wherever your customers show up
  21. Treating Customers Differently = profits come from retaining the Gold customers and encouraging others to move up the higher status levels
  22. NBP (Next Best Product) = powerful tool to determine why one group of your customers buys and the other does not. Sales people and CRM will appreciate the info
  23. Penetration Analysis = helps to direct sales force and make them more effective
  24. Cluster Coding = helps to identify who is buying and who is not, creative tool that allows to improve both marketing and sales!

 

Behavior-Based Segmentation and Customer Lifetime Value

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Shopping lately at Amazon and getting into Database Marketing class, my last term, made me rethink the whole notion of segmentation analysis. For decades, and just personally for me, for the last 5 years, I categorized target markets/customers by psychographic and demographic data.  While, people watching and further character studying always amused me with identifying their behavior patterns and action tendencies. At the same time, it never occurred to me how the two can be well-connected in the behavior-based segmentation process.

CRM (Customer Relationship Management, Customer Equity Management) concept is not a novelty, but today I started getting excited about the idea and its application. For the last 6 months, I have been buying books on things of interest for myself at Amazon in a “triplets” manner to use free shipping service. Oddly enough (not so oddly), now I get promotional messages to buy 3 with 1 free = total 4. And guess what, I started looking for the next 4 that I want to read. It works on me and everybody else! It changes my behavior and increases my usage. “Books that might interest you” feature is not even mentioned as we all are so used to it! I wish all my online clothing shopping experience got me personalized style advice based on my purchasing behavior!

What I most looking forward to is to actually being able to calculate my lifetime value to Amazon as a customer by the end of this class…and to other services that I might reconsider! Stay tuned…

Why This BluFly Ad is Different from Others

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Using sex appeal in ads always works and we all see it for various products. Clothes advertisers always have that reference. However, I think this ad captivates not only with a catchy episode, but a nice closure - copy ” a new way to change your clothes”. Every time when advertising can actually make a difference and change consumer behavior is when its persuasive power is exercised. The last sentence is strong enough in context and in the way it appeals to modern women. It works well and I would say, nurtures the self esteem of any woman. It makes us think…yes..why not use blufly.com? Why not get new clothes like that every day? It made me go and check the site and actually browse through some items. I wish they deliver clothes like pizza = fast, not within 1-2 business days but in a few hours. Hmmm, maybe in 2010…if so, imagine that you can have your favorite styles that always work and you order as you travel. But this is all dreams for now!

    Content Disclaimer

      Everything posted on this blog is a product of my own thoughts, ideas, reflections based on the professional interests. It is based on the public information, works of the colleagues and fellow researchers that are cited respectfully and my opinions as an industry professional.