Description
Your business does a lot of different things.
Sponsored by
Alliances
C u stom er C u stom er
Loyalty
Loyalty
Loyalty
Sourcebooks for Successful Small
Businesses and Entrepreneurs
June 2003
Your bus ine s s doe s a lot of dif f e r e nt t hings .
This ve hic le doe s a lot of dif f e r e nt t hings .
Pe r ha p s t ha t ’s why it ’s C a na da ’s # 1 s e lling ve hic le .
2003 Dodge Caravan
W E M A K E YO U R JO B EA SY. N ever has one vehicle been qualified to do so m any
jobs. W ith the seats in, the D odge C aravan can shuttle up to seven clients w herever
your business needs them to be. W ith the seats out, it becom es a utility vehicle
that can haul anything from building supplies to presentation m aterials. A nd covered
by our 7 yr/115,000 km pow ertrain w arranty and 24 hour roadside assistance,
the C aravan isn’t just good for business, it m akes good business sense. For m ore
inform ation contact your D aim lerC hrysler Fleet dealer or call1-800-463-3600.
font used: CorporateS Regular
Parcs Automobiles
www.fleet.daimlerchrys ler.ca
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 3
Are Your Customers Loyal
O r just w aiting for a better offer?
What Makes
Customers Loyal
Conditions are alw ays changing.
Building a Brand
Loyalty’s shining m ission.
Sponsorship
“G ilt”through association.
Building Loyalty
The three elem ents.
Learning More
The next step.
Frequent Customer
Programs
Inform ation and rew ards.
4
6
1 0
1 3
1 4
1 6
2 2
“ The Def i ni t i ve Gui de t o Cust omer Loyal t y” i s sponsored by Royal Bank of Canada.
Published by General Cont ent Corporat ion, 112 Adelaide St reet East , Suit e 400, Toront o,
Ont ari o M5C 1K9 416- 601- 9247. Presi dent : Ki rk Kel l y | Wri t ers: John Sout herst ,
Charles Killin | Copy edit ing: Shannon Greenlaw | Design & Product ion: Roger McFarlin |
Ad Sal es: Deb Hought i ng, Darl ene Wang | Phot ography: Mast erf i l e, Get t y Images,
Phot odisk.
©
2003 General Cont ent Corporat ion. No part of t his guide can be reproduced
wit hout t he writ t en permission of General Cont ent Corporat ion.
®
Regist ered t rademark of
Royal Bank of Canada.
™
Trademark of Royal Bank of Canada. RBC and Royal Bank are
regist ered t rademarks of Royal Bank of Canada.
*
Regist ered t rademark of Visa Int ernat ional
Service Associat ion. Used under license. ‡American Airlines and AAdvant age are regist ered
t rademarks of American Airlines, Inc. All brand names and t rademarks are t he propert y of
t heir respect ive owners.
All informat ion provided in t his Guide is, t o t he best of our knowledge, current at t he t ime
of writ ing. As well, all informat ion provided in t his Guide is for informat ional purposes only
and is not int ended t o provide specific financial, invest ment , t ax, legal or account ing advice
f or you and shoul d not be rel i ed upon i n t hat regard. Royal Bank of Canada i s not
responsi bl e and w i l l not be l i abl e t o you or anyone el se f or any damages w hat soever
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or deci si on made by you or anyone el se i n rel i ance on t he i nf ormat i on i n t hi s Gui de
or any unaut hori zed use or reproduct i on of such i nf ormat i on, even i f Royal Bank of
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appl i es t o Canadi an busi ness onl y and may not be appropri at e or correct out si de
of Canada. You should not act or rely on any informat ion in t his Guide wit hout seeking t he
advice of a professional.
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by General Cont ent Corporat ion or any t hird part ies. Royal Bank of Canada receives no
compensat ion f rom General Cont ent Corporat ion or ot her t hird part ies who advert ise or
provide cont ent for t his Guide. Unless indicat ed ot herwise, all opinions, advice, informat ion
and resources offered or made available in t his Guide are solely t hose of General Cont ent
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Guide and it s cont ent does not necessarily reflect t he views of Royal Bank of Canada or
any relat ed company, or t heir of f icers and direct ors. No endorsement or approval of any
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Alliances
C u stom er C u stom er
Loyalty
Loyalty
Loyalty
G i v i n g Sm all an d M ed i u m -si zed
B u si n esses th e To o ls to Su cceed .
The D efinitive G uides play a unique and exciting role helping Canadian
com panies build on their success.
What is in this issue?
Building a successful business calls for the m astery of m any skills; entrepre-
neurs also need to be able to m eet challenges anytim e, anyw here. In a few short
years, w e’ve seen m ajor changes in our business environm ent, driven by catalysts
such as technology, disappearing borders, trade disputes, labour shortages and the
spread of a 24/7 culture.
Business need tools to help them adapt in a fast-paced w orld. The D efinitive
G uides fill this need.
W e invite you to take a look this issue, Custom er Loyalty. Leaders are focused
on getting and keeping their best custom ers. Through this G uide you can learn
w hat, exactly, custom er loyalty is, how to generate it, how to grow it and then
harvest it, year after year.
You should also read this to find out how other Canadian com panies enhance
their custom er relationships, w hether through loyalty program s or other m eans,
such as m aintaining outstanding custom er satisfaction.
Look forw ard to additional G uides in com ing m onths that w ill cover a range
of topics specially tailored to m eet the distinctive needs of Canadian sm all and
m edium -sized enterprises.
Yours truly,
R. J. H unt
N ational M anager, Sm all Business M arkets
?
4 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
Are your
C u stom ers
Loyal
or just waiting for
a better offer?
THERE’S A LOT OF CONFUSION
ABOUT CUSTOMER LOYALTY.
Som e business ow ners think that because their
custom ers don’t com plain, they’re loyal. O thers do sur-
veys and find their custom ers are satisfied and believe
that, therefore, they’re loyal. O thers go even further
and identify repeat buyers and say that this is their
loyal base of custom ers.
A nd then there are those w ho offer rew ards
to repeat buyers and say, “w e are building
custom er loyalty.”
The fact is, it’s possible that none of these
businesses have any loyal custom ers at all.
Consider:
•C om plaints generally go unvoiced. Dissatisfied
custom ers usually express their displeasure by
delaying paym ent, being discourteous to your staff,
bad-m outhing you to others –or by going to
the com petition.
•Satisfaction and loyalty are not the sam e thing. O ne
study found that 40 per cent of custom ers w ho
claim to be satisfied w ould readily sw itch if present-
ed w ith a better-sounding offer. (Training &
Development Journal, A pril 1991.) Another study
found that betw een 65 per cent and 85 per cent of
custom ers w ho chose new suppliers indicated they
w ere satisfied w ith their old one. (Harvard Business
Review, M arch-A pril 1993.)
•Repeat buyers m ay not be loyal at all. They m ay
sim ply be buying out of habit –a habit that a half-
decent offer from a com petitor could easily dis
lodge. A ny concept of loyalty that doesn’t go
beyond the quantitative data of “repeat purchases”
om its the essential elem ent of loyalty: a relationship.
•Loyalty program s can backfire. W ithout careful
analysis of w ho you’re rew arding and how , your
custom er loyalty program m ay sim ply be subsidiz-
ing sales you w ould have had anyw ay.
So w hy w orry about loyalty? W hen custom ers
have such high expectations, the m arket offers so
m any choices and the rew ards of satisfaction are so
short-lived, are custom ers just too fickle?
In fact, custom er loyalty is critical to the conduct
of business in today’s m arketplace.
First, it costs a lot less to sell to existing cus-
tom ers. In other w ords, sales to existing custom ers are
m ore profitable. The general rule is that it’s six tim es
m ore expensive to find a new custom er than to keep a
current one, and one study show ed that a 5 per cent
increase in custom er retention typically leads to a
25 per cent increase in profitability.
Next, consider that the sam e conditions that
m ake loyalty such a challenge are also w hat m ake it
valuable. Custom er acquisition costs are on the rise
because of the very fact that consum ers are so
dem anding and have so m uch choice, and because
the Internet m akes them so m uch better inform ed. To
m ake loyalty a priority is to understand the connection
betw een your best custom ers, the ever-changing dri-
vers of loyalty and long-term profitability.
There is a final point to consider in relation to
custom er loyalty. That is how it builds –and represents
–the value of your business outside of w hat your
inventory is w orth. It’s the value of your brand. W hen
custom ers turn to you repeatedly, alm ost w ithout
thinking about it, because they know that they can
count on you and your product doing w hat it’s
supposed to do, you have a brand that’s w orth gold.
W ith that concept of custom er loyalty as pure
gold in m ind, this guide w ill take you through som e of
the crucial issues of custom er loyalty –the
relationship betw een loyalty and service, how to
build the key loyalty asset –your brand –and som e of
the key concepts behind custom er loyalty
program s that rew ard the right custom ers w ith
incentive-based offers.
T h e D efi n i ti ve G u i d e to C u sto m er L oyalty 5
WHAT WILL MAKE
CUSTOMERS DO THIS?
A relationship that they can’t or won’t
do without.
W hile custom ers first buy from you
for a rational or cognitive reason such as
price, location or selection, the decision to
continue to buy from you is an em otional
one –a relationship. If you’re lucky, they
m ight like you, but –and this is essential
–to continue to buy from you they m ust
trust you to provide w hat they need at a
price that’s good value.
Reputation Is the Beginning of Loyalty
The A cum en Research G roup of
London, O nt., a m arket research firm spe-
cializing in consum er loyalty and relation-
ship m anagem ent, found in its Consumer
Eyes 2000 survey that “m inor shortcom -
ings”in such core offerings as product,
price and selection “are rarely a cause for
desertion, but a break in trust, how ever
m inor, often leads to custom ers abandon-
ing a loyal relationship.”
So your “rational”core offering of
product, price, location, selection and so
on are basically w hat gets custom ers in
the door –the attractors. G etting them to
stay com es dow n to different “em otional”
factors –the retainers.
Retainers, or trust-builders, can be
quality of service, responsiveness, com m it-
m ent to excellence, honesty in advertising
and w illingness to stand behind products.
A cum en call these relationship factors
“the glue that holds the loyal custom er.”
What Are the Relationship Killers?
A ccording to the survey, the m ost
com m on reasons for custom ers deserting
a com pany to w hich they w ere previously
loyal are:
•negative experience w ith or bad attitude
of a staff m em ber;
•feeling of not being valued; and
•lack of after-sales service.
C learly, if you w ant your custom ers’
loyalty, you need to get the full buy-in of
your staff, your front-line sales people and
service providers in particular.
Price: a Loyalty Killer
If you insist on being a low -cost
provider, your loyalty strategy w on’t m at-
ter m uch. These days, cheaper products
and services are just a click (or another
shopping equivalent) aw ay.
In a renow ned Harvard Business
Review article in 1980, W illiam H ull com -
pared com panies that com peted on price
to those that com peted on various other
points of value. The value-com petitors
beat the low -price com panies by every
m easure –return on equity, return on
capital and annual revenue grow th.
C om peting on price doesn’t differen-
tiate you, create a barrier to exit or
em phasize the value you bring to the
table. It’s basically an invitation to churn.
Rewards and Loyalty
D o custom er loyalty program s
m otivate loyalty? C ustom ers tend to join
the program s of com panies they do the
m ost business w ith. You can see the
problem . The biggest users tend to be
those w ho w ould be the m ost frequent
custom ers anyw ay.
In business, conditions are always changing – be it competition,
the economy, distribution, product preferences, or technology.
Customer loyalty isn’t worth a thing unless it’s able to retain
customers through some turbulence – even when a competitor
offers better prices, wider selection, more locations or some other
attraction you can’t or won’t match.
While customers first buy from you for a rational or
cognitive reason such as price, location or selection, the
decision to continue to buy from you is an emotional one.
What makes
C u stom ers
Loyal?
6 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 7
A pparently, offering rew ards for loy-
alty w orks great w ith dogs but it’s a little
trickier w ith people. Studies show that the
best program s actually w ork not just to
retain custom ers but also to increase
the am ount and frequency of purchases.
A ccording to Brian W ansink and
Scott Seed in their article “M aking Brand
Loyalty Program s Succeed”published in
the Journal of Brand Management
(February 2001), loyalty program s are
m ost appropriate for products and ser-
vices that :
•have high m argins;
•have high custom er “involvem ent”in
the purchase, although products such as
packaged goods, w here involvem ent is
low er, can use contests and inform ation
(such as recipes) to build the em otional
connection;
•are heavily and repeatedly purchased
over tim e; and
•are difficult to differentiate.
G o to page 22 to learn about
som e of the key features of effective loy-
alty program s.
The Stages of Loyalty
To understand w hat drives loyalty, it
is useful to understand how custom ers
becom e loyal. It doesn’t happen over-
night. Jill G riffin, in her book Customer
Loyalty: How To Earn It, How To Keep It
(Jossey-Bass, 2002), identifies stages in
the custom er relationship, each w ith dif-
ferent loyalty m otivators, and recom -
m ends w ays to m ove custom ers from
each stage to the next.
First-Time Buyers: The m otivation to
return is highly rational and perform ance-
driven: quality, on-tim e delivery, accuracy,
responsiveness, dependability of w hat
they are told. This is w here custom ers are
m ost expensive.
Repeat Customers: The relationship
begins to m atter. Tim e on the phone, a
new sletter or conversations w ith sales rep-
resentatives initiates an exchange of infor-
m ation. The custom er looks for added
value. Respond w ith products, services or
inform ation tailored to particular needs.
Client: The m otivation now becom es the
tim e you can save and the ideas you offer.
It’s all because you are trusted –you know
the client’s situation and the client can
rely on your know ledge and experience.
The client actively seeks your advice and
readily offers inform ation. A s an advisor,
you are now hard to replace in the client’s
netw ork of support. You are an inside
partner, not an outside supplier. You add
even m ore value.
Advocate: These custom ers tell everyone
about you and your product or service.
You are of high value to them and, of
course, the trem endous w ord-of-m outh
advocacy m ore than com pensates for any
additional tim e or resources you m ust
spend on them . They bring new cus-
tom ers into your fold –so m ake sure you
treat them w ith the sam e enthusiasm to
lay the foundations for a new cycle.
L
ike all drugstores, Richard C ardinal’s pharm acy sells drugs.
It also offers a w ide range of cosm etic products. Nothing
unusual about that. So w hy go to Pharm acie Richard Cardinal
in Ste-D orothée rather than any other drugstore?
The answ er lies in its custom er loyalty program . The principle is
sim ple but effective: for every $5 spent on regular-priced cosm etic
products, custom ers get a seal affixed to their discount card. W hen
the card is full (after purchasing $100 w orth of products), the card-
holder is entitled to a $10 discount on other beauty products. But the
benefits don’t end there: custom ers can decide to accum ulate as
m any discount cards as they w ish in order to purchase, for exam ple,
their favourite perfum e or a new m oisturizing cream . Unlike other
sim ilar program s, Pharm acie Richard Cardinal’s loyalty program is
good seven days a w eek and cards have no expiration date. In other
w ords, custom ers do not risk losing their discount privileges accum u-
lated over tim e.
According to M ireille D ansereau, an experienced cosm etician at
Pharm acie Richard Cardinal, this kind of loyalty program is a m ajor
asset for attracting and retaining custom ers: “Add to that a w arm
w elcom e, properly trained staff and a true ability to listen and
understand custom er needs, and our custom ers have every reason to
com e back.”
Pharmacie Richard Cardinal knows
How to Build Customer Loyalty
Case Study 1
The online w orld m akes it easy for people to com e together, so w hy not have a club full
of your best custom ers?
In fact, you m ay have enough buyers regionally that you can bring them together
offline as w ell. Just m odel your com m unity on the needs and activities of neighborhoods:
Hold customer events: C om m unities need to know one another. W hether it’s an online
chat session w ith a volunteer expert or an annual picnic, pancake breakfast or dem o
night for a new product, invite your m ost faithful custom ers to a get-together.
Create owner groups: Encourage pride of ow nership. If you m ake durable products
that have a follow ing, consider an online group or local ow ners’com m ittee.
Create an online customer support group: Let the com m unity help one another. For
com plex products, custom ers can share inform ation and solutions to problem s in difficult
applications.
Build a forum for wider discussion: G et people talking over the fence. M oderate the
discussion to control the flavour and flow . A sk one or tw o of your best custom ers to help
m oderate if they’re enthusiastic. You can use free services such as Yahoo! G roups or
Topica.com .
Put customer community news in your newsletter: Just a note so people know it’s
there. Item s should be inform ative, brief and friendly –not prom otional.
Show them you are listening: C om m unity leaders listen. Accept criticism w hen it
arises and let people be frank as long as they are not abusive. If there are com plaints, ask
openly w hether others are having the sam e problem s. Don’t try to over-m anage them .
Customer Communities:
Building a Club
C
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I
n addition to the benefits for consumers,
Verified by Visa has the potential to bring
tangible and immediate benefits to online
merchants:
• It can help merchant s reach t he seven
out of eight Canadians who have
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sit es t o pot ent ially grow sales from
out of count ry, by giving foreign buy-
ers great er confidence in
Canadian e-commerce sit es t hey
are not familiar wit h
• It will reduce online t ransact ion dis-
put es by more t han an est imat ed 50
percent
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lent .
Verified by Visa is already in evidence on
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About Verified by Visa
Verified by Visa is an online aut hent icat ion t echnology designed t o
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transaction.
In plain language, Verified by Visa confirms the shopper’s identity when they make purchas-
es at participating online stores. It' s convenient, and it works with existing VISA cards.
For the consumer, it means a few simple changes to the purchasing process.
First of all, shoppers will need t o sign up wit h t heir issuing financial inst it u-
t ion and select a password. Once t heir VISA card is act ivat ed, t heir card num-
ber will be recognized whenever t hey purchase at part icipat ing online st ores.
They will ent er t heir password in t he Verified by Visa window, t heir ident it y
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® Registered trademark of Visa International Service Association. Visa Canada is a licensed user. ™ Trademark of Visa International, Visa Canada is a licensed user.
Potential
benefits to
merchants
V
isa Canada surveyed credit card holders wit h access t o t he int ernet lat e
last year, and only 15% of t hem int ended t o purchase holiday gift s
online. The leading reason for avoiding online purchasing – cit ed by about
a quart er (25 per cent ) – was securit y issues and fraud concerns.
Even among t hose likely t o use a credit card online, an overwhelming
number – 60% – said t hey would be more comfort able if t hey were asked
as part of t he t ransact ion for a password regist ered wit h t heir bank.
Verified by Visa addresses t hese specific concerns by involving cardholders’ finan-
cial inst it ut ions in t heir t ransact ions and int roducing password prot ect ion
for online sales using VISA
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cards.
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mplement at ion of Verified by Visa for merchant s is simple. They can connect wit h
t he t echnology using most exist ing syst ems by adding a reasonably priced applicat ion.
Because Verified by Visa reduces charge-backs it could pay for it self very quickly.
Visa ant icipat es t hat most Visa members will be ready t o offer t his significant improvement
in online securit y by Oct ober 2003. Canadian VISA card acquirers and processors are now
providing merchant s informat ion and support t o offer Verified by Visa.
Canadians will begin t o see t he first signs of Verified by Visa on Canadian merchant web-
sit es by early fall.
“ Visa Canada is demonst rat ing global leadership by int roducing t his t echnology rapidly
int o t he Canadian market t his year. Verified by Visa is our cont ribut ion t o bringing t he
online payment experience closer t o t he physical world for consumers and helping sup-
port secure, profit able online commerce for merchant s. In t his way, we are able t o pro-
mot e t he cont inued growt h of t he e-commerce payment s channel,” Fuerst enberg said.
For more informat ion cont act your VISA merchant acquiring represent at ive t oday or visit :
www.visa.ca/verified
Consumers crave greater security
Easy adoption for e- merchants
Visa Canada is breaking down the barriers to online shop-
ping by providing consumers with greater confidence, and
improving certainty and security for merchants.
A new, groundbreaking technology – called “ Verified by
Visa™” – will greatly enhance online security, and give
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“ Verified by Visa will boost confidence for mer-
chant s worried about accept ing orders and pay-
ment s from online cust omers,” said Zack
Fuerst enberg, Direct or Emerging Product s, Visa
Canada Associat ion. “ At t he same t ime, it is t ar-
get ed specifically at t hose consumers who could
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concerns about securit y.”
Verified by Visa
has t he pot ent ial t o
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10 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
Loyalty’s shining mission
B u ildin g
a B ran d
Your brand is your business. The
value for dollar, the sm ile at the counter,
the on-tim e delivery, the sage advice –
that’s w hat the custom er rem em bers,
intuitively, at the sight of your brand. It’s
value is the sum total of your custom er
loyalty.
Building a brand should be every
business’s m ission. It isn’t an easy task, or
A m azon w ould have m ade m uch m ore
m oney building its enviable position in the
m arketplace and m any of us w ould be
reading this w ith a N ew C oke at our side.
G reat organizations have failed to
build loyalty to new brands or frittered
aw ay loyalty to brands that w ere once
household nam es. Yet m any other brands
have risen im probably from obscurity to
bask in the sun of the consum er society.
Let’s review som e kernels of brand-build-
ing w isdom that have com e out of the
rise and fall of brands.
Value: the Origins of Brand
For custom ers to turn to you as
their ally, their trusted solution w hen con-
fronted w ith the problem that your busi-
ness addresses, your product or service
has to offer great value. Everything else is
just m arketing.
N o disrespect to m arketing is intend-
ed. It’s only that no am ount of m arketing
w ill forever m ask an inferior offering.
C onsum ers have so m any choices that
there is no reason for them not to buy
based on good value. There is no
unearned loyalty.
Brand as Customer Service
Building loyalty and recognition of
your brand gives consum ers a shortcut
to sim ple buying decisions in a m arket-
place w here, in all likelihood, they are
not experts.
A fter all, w ho really know s w hether
one soap gets you cleaner than the next?
W ithout being a chem ist or an industrial
scientist, all anyone really know s is that
the soap in that fam iliar package gets you
as clean as you need to be, perhaps
giving you a pleasant arom a at the sam e
tim e. H ow do people know this? They
recognize the brand.
Therefore, a good brand is, in
itself, a valuable custom er service. It saves
the custom er tim e in m aking a good
buying decision. The m ore critical the
product –w ear it, eat it, depend upon it
for safety, rely on it for retirem ent incom e
–the m ore im portant brand and reputa-
tion becom e.
Rem em ber this the next tim e som e-
one w ants to change your m arketing
strategy or your advertising such that it
changes your value proposition to cus-
tom ers. Is it consistent w ith the value cus-
tom ers attach to your nam e? W ill it help
or hurt the value of your brand?
Talk About Value
Keep telling people w hat it is they
are loyal to. It m ay seem dum b, but your
m essage –on your packaging, advertis-
ing, invoices, sales m aterials –should take
every opportunity to rem ind custom ers
w hat brought them to you. G reat loca-
tions, overnight delivery, sm art investm ent
advice, fam ily-friendly dining –w hatever it
is, keep saying it. Be disciplined about not
straying from this m essage w henever the
latest fad arises.
That’s not to say you can’t update
the m essage –change the w ording,
change the presentation –but don’t dilute
it or alter it unless you w ish to consciously
change your strategy and your approach
to the m arket. A bove all, don’t change
the m essage just because you are bored
w ith it. C ustom ers don’t get bored by
know ing w hat you stand for if they value
it. If you are unsure w hether your m es-
sage still resonates w ith custom ers, do
som e m arket research. Value as perceived
by the custom er is w hat is im portant.
Whether it’s the company logo on a sign or your personal
name on the product, in customers’ eyes it soon becomes the
shorthand symbol for what your company represents.
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 11
Great organizations have failed to build loyalty
to new brands or frittered away loyalty to brands
that were once household names.
12 T h e D efi n i ti ve G u i d e to C u sto m er L oyalty
Hire Creative People, Then Get Out
of the Way
Brand-building is, frankly, m anipula-
tion of em otion. A dvertising, prom otion
and public relations are designed for such
purposes. G et your m essage out there.
But there’s a w arning: If you hire som eone
for their creativity, w ay w ith w ords, or
photographic or video talent –let them
w ork their m agic as long as they are true
to your brand m essage. If you interfere
unduly w ith the creative process, you w ill
do tw o things. O ne, you w ill probably
m ake a hash of it unless you are an equal-
ly talented artist or com m unicator. (In
w hich case, w hy did you hire this person?)
Tw o, you rem ove any incentive for the
creative person to do the best w ork for
you the next tim e. Let the w izards do
their thing.
Operate In Multiple Channels
In this era of im m ediacy and e-com -
m erce, consum ers get frustrated quickly.
To get your product into custom ers hands
w hen they need it, you need to operate
seam lessly in person, by m ail, by phone
and online. C ustom ers absolutely m ust be
able to reach you w hen they are m aking
the buying decision. They are now
dem anding to do so through w hichever
channel they choose. This m eans a single
custom er database and at least som e ele-
m ents of a custom er relationship m anage-
m ent (C RM ) system . The w hole idea is for
the basic value proposition and the cus-
tom er experience –the look and appeal
of the store, the m ailers, the W eb site –
to rem ain consistent. Each is beating the
sam e drum for your brand.
I
t’s Saturday m orning at G reen Village G arden
C entre and it’s a veritable hive of activity. The free
garden clinics are underw ay, as w ell as som e kids’
program s and a food drive.
O w ner and event-m aster A ndy Buyting took over
m anagem ent of G reen Village G arden C entre in
Fredericton, N .B. w hen his parents retired in the
m id-´90s. “I w anted to do a bit larger-scale business
w ithout losing the friendly atm osphere of a sm all
fam ily business,”he says. For Buyting, that m eant
developing a year-round program of events to
increase custom er satisfaction and keep them return-
ing to the store.
The centerpiece of the program is a m ailing list
w ith 10,000 custom er nam es, all provided voluntarily.
Every spring, fall and C hristm as, a six-page new sletter
provides gardening tips and, just as im portant, a cal-
endar of upcom ing events such as the M other’s D ay
celebration, custom er appreciation events, and m ore.
M em bers are also enlisted in the birthday card pro-
gram (w ith $5 credit).
The full list of annual events is m uch longer.
A ndy, w ho also appears on a local television garden-
ing show , w rites a personal note for each edition of
the new sletter.
“You m ight say the m arketing plan is deliberate
grow th by actively pursuing loyalty,”says A ndy. “O ur
custom ers enjoy it, w e have fun, and it all happens in
the relaxed atm osphere of a country store.”
Green Village
Garden Centre
Case Study 2
I
n the endlessly shifting w orld of cyber-threats and
counterm easures, W hiteHat Inc. provides inform a-
tion technology security to governm ents, m ajor
corporations and sm aller enterprises across N orth
A m erica. Full service includes analysis and education, as
w ell as system s selection, installation and m aintenance.
“W e arm our clients to go in to cyber-battle,”asserts
CEO Rosaleen C itron.
W hiteH at has an enviable reputation for custom er
loyalty, retaining m ost of its clients since the com pany
began in the early nineties. “The biggest thing w e do
for loyalty is m aintain absolute client confidentiality and
privacy,”says C itron, adding that W hiteHat is know n as
“the quiet com pany”. An im portant loyalty builder is
their response tim e: w ithin 60 m inutes for em ergencies;
routine requests are answ ered w ithin hours.
The com pany is also liberal w ith value-added
research about new threats and technologies, to the
extent that W hiteHat launched a public service W eb site
(w hitehatadvisory.com ). A series of client breakfast sem i-
nars form alizes this value-add and also provides an
opportunity to go in-depth on the latest issues.
C ustom er appreciation events are another part of
the form al agenda, and often include prem ium sports
venues. “M ost of our clients prohibit em ployees from
accepting gifts,”Citron explains, “so w e use intangibles
to say thanks.”This practical, dow n-to-earth thinking
has served W hiteHat w ell in all m atters affecting
custom er loyalty.
WhiteHat Inc.
Case Study 3
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E-commerce is using the Internet to build, assist and
improve your business’s commercial activity.
C u stom erLoyaltyC u stom erLoyaltyC u sto
m erLoyaltyC u stom erLoyaltyC u stom erL
oyaltyC u stom erLoyaltyC u stom erLoyalty
C u stom erLoyaltyC u stom erLoyaltyC u sto
m erLoyaltyC u stom erLoyaltyC u stom erL
oyaltyC u stom erLoyaltyC u stom erLoyalty
Sponsorship:
“Gilt” Through Association
Rule
#
1:
M ake sure the opportunity fits w ith
your brand. Evaluate w hether the sport,
entertainm ent, event or charity is a good fit w ith your com -
pany and its m essage. D o you really w ant your custom er-ser-
vice business to be affiliated w ith boxing? O nce you find the
right fit, research the audience dem ographics and evaluate
the num bers of individuals w ho w ill see it. N ow , is it w orth it
on an eyeballs-per-dollar basis?
Rule
#
2:
Know w hat you w ant out of it. It could
be pure sales, either at the event or
afterw ard through on-site prom otions. But other things are
also im portant, particularly the hom etow n reputation you
could gain by sponsoring an am ateur athlete for the
O lym pics, for instance, or the brand association you m ight
build as a consulting agency that sponsors an inter-collegiate
m athem atics contest. Som e other potential objectives:
•Exposure that you can com pare and justify w ith advertising
of a sim ilar cost;
•Sam pling or introduction of product benefits; and
•C lient and em ployee goodw ill through hospitality
and tickets.
Rule
#
3:
C om m unity organizers are often the
m ost grateful for your help. Rem em ber
that em erging sports, sm all theatres, charities and com m uni-
ty activities offer terrific m arquee brand-building potential,
w hile you can easily get lost in a big-nam e event.
Sponsoring the clean-up of the local riverside or helping a
sm all band to put on an outdoor sum m er concert can be
cheap, highly effective m arketing. Plus the recipients w ill
probably do everything in their pow er to give you full value
for your m oney.
Rule
#
4:
Know the players. Find out w hat the
event organizer, team m anagem ent or
charitable organization’s leadership plan to do at the event
and in the future. W hat is the schedule for broadcasts or any
other distribution? W hich other organizations are participat-
ing and w hat w ill be their profile? Talk to athletes, actors or
cam paigners w ho w ill be at the centre of events. D o you
trust these individuals to put the events or cam paigns and –
by extension –your product, com pany and brand in the best
possible light?
Rule
#
5:
Be prepared to negotiate. Event orga-
nizers are not usually corporate m ar-
keters and your interests m ay not be top-of-m ind. Be very
specific about w hat you w ish to get for your sponsorship
dollars, such as size and location of signage, acknow ledge-
m ents, presence and location of hospitality, proxim ity or
absence of com petitors and use of your com pany nam e.
Rule
#
6:
Insist on exclusivity. A com m on ploy is
for organizers to give you assurances
and then sell sponsorships to com petitors w hom they define
as being in another category –for exam ple, a pasta restau-
rant that som ehow isn’t in the sam e category as your French
restaurant.
Rule
#
7:
Look for leverage. Signs and m entions
are fine, but you can’t leave it at that.
U se your sponsorship –logos, event nam es, individuals –in
all your printed m aterials. Send press releases and call m edia
editors. H old get-to-m eet events or signings.
Rule
#
8:
Sw ap product for prom otion. The best
scenario of all is to contribute product
for sam pling or dem onstration in return for exposure. The
challenge is finding the appropriate channel. A butcher
m ight sponsor cooking classes or cooking clubs, for instance,
trading m eat for recognition and the chance to offer bulk
discounts. Sporting goods stores m ay sponsor high-school
sports, trading shoes or clothing as league prizes in
exchange for banners and displays at gam es.
Many brands bask in the golden aura of a sponsorship to build customer
loyalty. By tying themselves to customers’ pastimes, interests and causes close their
hearts, they try to build the kind of goodwill that leads to faithful patronage. Think of
boys and girls who grew up with hockey or horses and, as adults, drink the beer and
drive the cars of the organizations that sponsored their childhood activities.
But you don’t have to be a brewery or an automaker to be a sponsor.
There are superb opportunities to reach highly specific markets through amateur sports
and arts groups, leisure activities, and public services from environmentalism to
anti-poverty and education. J ust target your market carefully and be careful that you
get what you sign up for. Here’s how.
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 13
Relationships:
B u ildin g
Loyalty
The relationship is based on
three elem ents:
•the trust of the custom er, earned through
the value you offer;
•your desire to offer even greater value, at
a decent m argin, based on your know l-
edge and experience in your field; and
•your accum ulated understanding of the
custom er’s unique situation through
inform ation w hich m ust be offered by
the custom er.
Through the grow ing relationship,
you sim ultaneously build loyalty, sales and
profitability.
The critical elem ents that you can con-
trol are the value that you offer during the
sale, your astuteness in eliciting custom er
inform ation, and w hat you do w ith that
inform ation to add value to future sales.
This section w ill look at the first item :
how a vendor can perform at a high level in
offering value during the sale. The next sec-
tion w ill deal w ith learning m ore about the
custom er to increase your value proposition
even further.
Adding Value Through Service
Start w ith the prem ise that existing
custom ers need to be turned into loyal cus-
tom ers. It’s im portant to recognize aspects
of service that drive loyalty by adding value
and, as a part of your standard business
practice, bring a payback that com pensates
for any costs they incur.
Staff for people: Frontline staff are the
point of contact for custom ers, so hire care-
fully. Interview extensively and consider per-
sonality testing for ability to w ork w ith
people. Som e organizations interview can-
didates in groups to see how they relate
and interact w ith one another.
Train for loyalty: Put loyalty on the table
during training. Explain w hat a lost cus-
tom er costs your business and how loyal
custom ers are easier and less expensive to
serve. Train in courteous behaviour through-
out the sales or service process, and prepare
them to ask and answ er questions to show
attentiveness and responsiveness, as w ell as
how you w ish them to handle com plaints.
Role-play and take suggestions for im prove-
m ent. H ave experienced em ployees train
new ones. Repeat regularly. Have fun w ith
training, but m ake quick, efficient service a
recurring them e and m antra.
Empower: Em ployees should, if possible,
have the pow er to right any w rongs w ith-
out going through hoops. O n-the-spot
authority of this kind w orks w onders both
w ith staff and custom ers w ho experience it.
O n the sam e point, ask staff for recom m en-
dations on w ays to im prove the custom er
experience.
Create converts: M ake converts of your
staff and they w ill becom e m issionaries for
you. Tell or show them w hat com petitors
are doing. Let them sam ple or experience
com petitive products as w ell as your ow n.
Equip them w ith com parative data.
Encourage suggestions.
Value the customer’s time: People shy
aw ay from salespeople som etim es because
they hate being “sold”, then a m om ent
later they w ant personal assistance. They
a brick at a time
At the root of lasting customer relationships is value. While
loyalty is eventually an emotional tie, it begins with a rational
decision. To be loyal, customers must believe they are
getting superior value. You can then cement that belief with a
relationship that allows you to offer even greater value.
By using CRM and electronic marketing
techniques, online vendors can personalize the way the
visitor sees the information on the site.
14 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
also w ant 24-hour service availability, next-
day delivery and im m ediate inform ation. At
the sam e tim e, you are supposed to be pro-
viding personal service, w hich requires you
to ask a few questions. W hile contradictory
dem ands som etim es m ake your head spin,
rem em ber that getting in and out of the
transaction quickly is a com m on m otivation
in this rushed w orld, w hich brings us to the
next point.
Operate in multiple channels: It just so
happens that buyers w ho use m ultiple
channels tend to be the m ost loyal. (J.C.
W illiam s G roup, 2002.) There’s a reason:
custom ers increasingly w ant to research
their purchase and com plete it w henever it’s
convenient, perhaps online but perhaps in a
store, by phone or even by m ail. W hen they
can conduct som e or all of the buying
process electronically, it’s a convenience;
w hen they can’t, there’s alw ays a place
w here they can. From the vendor point of
view , e-com m erce is a w ay to let custom ers
shop on their ow n tim e in a fairly cost-effi-
cient m anner, using online self-service and
guides, e-m ail queries and W eb call-back
features. It’s a great w ay to satisfy the high
dem ands of custom er service w ithout over-
burdening or overspending on staff.
That said, you have to invest w isely in
your W eb presence. (See The Definitive
Guide to E-Commerce.) Service, product
and brand im age m ust be seam less and
consistent across all channels in order not
to confuse the m essage to w hich you are
trying to keep your custom ers loyal.
M onitor custom er feedback on this point.
Are all channels giving them equally good,
consistent service?
Constantly re-evaluate the value
equation: Business and m arket conditions
are alw ays changing. D o regular surveys –
w ith every order if it’s feasible –to find out
w hat is im portant from the custom er per-
spective. W hat did they like m ost about the
purchase? W hat w ould m ake the product
or buying experience even better? Are their
needs changing in any foreseeable w ay?
Try to get a picture from the buyer’s point
of view .
Deal with decision-makers: In business-
to-business sales, a com m on error is to
speak only to the users or technical people
w ho “understand”the product. These m ay
not be the people w ho m ake the buying
decisions. Ask for a m eeting w ith all users
and the individuals w ho signed the pur-
chase order as a w ay of both collecting
feedback and com m unicating to them that
you are responsive. Have a form al slate of
questions ready. (See “In Person: Custom er
Visits and Interview s”on page 19). Above
all, talk about w hat you have learned about
your client’s unique circum stances from
your interaction w ith your product’s users
and technical people w ith the com pany.
Show those w ith the buying pow er that
you have been listening and learning, and
that you w ant to do m ore.
Seek out complaints: You can’t im prove
unless you know w hat’s w rong. M any faults
and shortcom ings are hidden from you
because you’re not standing in a custom er’s
shoes. Ask for com m ents, even criticism . If
you can’t get direct feedback, at least be
aw are of the signs of dissatisfaction –
unpaid bills, grum py staff (w ho m ay be
frustrated by custom er attitudes) and rising
turnover –and hold som e brainstorm ing
sessions. M ake som e changes to see if you
can get better results.
Bump up after-sales service: A s m any as
one-third of all com plaints com e from cus-
tom ers w ho don’t know how to use the
product properly. At the sam e tim e, one of
the top reasons for custom er loss is the
absence of after-sales service. Sounds like a
potentially good fit? Supply a toll-free num -
ber, m ake follow -up calls (big-ticket item s)
or send a quick e-m ail to talk about proper
use and service. Supplying the inform ation
in w riting helps m ake sure custom ers
rem em ber it correctly and also heightens
the perception of after-sales care.
Go after lost customers: Hate m aking
cold calls? W ell, at least form er custom ers
already know w ho you are. A nd you can
w in them back. Their defection m ay be
over som ething you can easily rem edy. Even
if you can’t, you can quickly find out w hat
happened and look for a pattern that you
can address in a longer-term w ay. G ive the
defectors a friendly call. M ake them an
offer.
Say “thank you”: Say it on the spot. If you
didn’t have a chance, w rite a note or m ake
a call. Rem em ber, it’s a relationship.
W
hen M ike A rbeau opened his ow n transm ission shop in
1999, he had definite ideas about how to develop a loyal
custom er base. Since then, he’s built a thriving business in
M ississauga, O nt and opened a second shop in Toronto’s w est-end.
Arbeau’s philosophy is the golden rule. “W hen I’m the cus-
tom er,”he says, “I expect to be treated right. So I treat people right
at m y shop.”H e’s honest w ith custom ers w ithout being pushy, and
w hen the job is done he spends extra tim e explaining the bill and the
shop w arranty.
Arbeau also places a prem ium on professional im age. H e keeps
a m eticulously tidy shop, staffed by w ell-groom ed m echanics in clean
uniform s. Each custom er’s car is returned free of fingerprints or foot-
m arks, som e custom er’s vehicles are run through the car w ash for
good m easure.
Although A rbeau doesn’t see m ost custom ers m ore than once
for a transm ission repair, he does rely on repeat subcontract business
from local general m echanics. To keep these sources loyal, he says,
you’ve got to do good w ork on schedule, as w ell as be w illing to go
the extra m ile to solve any problem s that crop up.
These m echanics get a 20 per cent discount on subcontracted
business, and som etim es A rbeau takes them to lunch or a hockey
gam e. “I get restaurant gift certificates and hand them out to all the
m echanics in the shop,”he says. “That keeps everybody happy.”
Precise
Transmission
Case Study 4
T h e D efi n i ti ve G u i d e to C u sto m er L oyalty 15
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16 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
WHO ARE YOUR BEST
CUSTOMERS?
O ne of the m isconceptions surround-
ing custom er retention is that the objective
is to build loyalty am ong all custom ers.
Sure, custom ers are usually a good
thing. It’s just that som e are better than
others. Researchers in the loyalty field have
looked m ore closely at this phenom enon
and discovered that som e “loyal”cus-
tom ers, in fact, dem and low er prices and
expensive extra services as the price for
their guaranteed regular purchases.
In a July, 2002, article entitled
“M ism anagem ent of C ustom er Loyalty”in
the Harvard Business Review, W erner
Reinartz and V. Kum ar put custom ers into
the follow ing loyalty categories:
• Strangers: Bargain hunters only, w ith
little loyalty and the low est profit poten-
tial. D on’t invest in them and try to
m ake a profit on every sale.
• Butterflies: Transient but profitable cus-
tom ers w ho like to shop around. D on’t
continue to chase them w ith offers after
they have fluttered aw ay.
• True friends: Frequent users of m any of
your products. W ith the highest profit
potential, they respond w ell to special
treatm ent and services.
• Barnacles: Loyal custom ers w ho are
borderline or even unprofitable because
of their dem ands for special prices and
treatm ent. Im pose lim its on w hat you
w ill do for them .
Just Do It
Reinartz’s and Kum ar’s research
turned up a fascinating tidbit on building
the loyalty of your best custom ers, the so-
called “True Friends”. Intensifying the
am ount of contact and com m unications,
they found, w as m ore likely to irritate
these valuable custom ers. G iving them
royal treatm ent and special services led to
increased sales.
So try to build loyalty am ong the cus-
tom ers that m atter m ost. Find out w ho
your best custom ers are and add value,
profitably, to those transactions in w ays
that w ill increase the volum e and frequen-
cy of their buys.
Where Does Customer Information
Come From?
The answ er is w hat m akes the w hole
loyalty gam e so fun and interesting.
C ustom ers m ust give it to you.
Past buying behaviour predicts future
buying behaviour better than any other
factor. So start w ith your current best cus-
tom ers. (If you don’t have a base of infor-
m ation already, read “G athering C ustom er
Inform ation”, w hich follow s.)
C ustom er loyalty is usually m easured
on the basis of recency, frequency and
m onetary value (or RFM ). M onetary value
can be broken dow n into size and prof-
itability of purchases, keeping in m ind
Reinartz’s and Kum ar’s contention that
som e “good”custom ers are, in fact,
barnacles.
Customer Value Measures:
•Recency
•Frequency
•D ollar volum e
•Profit contribution
C lassify and rank your best custom ers
according to these four variables to find
w ho your best custom ers are. Your chal-
T h e D efi n i ti ve G u i d e to C u sto m er L oyalty 17
Learning More
Abou t
C u stom ers
You have grabbed their attention with good value, a responsive
attitude and respectful, thorough service. The next step is to
find out more about the people who buy from you so that you
can at least let them know about other offerings that might be
pertinent and, in the best of all possible worlds, proactively add
further value through personalized service and marketing that
will turn the “best” customers into loyal customers.
Find out who your best customers are and add
value, profitably, to those transactions in ways that
will increase the volume and frequency of their buys.
18 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
lenge is to entice each of your best cus-
tom ers to rise as high as possible in cate-
gories w here they rank low er. Rem em ber
that custom ers are m otivated by different
factors depending on w hether they are
early-stage, repeat custom ers, clients or
advocates. (See “The Stages of Loyalty”,
page 13, and Customer Loyalty: How To
Earn It, How To Keep It, by Jill G riffin.)
Gathering Customer Information
You m ay have basic custom er infor-
m ation already –geographic location and
som e basic dem ographic inform ation,
for instance.
But you w ant this and m ore. You
w ant to know attitudes, future plans,
business or econom ic conditions –all the
elem ents that m ight influence their needs
and buying behaviour in the future. W ith
a little w ork, you can establish the
relationships that can m ake this inform a-
tion available.
This section w ill exam ine inform ation
gathering from tw o perspectives: online
m ethods and in-person custom er visits and
interview s. W ith the inform ation you col-
lect, your know ledge of w hat your cus-
tom ers value –and w ill value in the future
–becom es m ore accurate, even to the
point w here you can enlist the support of
your best custom ers in your service
enhancem ents and loyalty m easures.
Online: Starting the Conversation
W ith so m any custom ers now
w illing –no, dem anding –to use online
technologies to inform them selves, shop
and buy, the usefulness of online m eans
of collecting custom er inform ation has
risen substantially.
If you know w ho is com ing to your
site, and w hat they are interested in, you
can link that inform ation to online and
offline buying behaviour. So how can you
get people to tell you w ho they are and,
better yet, talk to you? Try one or a few of
these ideas.
Site registration: O ffer personal accounts
for faster checkout, w hich m eans the cus-
tom er stores billing inform ation and
address books on your server. Even if a
personal account isn’t appropriate, you
can offer registration for “VIP”or “pre-
ferred custom er”services such as advance
notice of prom otions, delivery discounts
and online coupons. Basic identifying
inform ation (nam e, address, e-m ail
address) is all that should be necessary.
You can then ask them to com plete a
short survey. The im portant thing is to
offer som ething for a little personal infor-
m ation. You can then ask for m ore detail
as you go forw ard.
Contests: Running online contests is a
tried and true m ethod of getting nam es,
addresses and basic buying and lifestyle
inform ation. Prizes can range from product
to gift certificates to som ething m ore
pricey if you w ant w ider exposure and
som e new leads as w ell. M any sites link
their contests to registration.
Gift reminder services: For som e types
of businesses, gift rem inder services pro-
vide useful inform ation about fam ily status
and fam ily size. You can get lifestyle infor-
m ation, too, by asking for age and prefer-
ences of fam ily m em bers to enable you to
m ake gift suggestions.
J
ohn Kalbfleisch is an orthodontist and partner in Village
O rthodontics, one of the largest practices of its kind in
C anada. W ith five busy offices in the G reater Toronto A rea,
Village O rthodontics displays m ost characteristics of a w ell-m an-
aged enterprise.
“It’s all about building relationships; and I m ean personal, not
just professional,”he says. “W e w ant the patient to see m ore than
the service.”Building a rapport w ith young teens can take som e
w ork, so Village O rthodontics em ploys a Patient Relationship C o-
ordinator to plan a program of recreational events, seasonal con-
tests and rew ards. Parents can attend “Aw areness N ights”, w hich
address topics such as parenting teenagers and drugs.
A patient w ith braces is by definition a loyal custom er, so loyal-
ty is cultivated w ithin fam ilies and extends to friends. G enerating
referrals from general dentists is another im portant dim ension.
Kalbfleisch says that referring patients to good orthodontists can
often help a dentist’s practice to grow .
W hile Kalbfleisch does som e business entertaining w ith refer-
ring dentists, the partnership also co-sponsors continuing education
program s that feature top speakers in specific areas of general den-
tistry. Kalbfleisch also believes that the practice’s partnership struc-
ture is key to loyalty because it enables the purchase of better
equipm ent, supplies, and staff training. “W e’re able to have staff
m ore specifically focused on their jobs,”he concludes, “A nd that
gives our patients a m uch better experience.”
Village
Orthodontics
Case Study 5
M
ontreal-based Stonix G ranite & M arble Inc. im ports quar-
ried slabs of stone to m ill into countertops, flooring and
w all-cladding. The com pany, led by ow ner and president
A ntonio Pasin, has custom ers in Q uebec, O ntario, and the U .S.
H ow does Stonix keep its custom ers loyal? “Service, service,
service!”exclaim s Pasin. That definition of “service”bends to m eet
the different requirem ents and expectations of the tw o m ajor seg-
m ents in his custom er base –contractors and retailers.
“C ontracting is high volum e sales, w ith fast turnaround, and
hyper-com petitive pricing,”Pasin adm its, em phasizing the fiercely
com petitive nature of his business. “A s you w ork together
dependably over the years, contractors develop a loyal friendship.
It’s reliability that w ins their loyalty –w ining and dining doesn’t
w ork any m ore.”
Retailers, on the other hand, are sticklers for quality. “They’re
ready to spend the dollars if they get quality and exclusivity,”Pasin
advises. “Retail accounts are very big on supplier reputation, w hich
is spread by w ord of m outh. If a retailer hears your product looks
great in som ebody’s hallw ay or kitchen, that builds loyalty.”Stonix
also supports its product quality w ith aggressive after-sales service.
“You have to know w hat the com petition’s up to,”Pasin
concludes, “and you find out by talking to people. They’ll talk
to you.”
Stonix Granite
& Marble
Case Study 6
C
u
s
t
o
m
e
r
L
o
y
a
l
t
y
Re-order reminder services: These are
especially useful for som e B2B businesses,
but also for consum er goods such as pre-
scriptions and seasonal item s.
Loyalty discounts: There w ill be m ore on
this in the next chapter, but it’s w orth m en-
tioning here that you can ask for custom er
inform ation in a straight exchange for dis-
counts or for purposes of registering for
rew ards w hen they reach a purchase
threshold. Let the custom er track “rew ard
point”status online.
Personalization: You can allow registered
custom ers to personalize their visit to your
site so that certain m enus or types of prod-
uct inform ation appear w hen they visit. It
doesn’t have to be this technical, how ever.
You can sim ply greet custom ers by nam e
and offer new sletters w hose article subjects
are pre-selected –for instance, articles
about hiking and canoeing gear, but not
m ountaineering or cycling.
Another approach to personalization
is to ask custom ers about product prefer-
ences, w hich enables you to build a
database of cross-referenced preferences
so you can recom m end products that other
people w ith the sam e likes and dislikes
have chosen.
In Person: Customer Visits and
Interviews
Too often, “know ledge”about cus-
tom ers is nothing m ore than a guess based
on stories from the sales departm ent, a
new spaper article or w hat com petitors are
doing. W hy not just ask the people w ho
know ? The custom ers.
From your earlier w ork, you already
know w ho your best custom ers are. W hy
not approach them (or a few selected for
their strategic fit w ith your plans) for som e
in-depth conversation? You m ay also
choose to visit, if you can arrange it, som e
w ould-be custom ers w ho don’t use your
products or services in order to get a w ider
view of w hat you m ight be m issing. You
m ay also include your custom er com m unity,
if you have one, in this project.
Prepare a form al slate of questions
that cover:
• What you have done right – “W hat
do you like about dealing w ith us?”
• Where you need to improve –
“W hat’s im portant but not happening?”
“H ow could w e change to m ake our
product or service better?”“How do w e
com pare to our com petitors?”
• Where you can jump ahead – “W hat’s
going to be im portant in the future?”
“W hat additional products or services
could w e provide?”
• Where you can cut back – “Do you
feel that w e’re spending tim e on any
thing you consider unim portant or
excessive?”
Working environment: Ask w hether you
can observe users of your product for a
w hile as a fly on the w all. You m ay see
points of interest that m ay not have m uch
significance to the user or the buyer.
Customer portrait: Equipped w ith your
interview s and observations, describe your
typical custom er. Create as m any headings
as you can and describe every detail,
w hether physical or psychological. It m ay
help to draw a picture of this person w ith
labels and arrow s. U nder separate head-
ings, address the w ork environm ent, finan-
cial constraints, w orries, hopes, industry
conditions and, im portantly, service needs.
This profile w ill be extrem ely useful in
solidifying w hat you know about your cus-
tom ers in your m ind. Use it as your point of
reference w hen considering all future loyal-
ty and service decisions. W ill your action
help solve a problem ? W ill the custom er
even notice w hat you’re doing?
Product and process review: Are there
parts of the typical purchase process or
aspects of the product that cause rather
than solve a headache for the custom er?
How can your products and services be part
of the solution? Rank your ideas by value to
the custom er and the difficulty in doing it.
Select the “m ost critical”and “easiest”
ideas. Start right aw ay on these tw o pro-
jects: one is an easy w in to gain the confi-
dence of staff; the other is the first m ajor
big-picture m ilestone.
Customer re-visit: This m ay be done by e-
m ail, but if you have the opportunity to do
it in person, so m uch the better. Have your
best custom ers rank all your proposed
changes. A llow them to w eight their selec-
tions. You m ay also choose to ask w hat
they m ight be w illing to pay for each. Use
the valuation to create an im plem entation
plan, w ith a tim eline that takes into
account cost and difficulty.
Charge ahead: Your best custom ers are
now your leaders in the loyalty battle. You
know w hat they w ant, how m uch they
w ant it and possibly how m uch m ore they
w ill pay for it.
G athering together a group of custom ers for conversation and feedback about
your products and services can be a valuable source of inform ation about w hat’s
im portant to them . The group m em bers could be sim ply a com m itted group of existing
custom ers or a m ix of custom ers and non-custom ers, depending on w hether you w ant
som e outside view s as w ell.
These sessions can be conducted in tw o w ays. Focus groups are done in a special
facility w here you or your senior m anagers w atch and listen behind tw o-w ay m irrors.
Typically, m arket research firm s charge $4,000 to $6,000 for a series of basic sessions.
A less expensive approach is the facilitated discussion. To m oderate, you hire a
neutral facilitator w ho guides the com m ents tow ards topics you have identified but
offers no judgm ents or solutions to any problem s raised. N o one from your organization
is present at all.
The facilitator filters and synthesizes w hat w as said and reports back to you w ith
the unbiased, uninhibited feedback from the group. The draw back is that you m ay not
know the context of the rem arks, as you w ere not there.
Focus versus Facilitate
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 19
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22 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
HOW REWARD
PROGRAMS WORK
Frequent-buyer program s aim to
rew ard the custom er w ith discounts,
m erchandise or special treatm ent in pro-
portion to the am ount of their purchases.
In this w ay, vendors can obtain inform ation
about their custom ers and their buying
patterns w hile at the sam e tim e offering
an incentive to these custom ers to rem ain
loyal and boosting the size and share of
their spending.
The best program s:
•gather a w ealth of custom er inform ation,
usually by m atching enrolm ent and sub
sequent purchase data;
•use the custom er inform ation generated
by the frequent-buyer card to tailor prod-
ucts, services and rew ards to best-cus-
tom er preferences;
•continually refine rew ards to get the best
possible payback in term s of increm ental
purchases and loyalty; and
•rem em ber that product value, pleasant
staff, store/office layout, speed of service
and cleanliness are the real m otivations
for long-term loyalty and w ithout these
elem ents, frequent-buyer program s just
teach custom ers to shop for price.
H ere are som e exam ples of the m any
faces of frequent buyer program s:
Buy-Ahead Discount Cards: Popular w ith
coffee shops, skate sharpening services,
exercise clubs and car w ashes, the program
gives custom ers a freebie or a discount if
they buy in bulk, paying in advance. The
retailer just checks, initials or punches a
square each tim e the custom er com es in.
O ften, they gather very little custom er
inform ation, but you can require custom er
registration to qualify.
Reward for Loyalty: Everyone from air-
lines to sandw ich shops uses this one.
Track purchases by sw iping a card or sim ply
by punching squares and the custom er
gets free product (or upgrades) for reach-
ing pre-set thresholds. C ustom ers offer
identifying inform ation to get the sw ipe
cards and m erchants track their purchases
to gather further data.
Gift Cards: An alternative to paper gift
certificates, consum ers purchase these
sw ipe cards and electronically load them
w ith the desired credit –for exam ple, $25
or $50. W ith each purchase, the system
checks the card for validity (each card is
assigned a security code) and inform s the
custom er of the card’s balance on the sales
receipt. M erchants can target prom otions,
track sales and offer discounts for cus-
tom ers w ho “reload”.
Information and rewards
Frequ en t
C u stom er
When most people hear the words “loyalty programs”, they
think of frequent-buyer reward programs. These programs
can solve both the “information problem” – how to identify
customers and collect information about them – and the “action
dilemma” – how to reward your best customers and ratchet up
their frequency and volume of purchases. But beware: they come
at a cost and they must be carefully directed in order to reward
and motivate buyers rather than just subsidizing them.
T h e D efi n i ti ve G u i d e to C u sto m er L oyalty 23
P rogram s
Sweepstakes and Contests: C onsidered a
tried-and-true loyalty technique, the contest
can either be used as an enticem ent for
enrolm ent in the loyalty cam paign or to add
an exciting benefit for existing participants.
Loyalty program providers now m ake it pos-
sible to offer “sw ipe and w in”prizes right
at the point of sale.
End-of-Year Rebates: C ustom ers accum u-
late points throughout the year via a
point-of-sale system and receive an annual
discount or credit. The w ait probably dead-
ens the im pact of this type of program and,
given its lack of im m ediate em otional
appeal, it m ay m otivate only those cus-
tom ers w ho are m ost price sensitive.
LOYALTY HALL OF FAME:
GREAT PLANS AND
THEIR LESSONS
Canadian Tire Money: Loyalty’s First
Cross-Seller
Canada’s first and possibly greatest
hom egrow n loyalty program w as the brain-
child of M uriel Billes, w ife of com pany co-
founder A.J. Billes. Canadian Tire M oney
debuted in 1958 at the com pany’s first gas
bar in Toronto as a m eans to fight back
against m ajor oil com pany giveaw ays of
dishes and toasters at the pum ps. The idea
w as to let custom ers choose w hatever
bonus they liked rather than force a partic-
ular gift upon them . The result w as not only
a successful loyalty program but the birth of
the idea of using loyalty program s as a
cross-m erchandising tactic.
C anadian Tire M oney has taught som e
other lessons as w ell:
•Because of the coupons’authentic bank-
note feel –they have sim ilar rag content
and spot m arks as real paper currency –
people hate to throw them aw ay.
•In the 1960s, Canadian Tire used the
coupons to rally consum ers against its
com petitors from the oil com panies.
Using a picture of a m uscled H erculean
figure about to w reck a store, the m oney
included a m essage calling upon cus-
tom ers to join the fight to “w in this w ar”
against the gas “giants”.
Hbc Rewards: Points for Spending
H bc Rew ards (previously know n as
Zellers’C lub Z) is an unm itigated success
that can’t be beat. W ith m ore than nine
m illion m em bers in 80 per cent of Canada’s
households, no store-based loyalty program
com es close in this country. W hen you con-
sider that Zellers com petes head to head
w ith W al-M art, w hich has no loyalty pro-
gram , the lesson here is that a good loyalty
program can be a life saver.
Air Miles: the Perfect Customer
Research Tool
The fam iliar loyalty program invites
custom ers to carry the sw ipe card and
present it w ith purchases at sponsoring
stores and services across the country.
Custom ers can then trade their accum ulat-
ed points for air travel, m erchandise, vaca-
tions and so on.
The Loyalty G roup launched Air M iles
in 1992 w ith 13 sponsors. Now , it has 100
sponsors and reaches into 12,000 retail
locations, including governm ent liquor
stores. A bout 12.5 m illion people carry the
card. The lesson? W hile experts can debate
w hether card carriers are m ore, less or
equally loyal to the sponsors, custom ers w ill
use a card if the rew ards are attractive and
attainable. This is significant for tracking
purposes alone.
Frequent Flyer Programs: Control Cost
of Rewards
A m erican A irlines
‡
launched the m od-
ern era of travel rew ards loyalty program s
w ith its A A dvantage
‡
program in 1981. The
program began w ith 283,000 m em bers
and has grow n to over 49 m illion m em bers.
D elta and TW A m im icked the m ove the
sam e year and the race w as on. Those w ho
didn’t follow –Southw est Airlines, for
instance –lost m arket share until they did.
The idea spread and by the m id-1980s,
every airline, hotel and car rental agency
had its ow n frequent-user rew ard plan, in
spite of w idespread suspicion about their
effectiveness and costs.
There are now m ore than 70 frequent
flyer program s w orldw ide w ith m ore than
100 m illion m em bers, grow ing at 11 per
cent a year. M em bers redeem 10 m illion
flights a year, but now about 40 per cent
of air m iles are earned on the ground as a
result of loyalty partnerships w ith hotels,
credit cards and other travel industry
providers.
Frequent flyer program s survive
because of the balance betw een a highly
valued rew ard and the lim its placed on seat
availability for use by frequent flyers
redeem ing points –typically, about 5 per
cent. Just as rew ards m ust not unjustifiably
raise costs, they m ust also not ham per your
ability to serve revenue-paying custom ers.
Best Practices: Turning Frequent Buyers
Into Loyal Customers
Frequent-buyer program s are not all
as successful as these cases m ight suggest.
Beer com panies, for instance, have found
that giveaw ays only prom ote tem porary
brand-sw itching and others have found
loyalty program s teach custom ers to look
for best prices –or else have little effect
at all.
H ere are som e of the best practices
that can raise the probability that your fre-
quent-buyer program can instill the loyalty
that you set out to achieve.
• Talk it up. M ake sure staff m em bers
know w hy custom er loyalty is im portant,
how the program w orks and how to
recruit custom ers to join. G ive them an
incentive to recruit, if you can. Then build
the buzz every w ay you can: paid adver-
tising, point-of-sale displays, direct m ail
and e-m ail updates. Build a separate part
of your W eb site for m em bers to track
and possibly redeem aw ard points.
Reinforce the m essage constantly.
• Be in it for the long haul. The first six
m onths m ay show optim istic results for
enrolm ent and purchases by loyalty group
m em bers because m ost custom ers join as
they m ake a purchase. D on’t be disap-
pointed if there’s a subsequent drop-
off. Sustained loyalty buying w ill com e
dow n the road –after year tw o –if you
rem em ber the other reasons for your pro-
gram : the opportunity to grow your cus-
tom er database, learn their likes and dis
likes, establish regular contact and target
prom otions to best custom ers.
• Use your database. The strength of
your frequent-buyer program is in the
database it grow s. You need the technol-
ogy and the expertise –in-house or out-
sourced –to build the database and
extract value from it.
If the loyalty of your best custom ers
is the target, then a loyalty cam paign
should be extended to every custom er
w ithin reach, right?
Surprisingly, the answ er has to be
no. It’s not because you w ant to exclude
anyone. It’s because you need a control
group to be able to see w hat effect
your program is having on custom er
behaviour.
H ere’s an exam ple. You run a fre-
quent-buyer discount at a cost of $2 a
custom er and each custom er spends $10
m ore than usual during the next quarter.
W ith a 30% profit m argin, or $3 per cus-
tom er, that’s $1 earned for each $2
spent. A nd you m ight be quite happy
w ith that.
But w hat if you had excluded som e
custom ers and found that, due to a bet-
ter econom y, they had spent an average
of $6 m ore during the sam e period? O nly
$4 of your $10 of additional spending
per custom er can actually be attributed to
the frequent-buyer program . A t 30%
m argin, you brought in just $1.20 for
each $2 spent. You actually lost m oney.
A lw ays have a control group that
doesn’t take part in a prom otion or
loyalty program .
Don’t Lose Control
24 T h e D efi n i ti ve G u i d e to C u sto m er L oyalty
• Think “brand”. M ake sure your rew ards
are consistent w ith the positioning of the
brand. Think of w hat custom ers value –
your best-selling products, for instance –
w hen doing business w ith you and try to
offer a rew ard w ith that quality. H otels
offer upgrades because it supports their
association w ith high-end service and lux-
ury. But the rew ard doesn’t have to be
your product. Beverage com panies offer
sports gear because it supports the enter-
tainm ent and high-energy appeal that
they w ant to link to their brands.
• Respect privacy concerns. You w ill ask
custom ers for basic inform ation w hen
you enroll them in your loyalty program .
D on’t abuse their trust by selling, renting
or sharing inform ation. A llow them to opt
out of any regular com m unications.
Outsourcing: Going Outside for Loyalty
Tracking rew ards, targeting custom ers,
m aking differentiated offers –it can sound
pretty com plex and it does take certain
technology, tim e and expertise to run a
sophisticated loyalty program .
Loyalty program service providers such
as Ernex M arketing Technologies Inc. and
The Loyalty G roup offer businesses a
chance to take advantage of state-of-the-
art loyalty-m anagem ent system s that give
sm all and m edium -sized businesses the
sam e scope and resources as the biggest
m anaged-loyalty program s w ithout invest-
m ent in additional point-of-sale technology.
• Reward point tracking: G ather sales
inform ation through a m anaged loyalty
program that tracks loyalty points and
offers rew ards in real tim e using m ost
electronic point-of-sale system s.
O utsourcers m ay host the custom er data
base as w ell.
• Stored-value prepaid cards: C ustom ers
can store cash balances on card and the
system provider’s electronic custom er card
program –under your band nam e –
tracks balances and prints on custom er
receipts.
• Multi-merchant programs: Loyalty
“federations”offer other locations w here
cardholders can accrue and redeem your
loyalty points for broader exposure and
greater plan benefits.
• Custom coupons: O ffer targeted
coupons on the receipt to custom ers tar-
geted according to any database criteria.
• Bonus points/Points multiplier
promotions: O ffer targeted bonus points
for repeat visits or during specific tim e
periods.
• Point-of-sale sweepstakes: O ffer real-
tim e electronic sw eepstakes-style prom o
tions either to generate new loyalty pro-
gram m em berships or to add excitem ent
to benefits for all m em bers.
Ernex is a service provider of M oneris
Solutions, a joint venture of the Royal Bank
of C anada and Bank of M ontreal. M oneris
is the leading provider of credit-card trans-
action processing netw orks.
Rewards: Motivating
Without Subsidizing
Frequent-buyer program s m ust tread
the thin line betw een offering too m uch
and too little –either negating the gains of
the program or failing to m otivate repeat
purchases or loyalty.
U nderstanding the im portance of loy-
alty, m ost m arketers fall to the tem ptation
to err on the over-generous side. To keep
these incentive prom otions from becom ing
price-cutting extravaganzas, how ever, the
first principle is to target them tow ard the
custom er you m ost w ant to reach. There
are then three key elem ents:
• Attract consideration and
membership: If you tabulate purchases
through your PO S system , custom ers
need an incentive to give you their per-
sonal inform ation. If custom ers m ust carry
cards w ith them , you need to convince
them that it’s w orthw hile to m ake space
in their already-jam m ed w allets and
purses.
• Help create preference: For custom ers
w ho are just getting to know you, the
frequent-buyer program should introduce
new products or higher-end services and
create one-on-one opportunities to
personalize the sales experience, in turn
allow ing you to offer added value.
(Exam ple: D iscounts on certain products,
upgrades and free consultations.)
• Generate purchasing: For all custom ers,
the program should m ake use of
custom er inform ation (from focus groups,
surveys or custom er databases) to m ake
an offer that m eets the custom er’s per-
ception of higher value. (Exam ple: Focus
groups reveal concerns over industry com
petition and econom ic conditions, so the
vendor responds w ith longer-term financ-
ing arrangem ents for m em bers of the
loyalty program .)
The first step, then, is to segm ent
custom ers into relevant categories for
your business and then target rew ards
accordingly.
•Large but infrequent custom ers m ay be
offered discounts on purchases w ithin the
next m onth or tw o.
•Frequent but low -volum e custom ers m ay
be offered a discount on their next order
of the sam e or larger size.
O ther custom er segm ents identifiable
from your enrolm ent data or other research
I
n the heart of Southern O ntario’s agricultural belt, Dave Raw n
and his fam ily have operated Dave Raw n Equipm ent Ltd. for 23
years. The longevity of the business is largely due, Raw n believes,
to the im portance he places on custom er loyalty.
Raw n places great em phasis keeping in regular touch w ith your
custom ers. “Clients appreciate personal contact,”advises Raw n.
“G o out and visit your client. View them as friends and develop
strong relationships.”Som e of his larger com petitors don’t visit
custom ers, and Raw n feels the personal touch gives him a com peti-
tive advantage.
Reputation is everything, according to Raw n, and w hen you
have a good nam e for service, you should also be fair on price and
deliver good value.
In the farm equipm ent business, larger clients can be the hard-
est to deal w ith. W hile they buy the m ost, they also dem and pre-
ferred pricing and strong trade-in values. How ever, Raw n never
underestim ates the im portance of these clients; they show case his
brand (John Deere) and visibly support his dealership in the
m arket area.
The John D eere brand m eans a lot to D ave Raw n Farm
Equipm ent. It’s w ell know n for quality and Raw n finds that next-
generation farm ers are often loyal to the brand if they have grow n
up w ith it. John Deere reinforces this loyalty by m aking toy m odels of
its equipm ent for farm children to play w ith.
Raw n also believes that em ployee loyalty contributes to
custom er loyalty. “W e aim to m ake them proud to be w ith the
com pany,”he says.
Dave Rawn
Equipment Ltd.
Case Study 7
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 25
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26 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
m ay be particularly relevant to your busi-
ness: age, occupation, sports or lifestyle
interests, travel preferences, children’s ages,
industry affiliation and so on. You can tar-
get these groups w ith particular prom o-
tions, event rem inders, birthday credits and
so on in order to m ake the experience of
doing business w ith you attractive, relevant
and personalized.
Profitability Is the Point
Profitability of your frequent-buyer
program w ill depend upon the cost of the
rew ards and the response rate. You w ant to
m axim ize the ratio of response versus cost.
Cost of rew ards varies directly w ith
response rate. The larger your offer, the
greater the response rate is likely to be, and
vice versa. O ffering too little costs you in
term s of lost response –those w ho w ould
have responded if your offer w as better.
O ffering too m uch costs you in term s of
revenue you give aw ay to custom ers w ho
w ould have responded to a low er offer.
The trick, then, is to differentiate
betw een custom ers. Experts recom m end
scoring your best custom ers on a num ber
of variables that, in your com pany’s experi-
ence, indicate they w ill likely respond.
You have to analyze your sales figures to
determ ine w hat the indicators are. They w ill
probably be a com bination of dem ographic
characteristics or industry categories, w hat
products they buy, size of their purchases
and custom er life cycle stage (i.e., new ,
repeat, client, or advocate). There m ay
be others.
You can set out these scores using a
sim ple spreadsheet, allocating scores to
each variable and arriving at a total.
•M ake a low er offer to those m ost-likely-
to-respond custom ers.
•M ake a higher offer to less-likely-to-
respond custom ers.
Your budget is the sam e as it w ould
be w ith an across-the-board offer, but you
m inim ize the am ount of excess costs spent
on custom ers w ho w ill respond to low er
offers and you m inim ize the num ber of
responses lost because the offer w as too
low . In other w ords, you m axim ize your
ratio of response versus costs.
Measurement: Managing Frequent-
Buyer Programs
The best frequent-buyer program s
gather lots of inform ation. Som e of that
inform ation w ill help im prove your m arket-
ing and services, and som e of it is useful
to gauge the success of your program
against its objectives.
Som e of the key m easures for fre-
quent-buyer program perform ance are:
•Member sales, transaction volume
and number of “actives”: C alculate
spending per m em ber. C om pare to non-
m em bers. Ernex M arketing Technologies
Inc. reports that retail loyalty program
m em bers typically spend 15 to 45 per
cent m ore than non-m em bers.
•Points earned and points redeemed:
A nalyze w hether custom ers are finding
rew ards to be desirable and attainable.
C um ulative scores can suggest w hether
inactive custom ers should be rem oved
from the database to reduce outstand-
ing liability.
•Number of new members: A nalyze
grow th to determ ine the need to
im prove in-store advertising, or to
retrain staff or add incentives for
recruitm ent.
The Loyalty Credo
C ustom er loyalty is elusive and
difficult to sustain. It m ust be earned by
offering good value, and then it m ust be
cultivated by getting to know the
custom er’s needs, spoken and unspoken,
and addressing them w ith personalized,
value-added service. The basis for loyalty
is the trust of the custom er and the
honest desire of the vendor to provide as
m uch value for dollar as is fair and
profitable.
The success of a loyalty program w ill
ultim ately depend upon the people w ho
deal directly w ith custom ers. They m ust
believe in the values expressed by the
com pany and its products, and buy into
the loyalty program as part of that value
package.
Loyalty program s are therefore both a
m eans and an end, because they gather
inform ation that’s necessary to understand
custom ers better and they deliver added
value that m akes custom ers loyal. That is
w hy they are both a cost centre and a rev-
enue generator. They need to be m ea-
sured and tracked, adjusting costs to
optim ize revenue.
A loyalty program is a long-term
proposition, not a short-term prom otion. It
is a com m itm ent for years, not m onths.
There is no unearned loyalty.
R B C
Royal Bank also believes in rew arding its best
custom ers. RBC Rew ards does exactly that
w ith the nine eligible RBC Royal Bank Visa*
cards, w hich includes VISA C reditLine for small business , the
RBC Royal Bank Visa Business G old. A nd the RBC Royal Bank Visa
Platinum Avion cards. The m ore you use your card, the m ore
rew ards you earn.
You earn RBC Rew ards points at the rate of one point for
every dollar of purchases on the card. Your points balance appears
on your RBC Royal Bank Visa statem ent each m onth, and you can
start taking hom e rew ards for as little as 3,000 points.
True to the first rule of loyalty program s, the rew ards are sig-
nificant and achievable. Travel rew ards include airline tickets, cruis-
es, tours, all-inclusive holidays, hotel accom m odations and car
rentals. A lternatively, you can redeem points for m ore than 200
m erchandise rew ards, gift certificates for national retail outlets,
m ovie passes at Fam ous Players Theatres, or RBC Registered
Rew ards, –vouchers for investm ents in either of RBC Royal Bank’s
Registered Retirem ent Savings Plans or Education Savings Plans.
And Now a Word From Our
Sponsors: RBC Rewards
Case Study 8
When loyalty programs proliferated through the 1990s, consumers rebelled at
the number of loyalty cards jamming their wallets. That objection, however, is
about to be overruled.
Ernex M arketing Technologies of Vancouver, a sevice provider of electronic loyalty
m arketing program s, offers custom ers the ability to collect loyalty points sim ply by
paying w ith a credit card w hich they have registered w ith the participating vendor. The
vendor’s point-of-sale system interacts w ith Ernex’s real-tim e database over a D SL
Internet connection, elim inating the need for additional hardw are in m ost cases. Ernex
also tracks points and forw ards special offers to targeted custom ers.
Objection Overruled
C
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1 866 228 9675
www.adp.ca
The ADP logo is a registered trademark of ADP of North America Inc.
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Wouldn’t life be a lot easier if
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As your business grows, it doesn’t take long to realize that some
things are best left to the experts. That’s why ADP offers a wide
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business owners. With more than 50 years proven experience, you
can trust ADP to handle your payroll so you can concentrate on
what you do best. Outsource your payroll to ADP and find out for
yourself why everybody loves payday.
Wh ere d o yo u fi n d th e
b est reso u rces to
su p p o rt yo u r sm all o r
m ed i u m -si zed b u si n ess?
O ur D efinitive G uides are filled w ith advice that can help any sm all business be m ore successful—no m atter
w hether you’re just starting out or you’ve been in business for years. They’re concise. They’re practical. They’re
insightful m aking them an indispensable reference on topics ranging from Business Tune-ups, to M arketing
for Sm all Business, to Stream lining Your Business. There is a series of D efinitive G uides and they’re absolutely free.
The Definitive Guides: Alliances and Partnerships, Business Tune-Ups, Exporting for Small Business, Small Business
Financing, Marketing for Small Business, E-Commerce for Small Business, Streamlining Your Business, Retiring
from Your Business, Customer Loyalty.
®
Tradem ark of Royal Bank of Canada. RBC and Royal Bank are registered tradem arks of Royal Bank of Canada. ® Registered tradem ark of Royal Bank of Canada.
FINANCIAL WISDOM FOR SMALL BUSINESS
80896 (06/2003)
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doc_517920680.pdf
Your business does a lot of different things.
Sponsored by
Alliances
C u stom er C u stom er
Loyalty
Loyalty
Loyalty
Sourcebooks for Successful Small
Businesses and Entrepreneurs
June 2003
Your bus ine s s doe s a lot of dif f e r e nt t hings .
This ve hic le doe s a lot of dif f e r e nt t hings .
Pe r ha p s t ha t ’s why it ’s C a na da ’s # 1 s e lling ve hic le .
2003 Dodge Caravan
W E M A K E YO U R JO B EA SY. N ever has one vehicle been qualified to do so m any
jobs. W ith the seats in, the D odge C aravan can shuttle up to seven clients w herever
your business needs them to be. W ith the seats out, it becom es a utility vehicle
that can haul anything from building supplies to presentation m aterials. A nd covered
by our 7 yr/115,000 km pow ertrain w arranty and 24 hour roadside assistance,
the C aravan isn’t just good for business, it m akes good business sense. For m ore
inform ation contact your D aim lerC hrysler Fleet dealer or call1-800-463-3600.
font used: CorporateS Regular
Parcs Automobiles
www.fleet.daimlerchrys ler.ca
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 3
Are Your Customers Loyal
O r just w aiting for a better offer?
What Makes
Customers Loyal
Conditions are alw ays changing.
Building a Brand
Loyalty’s shining m ission.
Sponsorship
“G ilt”through association.
Building Loyalty
The three elem ents.
Learning More
The next step.
Frequent Customer
Programs
Inform ation and rew ards.
4
6
1 0
1 3
1 4
1 6
2 2
“ The Def i ni t i ve Gui de t o Cust omer Loyal t y” i s sponsored by Royal Bank of Canada.
Published by General Cont ent Corporat ion, 112 Adelaide St reet East , Suit e 400, Toront o,
Ont ari o M5C 1K9 416- 601- 9247. Presi dent : Ki rk Kel l y | Wri t ers: John Sout herst ,
Charles Killin | Copy edit ing: Shannon Greenlaw | Design & Product ion: Roger McFarlin |
Ad Sal es: Deb Hought i ng, Darl ene Wang | Phot ography: Mast erf i l e, Get t y Images,
Phot odisk.
©
2003 General Cont ent Corporat ion. No part of t his guide can be reproduced
wit hout t he writ t en permission of General Cont ent Corporat ion.
®
Regist ered t rademark of
Royal Bank of Canada.
™
Trademark of Royal Bank of Canada. RBC and Royal Bank are
regist ered t rademarks of Royal Bank of Canada.
*
Regist ered t rademark of Visa Int ernat ional
Service Associat ion. Used under license. ‡American Airlines and AAdvant age are regist ered
t rademarks of American Airlines, Inc. All brand names and t rademarks are t he propert y of
t heir respect ive owners.
All informat ion provided in t his Guide is, t o t he best of our knowledge, current at t he t ime
of writ ing. As well, all informat ion provided in t his Guide is for informat ional purposes only
and is not int ended t o provide specific financial, invest ment , t ax, legal or account ing advice
f or you and shoul d not be rel i ed upon i n t hat regard. Royal Bank of Canada i s not
responsi bl e and w i l l not be l i abl e t o you or anyone el se f or any damages w hat soever
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compensat ion f rom General Cont ent Corporat ion or ot her t hird part ies who advert ise or
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Alliances
C u stom er C u stom er
Loyalty
Loyalty
Loyalty
G i v i n g Sm all an d M ed i u m -si zed
B u si n esses th e To o ls to Su cceed .
The D efinitive G uides play a unique and exciting role helping Canadian
com panies build on their success.
What is in this issue?
Building a successful business calls for the m astery of m any skills; entrepre-
neurs also need to be able to m eet challenges anytim e, anyw here. In a few short
years, w e’ve seen m ajor changes in our business environm ent, driven by catalysts
such as technology, disappearing borders, trade disputes, labour shortages and the
spread of a 24/7 culture.
Business need tools to help them adapt in a fast-paced w orld. The D efinitive
G uides fill this need.
W e invite you to take a look this issue, Custom er Loyalty. Leaders are focused
on getting and keeping their best custom ers. Through this G uide you can learn
w hat, exactly, custom er loyalty is, how to generate it, how to grow it and then
harvest it, year after year.
You should also read this to find out how other Canadian com panies enhance
their custom er relationships, w hether through loyalty program s or other m eans,
such as m aintaining outstanding custom er satisfaction.
Look forw ard to additional G uides in com ing m onths that w ill cover a range
of topics specially tailored to m eet the distinctive needs of Canadian sm all and
m edium -sized enterprises.
Yours truly,
R. J. H unt
N ational M anager, Sm all Business M arkets
?
4 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
Are your
C u stom ers
Loyal
or just waiting for
a better offer?
THERE’S A LOT OF CONFUSION
ABOUT CUSTOMER LOYALTY.
Som e business ow ners think that because their
custom ers don’t com plain, they’re loyal. O thers do sur-
veys and find their custom ers are satisfied and believe
that, therefore, they’re loyal. O thers go even further
and identify repeat buyers and say that this is their
loyal base of custom ers.
A nd then there are those w ho offer rew ards
to repeat buyers and say, “w e are building
custom er loyalty.”
The fact is, it’s possible that none of these
businesses have any loyal custom ers at all.
Consider:
•C om plaints generally go unvoiced. Dissatisfied
custom ers usually express their displeasure by
delaying paym ent, being discourteous to your staff,
bad-m outhing you to others –or by going to
the com petition.
•Satisfaction and loyalty are not the sam e thing. O ne
study found that 40 per cent of custom ers w ho
claim to be satisfied w ould readily sw itch if present-
ed w ith a better-sounding offer. (Training &
Development Journal, A pril 1991.) Another study
found that betw een 65 per cent and 85 per cent of
custom ers w ho chose new suppliers indicated they
w ere satisfied w ith their old one. (Harvard Business
Review, M arch-A pril 1993.)
•Repeat buyers m ay not be loyal at all. They m ay
sim ply be buying out of habit –a habit that a half-
decent offer from a com petitor could easily dis
lodge. A ny concept of loyalty that doesn’t go
beyond the quantitative data of “repeat purchases”
om its the essential elem ent of loyalty: a relationship.
•Loyalty program s can backfire. W ithout careful
analysis of w ho you’re rew arding and how , your
custom er loyalty program m ay sim ply be subsidiz-
ing sales you w ould have had anyw ay.
So w hy w orry about loyalty? W hen custom ers
have such high expectations, the m arket offers so
m any choices and the rew ards of satisfaction are so
short-lived, are custom ers just too fickle?
In fact, custom er loyalty is critical to the conduct
of business in today’s m arketplace.
First, it costs a lot less to sell to existing cus-
tom ers. In other w ords, sales to existing custom ers are
m ore profitable. The general rule is that it’s six tim es
m ore expensive to find a new custom er than to keep a
current one, and one study show ed that a 5 per cent
increase in custom er retention typically leads to a
25 per cent increase in profitability.
Next, consider that the sam e conditions that
m ake loyalty such a challenge are also w hat m ake it
valuable. Custom er acquisition costs are on the rise
because of the very fact that consum ers are so
dem anding and have so m uch choice, and because
the Internet m akes them so m uch better inform ed. To
m ake loyalty a priority is to understand the connection
betw een your best custom ers, the ever-changing dri-
vers of loyalty and long-term profitability.
There is a final point to consider in relation to
custom er loyalty. That is how it builds –and represents
–the value of your business outside of w hat your
inventory is w orth. It’s the value of your brand. W hen
custom ers turn to you repeatedly, alm ost w ithout
thinking about it, because they know that they can
count on you and your product doing w hat it’s
supposed to do, you have a brand that’s w orth gold.
W ith that concept of custom er loyalty as pure
gold in m ind, this guide w ill take you through som e of
the crucial issues of custom er loyalty –the
relationship betw een loyalty and service, how to
build the key loyalty asset –your brand –and som e of
the key concepts behind custom er loyalty
program s that rew ard the right custom ers w ith
incentive-based offers.
T h e D efi n i ti ve G u i d e to C u sto m er L oyalty 5
WHAT WILL MAKE
CUSTOMERS DO THIS?
A relationship that they can’t or won’t
do without.
W hile custom ers first buy from you
for a rational or cognitive reason such as
price, location or selection, the decision to
continue to buy from you is an em otional
one –a relationship. If you’re lucky, they
m ight like you, but –and this is essential
–to continue to buy from you they m ust
trust you to provide w hat they need at a
price that’s good value.
Reputation Is the Beginning of Loyalty
The A cum en Research G roup of
London, O nt., a m arket research firm spe-
cializing in consum er loyalty and relation-
ship m anagem ent, found in its Consumer
Eyes 2000 survey that “m inor shortcom -
ings”in such core offerings as product,
price and selection “are rarely a cause for
desertion, but a break in trust, how ever
m inor, often leads to custom ers abandon-
ing a loyal relationship.”
So your “rational”core offering of
product, price, location, selection and so
on are basically w hat gets custom ers in
the door –the attractors. G etting them to
stay com es dow n to different “em otional”
factors –the retainers.
Retainers, or trust-builders, can be
quality of service, responsiveness, com m it-
m ent to excellence, honesty in advertising
and w illingness to stand behind products.
A cum en call these relationship factors
“the glue that holds the loyal custom er.”
What Are the Relationship Killers?
A ccording to the survey, the m ost
com m on reasons for custom ers deserting
a com pany to w hich they w ere previously
loyal are:
•negative experience w ith or bad attitude
of a staff m em ber;
•feeling of not being valued; and
•lack of after-sales service.
C learly, if you w ant your custom ers’
loyalty, you need to get the full buy-in of
your staff, your front-line sales people and
service providers in particular.
Price: a Loyalty Killer
If you insist on being a low -cost
provider, your loyalty strategy w on’t m at-
ter m uch. These days, cheaper products
and services are just a click (or another
shopping equivalent) aw ay.
In a renow ned Harvard Business
Review article in 1980, W illiam H ull com -
pared com panies that com peted on price
to those that com peted on various other
points of value. The value-com petitors
beat the low -price com panies by every
m easure –return on equity, return on
capital and annual revenue grow th.
C om peting on price doesn’t differen-
tiate you, create a barrier to exit or
em phasize the value you bring to the
table. It’s basically an invitation to churn.
Rewards and Loyalty
D o custom er loyalty program s
m otivate loyalty? C ustom ers tend to join
the program s of com panies they do the
m ost business w ith. You can see the
problem . The biggest users tend to be
those w ho w ould be the m ost frequent
custom ers anyw ay.
In business, conditions are always changing – be it competition,
the economy, distribution, product preferences, or technology.
Customer loyalty isn’t worth a thing unless it’s able to retain
customers through some turbulence – even when a competitor
offers better prices, wider selection, more locations or some other
attraction you can’t or won’t match.
While customers first buy from you for a rational or
cognitive reason such as price, location or selection, the
decision to continue to buy from you is an emotional one.
What makes
C u stom ers
Loyal?
6 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 7
A pparently, offering rew ards for loy-
alty w orks great w ith dogs but it’s a little
trickier w ith people. Studies show that the
best program s actually w ork not just to
retain custom ers but also to increase
the am ount and frequency of purchases.
A ccording to Brian W ansink and
Scott Seed in their article “M aking Brand
Loyalty Program s Succeed”published in
the Journal of Brand Management
(February 2001), loyalty program s are
m ost appropriate for products and ser-
vices that :
•have high m argins;
•have high custom er “involvem ent”in
the purchase, although products such as
packaged goods, w here involvem ent is
low er, can use contests and inform ation
(such as recipes) to build the em otional
connection;
•are heavily and repeatedly purchased
over tim e; and
•are difficult to differentiate.
G o to page 22 to learn about
som e of the key features of effective loy-
alty program s.
The Stages of Loyalty
To understand w hat drives loyalty, it
is useful to understand how custom ers
becom e loyal. It doesn’t happen over-
night. Jill G riffin, in her book Customer
Loyalty: How To Earn It, How To Keep It
(Jossey-Bass, 2002), identifies stages in
the custom er relationship, each w ith dif-
ferent loyalty m otivators, and recom -
m ends w ays to m ove custom ers from
each stage to the next.
First-Time Buyers: The m otivation to
return is highly rational and perform ance-
driven: quality, on-tim e delivery, accuracy,
responsiveness, dependability of w hat
they are told. This is w here custom ers are
m ost expensive.
Repeat Customers: The relationship
begins to m atter. Tim e on the phone, a
new sletter or conversations w ith sales rep-
resentatives initiates an exchange of infor-
m ation. The custom er looks for added
value. Respond w ith products, services or
inform ation tailored to particular needs.
Client: The m otivation now becom es the
tim e you can save and the ideas you offer.
It’s all because you are trusted –you know
the client’s situation and the client can
rely on your know ledge and experience.
The client actively seeks your advice and
readily offers inform ation. A s an advisor,
you are now hard to replace in the client’s
netw ork of support. You are an inside
partner, not an outside supplier. You add
even m ore value.
Advocate: These custom ers tell everyone
about you and your product or service.
You are of high value to them and, of
course, the trem endous w ord-of-m outh
advocacy m ore than com pensates for any
additional tim e or resources you m ust
spend on them . They bring new cus-
tom ers into your fold –so m ake sure you
treat them w ith the sam e enthusiasm to
lay the foundations for a new cycle.
L
ike all drugstores, Richard C ardinal’s pharm acy sells drugs.
It also offers a w ide range of cosm etic products. Nothing
unusual about that. So w hy go to Pharm acie Richard Cardinal
in Ste-D orothée rather than any other drugstore?
The answ er lies in its custom er loyalty program . The principle is
sim ple but effective: for every $5 spent on regular-priced cosm etic
products, custom ers get a seal affixed to their discount card. W hen
the card is full (after purchasing $100 w orth of products), the card-
holder is entitled to a $10 discount on other beauty products. But the
benefits don’t end there: custom ers can decide to accum ulate as
m any discount cards as they w ish in order to purchase, for exam ple,
their favourite perfum e or a new m oisturizing cream . Unlike other
sim ilar program s, Pharm acie Richard Cardinal’s loyalty program is
good seven days a w eek and cards have no expiration date. In other
w ords, custom ers do not risk losing their discount privileges accum u-
lated over tim e.
According to M ireille D ansereau, an experienced cosm etician at
Pharm acie Richard Cardinal, this kind of loyalty program is a m ajor
asset for attracting and retaining custom ers: “Add to that a w arm
w elcom e, properly trained staff and a true ability to listen and
understand custom er needs, and our custom ers have every reason to
com e back.”
Pharmacie Richard Cardinal knows
How to Build Customer Loyalty
Case Study 1
The online w orld m akes it easy for people to com e together, so w hy not have a club full
of your best custom ers?
In fact, you m ay have enough buyers regionally that you can bring them together
offline as w ell. Just m odel your com m unity on the needs and activities of neighborhoods:
Hold customer events: C om m unities need to know one another. W hether it’s an online
chat session w ith a volunteer expert or an annual picnic, pancake breakfast or dem o
night for a new product, invite your m ost faithful custom ers to a get-together.
Create owner groups: Encourage pride of ow nership. If you m ake durable products
that have a follow ing, consider an online group or local ow ners’com m ittee.
Create an online customer support group: Let the com m unity help one another. For
com plex products, custom ers can share inform ation and solutions to problem s in difficult
applications.
Build a forum for wider discussion: G et people talking over the fence. M oderate the
discussion to control the flavour and flow . A sk one or tw o of your best custom ers to help
m oderate if they’re enthusiastic. You can use free services such as Yahoo! G roups or
Topica.com .
Put customer community news in your newsletter: Just a note so people know it’s
there. Item s should be inform ative, brief and friendly –not prom otional.
Show them you are listening: C om m unity leaders listen. Accept criticism w hen it
arises and let people be frank as long as they are not abusive. If there are com plaints, ask
openly w hether others are having the sam e problem s. Don’t try to over-m anage them .
Customer Communities:
Building a Club
C
u
s
t
o
m
e
r
L
o
y
a
l
t
y
I
n addition to the benefits for consumers,
Verified by Visa has the potential to bring
tangible and immediate benefits to online
merchants:
• It can help merchant s reach t he seven
out of eight Canadians who have
shied away from Int ernet purchases
• It will enable Canadian e-commerce
sit es t o pot ent ially grow sales from
out of count ry, by giving foreign buy-
ers great er confidence in
Canadian e-commerce sit es t hey
are not familiar wit h
• It will reduce online t ransact ion dis-
put es by more t han an est imat ed 50
percent
• Any e-merchant part icipat ing in t he
program is not held liable should t he
t ransact ion be challenged as fraudu-
lent .
Verified by Visa is already in evidence on
some U.S. and int ernat ional e-commerce
merchant sit es. In t he U.S. a number of
major ret ailers have already signed up.
About Verified by Visa
Verified by Visa is an online aut hent icat ion t echnology designed t o
accurat ely est ablish and aut hent icat e part ies involved in a payment
transaction.
In plain language, Verified by Visa confirms the shopper’s identity when they make purchas-
es at participating online stores. It' s convenient, and it works with existing VISA cards.
For the consumer, it means a few simple changes to the purchasing process.
First of all, shoppers will need t o sign up wit h t heir issuing financial inst it u-
t ion and select a password. Once t heir VISA card is act ivat ed, t heir card num-
ber will be recognized whenever t hey purchase at part icipat ing online st ores.
They will ent er t heir password in t he Verified by Visa window, t heir ident it y
will be confirmed, and t hey will t hen be ret urned t o t he online st ore. In st ores
t hat are not yet part icipat ing in Verified by Visa, t heir VISA card will cont inue
t o work as usual.
® Registered trademark of Visa International Service Association. Visa Canada is a licensed user. ™ Trademark of Visa International, Visa Canada is a licensed user.
Potential
benefits to
merchants
V
isa Canada surveyed credit card holders wit h access t o t he int ernet lat e
last year, and only 15% of t hem int ended t o purchase holiday gift s
online. The leading reason for avoiding online purchasing – cit ed by about
a quart er (25 per cent ) – was securit y issues and fraud concerns.
Even among t hose likely t o use a credit card online, an overwhelming
number – 60% – said t hey would be more comfort able if t hey were asked
as part of t he t ransact ion for a password regist ered wit h t heir bank.
Verified by Visa addresses t hese specific concerns by involving cardholders’ finan-
cial inst it ut ions in t heir t ransact ions and int roducing password prot ect ion
for online sales using VISA
®
cards.
I
mplement at ion of Verified by Visa for merchant s is simple. They can connect wit h
t he t echnology using most exist ing syst ems by adding a reasonably priced applicat ion.
Because Verified by Visa reduces charge-backs it could pay for it self very quickly.
Visa ant icipat es t hat most Visa members will be ready t o offer t his significant improvement
in online securit y by Oct ober 2003. Canadian VISA card acquirers and processors are now
providing merchant s informat ion and support t o offer Verified by Visa.
Canadians will begin t o see t he first signs of Verified by Visa on Canadian merchant web-
sit es by early fall.
“ Visa Canada is demonst rat ing global leadership by int roducing t his t echnology rapidly
int o t he Canadian market t his year. Verified by Visa is our cont ribut ion t o bringing t he
online payment experience closer t o t he physical world for consumers and helping sup-
port secure, profit able online commerce for merchant s. In t his way, we are able t o pro-
mot e t he cont inued growt h of t he e-commerce payment s channel,” Fuerst enberg said.
For more informat ion cont act your VISA merchant acquiring represent at ive t oday or visit :
www.visa.ca/verified
Consumers crave greater security
Easy adoption for e- merchants
Visa Canada is breaking down the barriers to online shop-
ping by providing consumers with greater confidence, and
improving certainty and security for merchants.
A new, groundbreaking technology – called “ Verified by
Visa™” – will greatly enhance online security, and give
both e-retailers and their customers the peace of mind
they have been craving.
“ Verified by Visa will boost confidence for mer-
chant s worried about accept ing orders and pay-
ment s from online cust omers,” said Zack
Fuerst enberg, Direct or Emerging Product s, Visa
Canada Associat ion. “ At t he same t ime, it is t ar-
get ed specifically at t hose consumers who could
buy online but are reluct ant t o do so because of
concerns about securit y.”
Verified by Visa
has t he pot ent ial t o
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10 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
Loyalty’s shining mission
B u ildin g
a B ran d
Your brand is your business. The
value for dollar, the sm ile at the counter,
the on-tim e delivery, the sage advice –
that’s w hat the custom er rem em bers,
intuitively, at the sight of your brand. It’s
value is the sum total of your custom er
loyalty.
Building a brand should be every
business’s m ission. It isn’t an easy task, or
A m azon w ould have m ade m uch m ore
m oney building its enviable position in the
m arketplace and m any of us w ould be
reading this w ith a N ew C oke at our side.
G reat organizations have failed to
build loyalty to new brands or frittered
aw ay loyalty to brands that w ere once
household nam es. Yet m any other brands
have risen im probably from obscurity to
bask in the sun of the consum er society.
Let’s review som e kernels of brand-build-
ing w isdom that have com e out of the
rise and fall of brands.
Value: the Origins of Brand
For custom ers to turn to you as
their ally, their trusted solution w hen con-
fronted w ith the problem that your busi-
ness addresses, your product or service
has to offer great value. Everything else is
just m arketing.
N o disrespect to m arketing is intend-
ed. It’s only that no am ount of m arketing
w ill forever m ask an inferior offering.
C onsum ers have so m any choices that
there is no reason for them not to buy
based on good value. There is no
unearned loyalty.
Brand as Customer Service
Building loyalty and recognition of
your brand gives consum ers a shortcut
to sim ple buying decisions in a m arket-
place w here, in all likelihood, they are
not experts.
A fter all, w ho really know s w hether
one soap gets you cleaner than the next?
W ithout being a chem ist or an industrial
scientist, all anyone really know s is that
the soap in that fam iliar package gets you
as clean as you need to be, perhaps
giving you a pleasant arom a at the sam e
tim e. H ow do people know this? They
recognize the brand.
Therefore, a good brand is, in
itself, a valuable custom er service. It saves
the custom er tim e in m aking a good
buying decision. The m ore critical the
product –w ear it, eat it, depend upon it
for safety, rely on it for retirem ent incom e
–the m ore im portant brand and reputa-
tion becom e.
Rem em ber this the next tim e som e-
one w ants to change your m arketing
strategy or your advertising such that it
changes your value proposition to cus-
tom ers. Is it consistent w ith the value cus-
tom ers attach to your nam e? W ill it help
or hurt the value of your brand?
Talk About Value
Keep telling people w hat it is they
are loyal to. It m ay seem dum b, but your
m essage –on your packaging, advertis-
ing, invoices, sales m aterials –should take
every opportunity to rem ind custom ers
w hat brought them to you. G reat loca-
tions, overnight delivery, sm art investm ent
advice, fam ily-friendly dining –w hatever it
is, keep saying it. Be disciplined about not
straying from this m essage w henever the
latest fad arises.
That’s not to say you can’t update
the m essage –change the w ording,
change the presentation –but don’t dilute
it or alter it unless you w ish to consciously
change your strategy and your approach
to the m arket. A bove all, don’t change
the m essage just because you are bored
w ith it. C ustom ers don’t get bored by
know ing w hat you stand for if they value
it. If you are unsure w hether your m es-
sage still resonates w ith custom ers, do
som e m arket research. Value as perceived
by the custom er is w hat is im portant.
Whether it’s the company logo on a sign or your personal
name on the product, in customers’ eyes it soon becomes the
shorthand symbol for what your company represents.
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 11
Great organizations have failed to build loyalty
to new brands or frittered away loyalty to brands
that were once household names.
12 T h e D efi n i ti ve G u i d e to C u sto m er L oyalty
Hire Creative People, Then Get Out
of the Way
Brand-building is, frankly, m anipula-
tion of em otion. A dvertising, prom otion
and public relations are designed for such
purposes. G et your m essage out there.
But there’s a w arning: If you hire som eone
for their creativity, w ay w ith w ords, or
photographic or video talent –let them
w ork their m agic as long as they are true
to your brand m essage. If you interfere
unduly w ith the creative process, you w ill
do tw o things. O ne, you w ill probably
m ake a hash of it unless you are an equal-
ly talented artist or com m unicator. (In
w hich case, w hy did you hire this person?)
Tw o, you rem ove any incentive for the
creative person to do the best w ork for
you the next tim e. Let the w izards do
their thing.
Operate In Multiple Channels
In this era of im m ediacy and e-com -
m erce, consum ers get frustrated quickly.
To get your product into custom ers hands
w hen they need it, you need to operate
seam lessly in person, by m ail, by phone
and online. C ustom ers absolutely m ust be
able to reach you w hen they are m aking
the buying decision. They are now
dem anding to do so through w hichever
channel they choose. This m eans a single
custom er database and at least som e ele-
m ents of a custom er relationship m anage-
m ent (C RM ) system . The w hole idea is for
the basic value proposition and the cus-
tom er experience –the look and appeal
of the store, the m ailers, the W eb site –
to rem ain consistent. Each is beating the
sam e drum for your brand.
I
t’s Saturday m orning at G reen Village G arden
C entre and it’s a veritable hive of activity. The free
garden clinics are underw ay, as w ell as som e kids’
program s and a food drive.
O w ner and event-m aster A ndy Buyting took over
m anagem ent of G reen Village G arden C entre in
Fredericton, N .B. w hen his parents retired in the
m id-´90s. “I w anted to do a bit larger-scale business
w ithout losing the friendly atm osphere of a sm all
fam ily business,”he says. For Buyting, that m eant
developing a year-round program of events to
increase custom er satisfaction and keep them return-
ing to the store.
The centerpiece of the program is a m ailing list
w ith 10,000 custom er nam es, all provided voluntarily.
Every spring, fall and C hristm as, a six-page new sletter
provides gardening tips and, just as im portant, a cal-
endar of upcom ing events such as the M other’s D ay
celebration, custom er appreciation events, and m ore.
M em bers are also enlisted in the birthday card pro-
gram (w ith $5 credit).
The full list of annual events is m uch longer.
A ndy, w ho also appears on a local television garden-
ing show , w rites a personal note for each edition of
the new sletter.
“You m ight say the m arketing plan is deliberate
grow th by actively pursuing loyalty,”says A ndy. “O ur
custom ers enjoy it, w e have fun, and it all happens in
the relaxed atm osphere of a country store.”
Green Village
Garden Centre
Case Study 2
I
n the endlessly shifting w orld of cyber-threats and
counterm easures, W hiteHat Inc. provides inform a-
tion technology security to governm ents, m ajor
corporations and sm aller enterprises across N orth
A m erica. Full service includes analysis and education, as
w ell as system s selection, installation and m aintenance.
“W e arm our clients to go in to cyber-battle,”asserts
CEO Rosaleen C itron.
W hiteH at has an enviable reputation for custom er
loyalty, retaining m ost of its clients since the com pany
began in the early nineties. “The biggest thing w e do
for loyalty is m aintain absolute client confidentiality and
privacy,”says C itron, adding that W hiteHat is know n as
“the quiet com pany”. An im portant loyalty builder is
their response tim e: w ithin 60 m inutes for em ergencies;
routine requests are answ ered w ithin hours.
The com pany is also liberal w ith value-added
research about new threats and technologies, to the
extent that W hiteHat launched a public service W eb site
(w hitehatadvisory.com ). A series of client breakfast sem i-
nars form alizes this value-add and also provides an
opportunity to go in-depth on the latest issues.
C ustom er appreciation events are another part of
the form al agenda, and often include prem ium sports
venues. “M ost of our clients prohibit em ployees from
accepting gifts,”Citron explains, “so w e use intangibles
to say thanks.”This practical, dow n-to-earth thinking
has served W hiteHat w ell in all m atters affecting
custom er loyalty.
WhiteHat Inc.
Case Study 3
C
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E-commerce is using the Internet to build, assist and
improve your business’s commercial activity.
C u stom erLoyaltyC u stom erLoyaltyC u sto
m erLoyaltyC u stom erLoyaltyC u stom erL
oyaltyC u stom erLoyaltyC u stom erLoyalty
C u stom erLoyaltyC u stom erLoyaltyC u sto
m erLoyaltyC u stom erLoyaltyC u stom erL
oyaltyC u stom erLoyaltyC u stom erLoyalty
Sponsorship:
“Gilt” Through Association
Rule
#
1:
M ake sure the opportunity fits w ith
your brand. Evaluate w hether the sport,
entertainm ent, event or charity is a good fit w ith your com -
pany and its m essage. D o you really w ant your custom er-ser-
vice business to be affiliated w ith boxing? O nce you find the
right fit, research the audience dem ographics and evaluate
the num bers of individuals w ho w ill see it. N ow , is it w orth it
on an eyeballs-per-dollar basis?
Rule
#
2:
Know w hat you w ant out of it. It could
be pure sales, either at the event or
afterw ard through on-site prom otions. But other things are
also im portant, particularly the hom etow n reputation you
could gain by sponsoring an am ateur athlete for the
O lym pics, for instance, or the brand association you m ight
build as a consulting agency that sponsors an inter-collegiate
m athem atics contest. Som e other potential objectives:
•Exposure that you can com pare and justify w ith advertising
of a sim ilar cost;
•Sam pling or introduction of product benefits; and
•C lient and em ployee goodw ill through hospitality
and tickets.
Rule
#
3:
C om m unity organizers are often the
m ost grateful for your help. Rem em ber
that em erging sports, sm all theatres, charities and com m uni-
ty activities offer terrific m arquee brand-building potential,
w hile you can easily get lost in a big-nam e event.
Sponsoring the clean-up of the local riverside or helping a
sm all band to put on an outdoor sum m er concert can be
cheap, highly effective m arketing. Plus the recipients w ill
probably do everything in their pow er to give you full value
for your m oney.
Rule
#
4:
Know the players. Find out w hat the
event organizer, team m anagem ent or
charitable organization’s leadership plan to do at the event
and in the future. W hat is the schedule for broadcasts or any
other distribution? W hich other organizations are participat-
ing and w hat w ill be their profile? Talk to athletes, actors or
cam paigners w ho w ill be at the centre of events. D o you
trust these individuals to put the events or cam paigns and –
by extension –your product, com pany and brand in the best
possible light?
Rule
#
5:
Be prepared to negotiate. Event orga-
nizers are not usually corporate m ar-
keters and your interests m ay not be top-of-m ind. Be very
specific about w hat you w ish to get for your sponsorship
dollars, such as size and location of signage, acknow ledge-
m ents, presence and location of hospitality, proxim ity or
absence of com petitors and use of your com pany nam e.
Rule
#
6:
Insist on exclusivity. A com m on ploy is
for organizers to give you assurances
and then sell sponsorships to com petitors w hom they define
as being in another category –for exam ple, a pasta restau-
rant that som ehow isn’t in the sam e category as your French
restaurant.
Rule
#
7:
Look for leverage. Signs and m entions
are fine, but you can’t leave it at that.
U se your sponsorship –logos, event nam es, individuals –in
all your printed m aterials. Send press releases and call m edia
editors. H old get-to-m eet events or signings.
Rule
#
8:
Sw ap product for prom otion. The best
scenario of all is to contribute product
for sam pling or dem onstration in return for exposure. The
challenge is finding the appropriate channel. A butcher
m ight sponsor cooking classes or cooking clubs, for instance,
trading m eat for recognition and the chance to offer bulk
discounts. Sporting goods stores m ay sponsor high-school
sports, trading shoes or clothing as league prizes in
exchange for banners and displays at gam es.
Many brands bask in the golden aura of a sponsorship to build customer
loyalty. By tying themselves to customers’ pastimes, interests and causes close their
hearts, they try to build the kind of goodwill that leads to faithful patronage. Think of
boys and girls who grew up with hockey or horses and, as adults, drink the beer and
drive the cars of the organizations that sponsored their childhood activities.
But you don’t have to be a brewery or an automaker to be a sponsor.
There are superb opportunities to reach highly specific markets through amateur sports
and arts groups, leisure activities, and public services from environmentalism to
anti-poverty and education. J ust target your market carefully and be careful that you
get what you sign up for. Here’s how.
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 13
Relationships:
B u ildin g
Loyalty
The relationship is based on
three elem ents:
•the trust of the custom er, earned through
the value you offer;
•your desire to offer even greater value, at
a decent m argin, based on your know l-
edge and experience in your field; and
•your accum ulated understanding of the
custom er’s unique situation through
inform ation w hich m ust be offered by
the custom er.
Through the grow ing relationship,
you sim ultaneously build loyalty, sales and
profitability.
The critical elem ents that you can con-
trol are the value that you offer during the
sale, your astuteness in eliciting custom er
inform ation, and w hat you do w ith that
inform ation to add value to future sales.
This section w ill look at the first item :
how a vendor can perform at a high level in
offering value during the sale. The next sec-
tion w ill deal w ith learning m ore about the
custom er to increase your value proposition
even further.
Adding Value Through Service
Start w ith the prem ise that existing
custom ers need to be turned into loyal cus-
tom ers. It’s im portant to recognize aspects
of service that drive loyalty by adding value
and, as a part of your standard business
practice, bring a payback that com pensates
for any costs they incur.
Staff for people: Frontline staff are the
point of contact for custom ers, so hire care-
fully. Interview extensively and consider per-
sonality testing for ability to w ork w ith
people. Som e organizations interview can-
didates in groups to see how they relate
and interact w ith one another.
Train for loyalty: Put loyalty on the table
during training. Explain w hat a lost cus-
tom er costs your business and how loyal
custom ers are easier and less expensive to
serve. Train in courteous behaviour through-
out the sales or service process, and prepare
them to ask and answ er questions to show
attentiveness and responsiveness, as w ell as
how you w ish them to handle com plaints.
Role-play and take suggestions for im prove-
m ent. H ave experienced em ployees train
new ones. Repeat regularly. Have fun w ith
training, but m ake quick, efficient service a
recurring them e and m antra.
Empower: Em ployees should, if possible,
have the pow er to right any w rongs w ith-
out going through hoops. O n-the-spot
authority of this kind w orks w onders both
w ith staff and custom ers w ho experience it.
O n the sam e point, ask staff for recom m en-
dations on w ays to im prove the custom er
experience.
Create converts: M ake converts of your
staff and they w ill becom e m issionaries for
you. Tell or show them w hat com petitors
are doing. Let them sam ple or experience
com petitive products as w ell as your ow n.
Equip them w ith com parative data.
Encourage suggestions.
Value the customer’s time: People shy
aw ay from salespeople som etim es because
they hate being “sold”, then a m om ent
later they w ant personal assistance. They
a brick at a time
At the root of lasting customer relationships is value. While
loyalty is eventually an emotional tie, it begins with a rational
decision. To be loyal, customers must believe they are
getting superior value. You can then cement that belief with a
relationship that allows you to offer even greater value.
By using CRM and electronic marketing
techniques, online vendors can personalize the way the
visitor sees the information on the site.
14 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
also w ant 24-hour service availability, next-
day delivery and im m ediate inform ation. At
the sam e tim e, you are supposed to be pro-
viding personal service, w hich requires you
to ask a few questions. W hile contradictory
dem ands som etim es m ake your head spin,
rem em ber that getting in and out of the
transaction quickly is a com m on m otivation
in this rushed w orld, w hich brings us to the
next point.
Operate in multiple channels: It just so
happens that buyers w ho use m ultiple
channels tend to be the m ost loyal. (J.C.
W illiam s G roup, 2002.) There’s a reason:
custom ers increasingly w ant to research
their purchase and com plete it w henever it’s
convenient, perhaps online but perhaps in a
store, by phone or even by m ail. W hen they
can conduct som e or all of the buying
process electronically, it’s a convenience;
w hen they can’t, there’s alw ays a place
w here they can. From the vendor point of
view , e-com m erce is a w ay to let custom ers
shop on their ow n tim e in a fairly cost-effi-
cient m anner, using online self-service and
guides, e-m ail queries and W eb call-back
features. It’s a great w ay to satisfy the high
dem ands of custom er service w ithout over-
burdening or overspending on staff.
That said, you have to invest w isely in
your W eb presence. (See The Definitive
Guide to E-Commerce.) Service, product
and brand im age m ust be seam less and
consistent across all channels in order not
to confuse the m essage to w hich you are
trying to keep your custom ers loyal.
M onitor custom er feedback on this point.
Are all channels giving them equally good,
consistent service?
Constantly re-evaluate the value
equation: Business and m arket conditions
are alw ays changing. D o regular surveys –
w ith every order if it’s feasible –to find out
w hat is im portant from the custom er per-
spective. W hat did they like m ost about the
purchase? W hat w ould m ake the product
or buying experience even better? Are their
needs changing in any foreseeable w ay?
Try to get a picture from the buyer’s point
of view .
Deal with decision-makers: In business-
to-business sales, a com m on error is to
speak only to the users or technical people
w ho “understand”the product. These m ay
not be the people w ho m ake the buying
decisions. Ask for a m eeting w ith all users
and the individuals w ho signed the pur-
chase order as a w ay of both collecting
feedback and com m unicating to them that
you are responsive. Have a form al slate of
questions ready. (See “In Person: Custom er
Visits and Interview s”on page 19). Above
all, talk about w hat you have learned about
your client’s unique circum stances from
your interaction w ith your product’s users
and technical people w ith the com pany.
Show those w ith the buying pow er that
you have been listening and learning, and
that you w ant to do m ore.
Seek out complaints: You can’t im prove
unless you know w hat’s w rong. M any faults
and shortcom ings are hidden from you
because you’re not standing in a custom er’s
shoes. Ask for com m ents, even criticism . If
you can’t get direct feedback, at least be
aw are of the signs of dissatisfaction –
unpaid bills, grum py staff (w ho m ay be
frustrated by custom er attitudes) and rising
turnover –and hold som e brainstorm ing
sessions. M ake som e changes to see if you
can get better results.
Bump up after-sales service: A s m any as
one-third of all com plaints com e from cus-
tom ers w ho don’t know how to use the
product properly. At the sam e tim e, one of
the top reasons for custom er loss is the
absence of after-sales service. Sounds like a
potentially good fit? Supply a toll-free num -
ber, m ake follow -up calls (big-ticket item s)
or send a quick e-m ail to talk about proper
use and service. Supplying the inform ation
in w riting helps m ake sure custom ers
rem em ber it correctly and also heightens
the perception of after-sales care.
Go after lost customers: Hate m aking
cold calls? W ell, at least form er custom ers
already know w ho you are. A nd you can
w in them back. Their defection m ay be
over som ething you can easily rem edy. Even
if you can’t, you can quickly find out w hat
happened and look for a pattern that you
can address in a longer-term w ay. G ive the
defectors a friendly call. M ake them an
offer.
Say “thank you”: Say it on the spot. If you
didn’t have a chance, w rite a note or m ake
a call. Rem em ber, it’s a relationship.
W
hen M ike A rbeau opened his ow n transm ission shop in
1999, he had definite ideas about how to develop a loyal
custom er base. Since then, he’s built a thriving business in
M ississauga, O nt and opened a second shop in Toronto’s w est-end.
Arbeau’s philosophy is the golden rule. “W hen I’m the cus-
tom er,”he says, “I expect to be treated right. So I treat people right
at m y shop.”H e’s honest w ith custom ers w ithout being pushy, and
w hen the job is done he spends extra tim e explaining the bill and the
shop w arranty.
Arbeau also places a prem ium on professional im age. H e keeps
a m eticulously tidy shop, staffed by w ell-groom ed m echanics in clean
uniform s. Each custom er’s car is returned free of fingerprints or foot-
m arks, som e custom er’s vehicles are run through the car w ash for
good m easure.
Although A rbeau doesn’t see m ost custom ers m ore than once
for a transm ission repair, he does rely on repeat subcontract business
from local general m echanics. To keep these sources loyal, he says,
you’ve got to do good w ork on schedule, as w ell as be w illing to go
the extra m ile to solve any problem s that crop up.
These m echanics get a 20 per cent discount on subcontracted
business, and som etim es A rbeau takes them to lunch or a hockey
gam e. “I get restaurant gift certificates and hand them out to all the
m echanics in the shop,”he says. “That keeps everybody happy.”
Precise
Transmission
Case Study 4
T h e D efi n i ti ve G u i d e to C u sto m er L oyalty 15
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16 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
WHO ARE YOUR BEST
CUSTOMERS?
O ne of the m isconceptions surround-
ing custom er retention is that the objective
is to build loyalty am ong all custom ers.
Sure, custom ers are usually a good
thing. It’s just that som e are better than
others. Researchers in the loyalty field have
looked m ore closely at this phenom enon
and discovered that som e “loyal”cus-
tom ers, in fact, dem and low er prices and
expensive extra services as the price for
their guaranteed regular purchases.
In a July, 2002, article entitled
“M ism anagem ent of C ustom er Loyalty”in
the Harvard Business Review, W erner
Reinartz and V. Kum ar put custom ers into
the follow ing loyalty categories:
• Strangers: Bargain hunters only, w ith
little loyalty and the low est profit poten-
tial. D on’t invest in them and try to
m ake a profit on every sale.
• Butterflies: Transient but profitable cus-
tom ers w ho like to shop around. D on’t
continue to chase them w ith offers after
they have fluttered aw ay.
• True friends: Frequent users of m any of
your products. W ith the highest profit
potential, they respond w ell to special
treatm ent and services.
• Barnacles: Loyal custom ers w ho are
borderline or even unprofitable because
of their dem ands for special prices and
treatm ent. Im pose lim its on w hat you
w ill do for them .
Just Do It
Reinartz’s and Kum ar’s research
turned up a fascinating tidbit on building
the loyalty of your best custom ers, the so-
called “True Friends”. Intensifying the
am ount of contact and com m unications,
they found, w as m ore likely to irritate
these valuable custom ers. G iving them
royal treatm ent and special services led to
increased sales.
So try to build loyalty am ong the cus-
tom ers that m atter m ost. Find out w ho
your best custom ers are and add value,
profitably, to those transactions in w ays
that w ill increase the volum e and frequen-
cy of their buys.
Where Does Customer Information
Come From?
The answ er is w hat m akes the w hole
loyalty gam e so fun and interesting.
C ustom ers m ust give it to you.
Past buying behaviour predicts future
buying behaviour better than any other
factor. So start w ith your current best cus-
tom ers. (If you don’t have a base of infor-
m ation already, read “G athering C ustom er
Inform ation”, w hich follow s.)
C ustom er loyalty is usually m easured
on the basis of recency, frequency and
m onetary value (or RFM ). M onetary value
can be broken dow n into size and prof-
itability of purchases, keeping in m ind
Reinartz’s and Kum ar’s contention that
som e “good”custom ers are, in fact,
barnacles.
Customer Value Measures:
•Recency
•Frequency
•D ollar volum e
•Profit contribution
C lassify and rank your best custom ers
according to these four variables to find
w ho your best custom ers are. Your chal-
T h e D efi n i ti ve G u i d e to C u sto m er L oyalty 17
Learning More
Abou t
C u stom ers
You have grabbed their attention with good value, a responsive
attitude and respectful, thorough service. The next step is to
find out more about the people who buy from you so that you
can at least let them know about other offerings that might be
pertinent and, in the best of all possible worlds, proactively add
further value through personalized service and marketing that
will turn the “best” customers into loyal customers.
Find out who your best customers are and add
value, profitably, to those transactions in ways that
will increase the volume and frequency of their buys.
18 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
lenge is to entice each of your best cus-
tom ers to rise as high as possible in cate-
gories w here they rank low er. Rem em ber
that custom ers are m otivated by different
factors depending on w hether they are
early-stage, repeat custom ers, clients or
advocates. (See “The Stages of Loyalty”,
page 13, and Customer Loyalty: How To
Earn It, How To Keep It, by Jill G riffin.)
Gathering Customer Information
You m ay have basic custom er infor-
m ation already –geographic location and
som e basic dem ographic inform ation,
for instance.
But you w ant this and m ore. You
w ant to know attitudes, future plans,
business or econom ic conditions –all the
elem ents that m ight influence their needs
and buying behaviour in the future. W ith
a little w ork, you can establish the
relationships that can m ake this inform a-
tion available.
This section w ill exam ine inform ation
gathering from tw o perspectives: online
m ethods and in-person custom er visits and
interview s. W ith the inform ation you col-
lect, your know ledge of w hat your cus-
tom ers value –and w ill value in the future
–becom es m ore accurate, even to the
point w here you can enlist the support of
your best custom ers in your service
enhancem ents and loyalty m easures.
Online: Starting the Conversation
W ith so m any custom ers now
w illing –no, dem anding –to use online
technologies to inform them selves, shop
and buy, the usefulness of online m eans
of collecting custom er inform ation has
risen substantially.
If you know w ho is com ing to your
site, and w hat they are interested in, you
can link that inform ation to online and
offline buying behaviour. So how can you
get people to tell you w ho they are and,
better yet, talk to you? Try one or a few of
these ideas.
Site registration: O ffer personal accounts
for faster checkout, w hich m eans the cus-
tom er stores billing inform ation and
address books on your server. Even if a
personal account isn’t appropriate, you
can offer registration for “VIP”or “pre-
ferred custom er”services such as advance
notice of prom otions, delivery discounts
and online coupons. Basic identifying
inform ation (nam e, address, e-m ail
address) is all that should be necessary.
You can then ask them to com plete a
short survey. The im portant thing is to
offer som ething for a little personal infor-
m ation. You can then ask for m ore detail
as you go forw ard.
Contests: Running online contests is a
tried and true m ethod of getting nam es,
addresses and basic buying and lifestyle
inform ation. Prizes can range from product
to gift certificates to som ething m ore
pricey if you w ant w ider exposure and
som e new leads as w ell. M any sites link
their contests to registration.
Gift reminder services: For som e types
of businesses, gift rem inder services pro-
vide useful inform ation about fam ily status
and fam ily size. You can get lifestyle infor-
m ation, too, by asking for age and prefer-
ences of fam ily m em bers to enable you to
m ake gift suggestions.
J
ohn Kalbfleisch is an orthodontist and partner in Village
O rthodontics, one of the largest practices of its kind in
C anada. W ith five busy offices in the G reater Toronto A rea,
Village O rthodontics displays m ost characteristics of a w ell-m an-
aged enterprise.
“It’s all about building relationships; and I m ean personal, not
just professional,”he says. “W e w ant the patient to see m ore than
the service.”Building a rapport w ith young teens can take som e
w ork, so Village O rthodontics em ploys a Patient Relationship C o-
ordinator to plan a program of recreational events, seasonal con-
tests and rew ards. Parents can attend “Aw areness N ights”, w hich
address topics such as parenting teenagers and drugs.
A patient w ith braces is by definition a loyal custom er, so loyal-
ty is cultivated w ithin fam ilies and extends to friends. G enerating
referrals from general dentists is another im portant dim ension.
Kalbfleisch says that referring patients to good orthodontists can
often help a dentist’s practice to grow .
W hile Kalbfleisch does som e business entertaining w ith refer-
ring dentists, the partnership also co-sponsors continuing education
program s that feature top speakers in specific areas of general den-
tistry. Kalbfleisch also believes that the practice’s partnership struc-
ture is key to loyalty because it enables the purchase of better
equipm ent, supplies, and staff training. “W e’re able to have staff
m ore specifically focused on their jobs,”he concludes, “A nd that
gives our patients a m uch better experience.”
Village
Orthodontics
Case Study 5
M
ontreal-based Stonix G ranite & M arble Inc. im ports quar-
ried slabs of stone to m ill into countertops, flooring and
w all-cladding. The com pany, led by ow ner and president
A ntonio Pasin, has custom ers in Q uebec, O ntario, and the U .S.
H ow does Stonix keep its custom ers loyal? “Service, service,
service!”exclaim s Pasin. That definition of “service”bends to m eet
the different requirem ents and expectations of the tw o m ajor seg-
m ents in his custom er base –contractors and retailers.
“C ontracting is high volum e sales, w ith fast turnaround, and
hyper-com petitive pricing,”Pasin adm its, em phasizing the fiercely
com petitive nature of his business. “A s you w ork together
dependably over the years, contractors develop a loyal friendship.
It’s reliability that w ins their loyalty –w ining and dining doesn’t
w ork any m ore.”
Retailers, on the other hand, are sticklers for quality. “They’re
ready to spend the dollars if they get quality and exclusivity,”Pasin
advises. “Retail accounts are very big on supplier reputation, w hich
is spread by w ord of m outh. If a retailer hears your product looks
great in som ebody’s hallw ay or kitchen, that builds loyalty.”Stonix
also supports its product quality w ith aggressive after-sales service.
“You have to know w hat the com petition’s up to,”Pasin
concludes, “and you find out by talking to people. They’ll talk
to you.”
Stonix Granite
& Marble
Case Study 6
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Re-order reminder services: These are
especially useful for som e B2B businesses,
but also for consum er goods such as pre-
scriptions and seasonal item s.
Loyalty discounts: There w ill be m ore on
this in the next chapter, but it’s w orth m en-
tioning here that you can ask for custom er
inform ation in a straight exchange for dis-
counts or for purposes of registering for
rew ards w hen they reach a purchase
threshold. Let the custom er track “rew ard
point”status online.
Personalization: You can allow registered
custom ers to personalize their visit to your
site so that certain m enus or types of prod-
uct inform ation appear w hen they visit. It
doesn’t have to be this technical, how ever.
You can sim ply greet custom ers by nam e
and offer new sletters w hose article subjects
are pre-selected –for instance, articles
about hiking and canoeing gear, but not
m ountaineering or cycling.
Another approach to personalization
is to ask custom ers about product prefer-
ences, w hich enables you to build a
database of cross-referenced preferences
so you can recom m end products that other
people w ith the sam e likes and dislikes
have chosen.
In Person: Customer Visits and
Interviews
Too often, “know ledge”about cus-
tom ers is nothing m ore than a guess based
on stories from the sales departm ent, a
new spaper article or w hat com petitors are
doing. W hy not just ask the people w ho
know ? The custom ers.
From your earlier w ork, you already
know w ho your best custom ers are. W hy
not approach them (or a few selected for
their strategic fit w ith your plans) for som e
in-depth conversation? You m ay also
choose to visit, if you can arrange it, som e
w ould-be custom ers w ho don’t use your
products or services in order to get a w ider
view of w hat you m ight be m issing. You
m ay also include your custom er com m unity,
if you have one, in this project.
Prepare a form al slate of questions
that cover:
• What you have done right – “W hat
do you like about dealing w ith us?”
• Where you need to improve –
“W hat’s im portant but not happening?”
“H ow could w e change to m ake our
product or service better?”“How do w e
com pare to our com petitors?”
• Where you can jump ahead – “W hat’s
going to be im portant in the future?”
“W hat additional products or services
could w e provide?”
• Where you can cut back – “Do you
feel that w e’re spending tim e on any
thing you consider unim portant or
excessive?”
Working environment: Ask w hether you
can observe users of your product for a
w hile as a fly on the w all. You m ay see
points of interest that m ay not have m uch
significance to the user or the buyer.
Customer portrait: Equipped w ith your
interview s and observations, describe your
typical custom er. Create as m any headings
as you can and describe every detail,
w hether physical or psychological. It m ay
help to draw a picture of this person w ith
labels and arrow s. U nder separate head-
ings, address the w ork environm ent, finan-
cial constraints, w orries, hopes, industry
conditions and, im portantly, service needs.
This profile w ill be extrem ely useful in
solidifying w hat you know about your cus-
tom ers in your m ind. Use it as your point of
reference w hen considering all future loyal-
ty and service decisions. W ill your action
help solve a problem ? W ill the custom er
even notice w hat you’re doing?
Product and process review: Are there
parts of the typical purchase process or
aspects of the product that cause rather
than solve a headache for the custom er?
How can your products and services be part
of the solution? Rank your ideas by value to
the custom er and the difficulty in doing it.
Select the “m ost critical”and “easiest”
ideas. Start right aw ay on these tw o pro-
jects: one is an easy w in to gain the confi-
dence of staff; the other is the first m ajor
big-picture m ilestone.
Customer re-visit: This m ay be done by e-
m ail, but if you have the opportunity to do
it in person, so m uch the better. Have your
best custom ers rank all your proposed
changes. A llow them to w eight their selec-
tions. You m ay also choose to ask w hat
they m ight be w illing to pay for each. Use
the valuation to create an im plem entation
plan, w ith a tim eline that takes into
account cost and difficulty.
Charge ahead: Your best custom ers are
now your leaders in the loyalty battle. You
know w hat they w ant, how m uch they
w ant it and possibly how m uch m ore they
w ill pay for it.
G athering together a group of custom ers for conversation and feedback about
your products and services can be a valuable source of inform ation about w hat’s
im portant to them . The group m em bers could be sim ply a com m itted group of existing
custom ers or a m ix of custom ers and non-custom ers, depending on w hether you w ant
som e outside view s as w ell.
These sessions can be conducted in tw o w ays. Focus groups are done in a special
facility w here you or your senior m anagers w atch and listen behind tw o-w ay m irrors.
Typically, m arket research firm s charge $4,000 to $6,000 for a series of basic sessions.
A less expensive approach is the facilitated discussion. To m oderate, you hire a
neutral facilitator w ho guides the com m ents tow ards topics you have identified but
offers no judgm ents or solutions to any problem s raised. N o one from your organization
is present at all.
The facilitator filters and synthesizes w hat w as said and reports back to you w ith
the unbiased, uninhibited feedback from the group. The draw back is that you m ay not
know the context of the rem arks, as you w ere not there.
Focus versus Facilitate
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 19
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22 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
HOW REWARD
PROGRAMS WORK
Frequent-buyer program s aim to
rew ard the custom er w ith discounts,
m erchandise or special treatm ent in pro-
portion to the am ount of their purchases.
In this w ay, vendors can obtain inform ation
about their custom ers and their buying
patterns w hile at the sam e tim e offering
an incentive to these custom ers to rem ain
loyal and boosting the size and share of
their spending.
The best program s:
•gather a w ealth of custom er inform ation,
usually by m atching enrolm ent and sub
sequent purchase data;
•use the custom er inform ation generated
by the frequent-buyer card to tailor prod-
ucts, services and rew ards to best-cus-
tom er preferences;
•continually refine rew ards to get the best
possible payback in term s of increm ental
purchases and loyalty; and
•rem em ber that product value, pleasant
staff, store/office layout, speed of service
and cleanliness are the real m otivations
for long-term loyalty and w ithout these
elem ents, frequent-buyer program s just
teach custom ers to shop for price.
H ere are som e exam ples of the m any
faces of frequent buyer program s:
Buy-Ahead Discount Cards: Popular w ith
coffee shops, skate sharpening services,
exercise clubs and car w ashes, the program
gives custom ers a freebie or a discount if
they buy in bulk, paying in advance. The
retailer just checks, initials or punches a
square each tim e the custom er com es in.
O ften, they gather very little custom er
inform ation, but you can require custom er
registration to qualify.
Reward for Loyalty: Everyone from air-
lines to sandw ich shops uses this one.
Track purchases by sw iping a card or sim ply
by punching squares and the custom er
gets free product (or upgrades) for reach-
ing pre-set thresholds. C ustom ers offer
identifying inform ation to get the sw ipe
cards and m erchants track their purchases
to gather further data.
Gift Cards: An alternative to paper gift
certificates, consum ers purchase these
sw ipe cards and electronically load them
w ith the desired credit –for exam ple, $25
or $50. W ith each purchase, the system
checks the card for validity (each card is
assigned a security code) and inform s the
custom er of the card’s balance on the sales
receipt. M erchants can target prom otions,
track sales and offer discounts for cus-
tom ers w ho “reload”.
Information and rewards
Frequ en t
C u stom er
When most people hear the words “loyalty programs”, they
think of frequent-buyer reward programs. These programs
can solve both the “information problem” – how to identify
customers and collect information about them – and the “action
dilemma” – how to reward your best customers and ratchet up
their frequency and volume of purchases. But beware: they come
at a cost and they must be carefully directed in order to reward
and motivate buyers rather than just subsidizing them.
T h e D efi n i ti ve G u i d e to C u sto m er L oyalty 23
P rogram s
Sweepstakes and Contests: C onsidered a
tried-and-true loyalty technique, the contest
can either be used as an enticem ent for
enrolm ent in the loyalty cam paign or to add
an exciting benefit for existing participants.
Loyalty program providers now m ake it pos-
sible to offer “sw ipe and w in”prizes right
at the point of sale.
End-of-Year Rebates: C ustom ers accum u-
late points throughout the year via a
point-of-sale system and receive an annual
discount or credit. The w ait probably dead-
ens the im pact of this type of program and,
given its lack of im m ediate em otional
appeal, it m ay m otivate only those cus-
tom ers w ho are m ost price sensitive.
LOYALTY HALL OF FAME:
GREAT PLANS AND
THEIR LESSONS
Canadian Tire Money: Loyalty’s First
Cross-Seller
Canada’s first and possibly greatest
hom egrow n loyalty program w as the brain-
child of M uriel Billes, w ife of com pany co-
founder A.J. Billes. Canadian Tire M oney
debuted in 1958 at the com pany’s first gas
bar in Toronto as a m eans to fight back
against m ajor oil com pany giveaw ays of
dishes and toasters at the pum ps. The idea
w as to let custom ers choose w hatever
bonus they liked rather than force a partic-
ular gift upon them . The result w as not only
a successful loyalty program but the birth of
the idea of using loyalty program s as a
cross-m erchandising tactic.
C anadian Tire M oney has taught som e
other lessons as w ell:
•Because of the coupons’authentic bank-
note feel –they have sim ilar rag content
and spot m arks as real paper currency –
people hate to throw them aw ay.
•In the 1960s, Canadian Tire used the
coupons to rally consum ers against its
com petitors from the oil com panies.
Using a picture of a m uscled H erculean
figure about to w reck a store, the m oney
included a m essage calling upon cus-
tom ers to join the fight to “w in this w ar”
against the gas “giants”.
Hbc Rewards: Points for Spending
H bc Rew ards (previously know n as
Zellers’C lub Z) is an unm itigated success
that can’t be beat. W ith m ore than nine
m illion m em bers in 80 per cent of Canada’s
households, no store-based loyalty program
com es close in this country. W hen you con-
sider that Zellers com petes head to head
w ith W al-M art, w hich has no loyalty pro-
gram , the lesson here is that a good loyalty
program can be a life saver.
Air Miles: the Perfect Customer
Research Tool
The fam iliar loyalty program invites
custom ers to carry the sw ipe card and
present it w ith purchases at sponsoring
stores and services across the country.
Custom ers can then trade their accum ulat-
ed points for air travel, m erchandise, vaca-
tions and so on.
The Loyalty G roup launched Air M iles
in 1992 w ith 13 sponsors. Now , it has 100
sponsors and reaches into 12,000 retail
locations, including governm ent liquor
stores. A bout 12.5 m illion people carry the
card. The lesson? W hile experts can debate
w hether card carriers are m ore, less or
equally loyal to the sponsors, custom ers w ill
use a card if the rew ards are attractive and
attainable. This is significant for tracking
purposes alone.
Frequent Flyer Programs: Control Cost
of Rewards
A m erican A irlines
‡
launched the m od-
ern era of travel rew ards loyalty program s
w ith its A A dvantage
‡
program in 1981. The
program began w ith 283,000 m em bers
and has grow n to over 49 m illion m em bers.
D elta and TW A m im icked the m ove the
sam e year and the race w as on. Those w ho
didn’t follow –Southw est Airlines, for
instance –lost m arket share until they did.
The idea spread and by the m id-1980s,
every airline, hotel and car rental agency
had its ow n frequent-user rew ard plan, in
spite of w idespread suspicion about their
effectiveness and costs.
There are now m ore than 70 frequent
flyer program s w orldw ide w ith m ore than
100 m illion m em bers, grow ing at 11 per
cent a year. M em bers redeem 10 m illion
flights a year, but now about 40 per cent
of air m iles are earned on the ground as a
result of loyalty partnerships w ith hotels,
credit cards and other travel industry
providers.
Frequent flyer program s survive
because of the balance betw een a highly
valued rew ard and the lim its placed on seat
availability for use by frequent flyers
redeem ing points –typically, about 5 per
cent. Just as rew ards m ust not unjustifiably
raise costs, they m ust also not ham per your
ability to serve revenue-paying custom ers.
Best Practices: Turning Frequent Buyers
Into Loyal Customers
Frequent-buyer program s are not all
as successful as these cases m ight suggest.
Beer com panies, for instance, have found
that giveaw ays only prom ote tem porary
brand-sw itching and others have found
loyalty program s teach custom ers to look
for best prices –or else have little effect
at all.
H ere are som e of the best practices
that can raise the probability that your fre-
quent-buyer program can instill the loyalty
that you set out to achieve.
• Talk it up. M ake sure staff m em bers
know w hy custom er loyalty is im portant,
how the program w orks and how to
recruit custom ers to join. G ive them an
incentive to recruit, if you can. Then build
the buzz every w ay you can: paid adver-
tising, point-of-sale displays, direct m ail
and e-m ail updates. Build a separate part
of your W eb site for m em bers to track
and possibly redeem aw ard points.
Reinforce the m essage constantly.
• Be in it for the long haul. The first six
m onths m ay show optim istic results for
enrolm ent and purchases by loyalty group
m em bers because m ost custom ers join as
they m ake a purchase. D on’t be disap-
pointed if there’s a subsequent drop-
off. Sustained loyalty buying w ill com e
dow n the road –after year tw o –if you
rem em ber the other reasons for your pro-
gram : the opportunity to grow your cus-
tom er database, learn their likes and dis
likes, establish regular contact and target
prom otions to best custom ers.
• Use your database. The strength of
your frequent-buyer program is in the
database it grow s. You need the technol-
ogy and the expertise –in-house or out-
sourced –to build the database and
extract value from it.
If the loyalty of your best custom ers
is the target, then a loyalty cam paign
should be extended to every custom er
w ithin reach, right?
Surprisingly, the answ er has to be
no. It’s not because you w ant to exclude
anyone. It’s because you need a control
group to be able to see w hat effect
your program is having on custom er
behaviour.
H ere’s an exam ple. You run a fre-
quent-buyer discount at a cost of $2 a
custom er and each custom er spends $10
m ore than usual during the next quarter.
W ith a 30% profit m argin, or $3 per cus-
tom er, that’s $1 earned for each $2
spent. A nd you m ight be quite happy
w ith that.
But w hat if you had excluded som e
custom ers and found that, due to a bet-
ter econom y, they had spent an average
of $6 m ore during the sam e period? O nly
$4 of your $10 of additional spending
per custom er can actually be attributed to
the frequent-buyer program . A t 30%
m argin, you brought in just $1.20 for
each $2 spent. You actually lost m oney.
A lw ays have a control group that
doesn’t take part in a prom otion or
loyalty program .
Don’t Lose Control
24 T h e D efi n i ti ve G u i d e to C u sto m er L oyalty
• Think “brand”. M ake sure your rew ards
are consistent w ith the positioning of the
brand. Think of w hat custom ers value –
your best-selling products, for instance –
w hen doing business w ith you and try to
offer a rew ard w ith that quality. H otels
offer upgrades because it supports their
association w ith high-end service and lux-
ury. But the rew ard doesn’t have to be
your product. Beverage com panies offer
sports gear because it supports the enter-
tainm ent and high-energy appeal that
they w ant to link to their brands.
• Respect privacy concerns. You w ill ask
custom ers for basic inform ation w hen
you enroll them in your loyalty program .
D on’t abuse their trust by selling, renting
or sharing inform ation. A llow them to opt
out of any regular com m unications.
Outsourcing: Going Outside for Loyalty
Tracking rew ards, targeting custom ers,
m aking differentiated offers –it can sound
pretty com plex and it does take certain
technology, tim e and expertise to run a
sophisticated loyalty program .
Loyalty program service providers such
as Ernex M arketing Technologies Inc. and
The Loyalty G roup offer businesses a
chance to take advantage of state-of-the-
art loyalty-m anagem ent system s that give
sm all and m edium -sized businesses the
sam e scope and resources as the biggest
m anaged-loyalty program s w ithout invest-
m ent in additional point-of-sale technology.
• Reward point tracking: G ather sales
inform ation through a m anaged loyalty
program that tracks loyalty points and
offers rew ards in real tim e using m ost
electronic point-of-sale system s.
O utsourcers m ay host the custom er data
base as w ell.
• Stored-value prepaid cards: C ustom ers
can store cash balances on card and the
system provider’s electronic custom er card
program –under your band nam e –
tracks balances and prints on custom er
receipts.
• Multi-merchant programs: Loyalty
“federations”offer other locations w here
cardholders can accrue and redeem your
loyalty points for broader exposure and
greater plan benefits.
• Custom coupons: O ffer targeted
coupons on the receipt to custom ers tar-
geted according to any database criteria.
• Bonus points/Points multiplier
promotions: O ffer targeted bonus points
for repeat visits or during specific tim e
periods.
• Point-of-sale sweepstakes: O ffer real-
tim e electronic sw eepstakes-style prom o
tions either to generate new loyalty pro-
gram m em berships or to add excitem ent
to benefits for all m em bers.
Ernex is a service provider of M oneris
Solutions, a joint venture of the Royal Bank
of C anada and Bank of M ontreal. M oneris
is the leading provider of credit-card trans-
action processing netw orks.
Rewards: Motivating
Without Subsidizing
Frequent-buyer program s m ust tread
the thin line betw een offering too m uch
and too little –either negating the gains of
the program or failing to m otivate repeat
purchases or loyalty.
U nderstanding the im portance of loy-
alty, m ost m arketers fall to the tem ptation
to err on the over-generous side. To keep
these incentive prom otions from becom ing
price-cutting extravaganzas, how ever, the
first principle is to target them tow ard the
custom er you m ost w ant to reach. There
are then three key elem ents:
• Attract consideration and
membership: If you tabulate purchases
through your PO S system , custom ers
need an incentive to give you their per-
sonal inform ation. If custom ers m ust carry
cards w ith them , you need to convince
them that it’s w orthw hile to m ake space
in their already-jam m ed w allets and
purses.
• Help create preference: For custom ers
w ho are just getting to know you, the
frequent-buyer program should introduce
new products or higher-end services and
create one-on-one opportunities to
personalize the sales experience, in turn
allow ing you to offer added value.
(Exam ple: D iscounts on certain products,
upgrades and free consultations.)
• Generate purchasing: For all custom ers,
the program should m ake use of
custom er inform ation (from focus groups,
surveys or custom er databases) to m ake
an offer that m eets the custom er’s per-
ception of higher value. (Exam ple: Focus
groups reveal concerns over industry com
petition and econom ic conditions, so the
vendor responds w ith longer-term financ-
ing arrangem ents for m em bers of the
loyalty program .)
The first step, then, is to segm ent
custom ers into relevant categories for
your business and then target rew ards
accordingly.
•Large but infrequent custom ers m ay be
offered discounts on purchases w ithin the
next m onth or tw o.
•Frequent but low -volum e custom ers m ay
be offered a discount on their next order
of the sam e or larger size.
O ther custom er segm ents identifiable
from your enrolm ent data or other research
I
n the heart of Southern O ntario’s agricultural belt, Dave Raw n
and his fam ily have operated Dave Raw n Equipm ent Ltd. for 23
years. The longevity of the business is largely due, Raw n believes,
to the im portance he places on custom er loyalty.
Raw n places great em phasis keeping in regular touch w ith your
custom ers. “Clients appreciate personal contact,”advises Raw n.
“G o out and visit your client. View them as friends and develop
strong relationships.”Som e of his larger com petitors don’t visit
custom ers, and Raw n feels the personal touch gives him a com peti-
tive advantage.
Reputation is everything, according to Raw n, and w hen you
have a good nam e for service, you should also be fair on price and
deliver good value.
In the farm equipm ent business, larger clients can be the hard-
est to deal w ith. W hile they buy the m ost, they also dem and pre-
ferred pricing and strong trade-in values. How ever, Raw n never
underestim ates the im portance of these clients; they show case his
brand (John Deere) and visibly support his dealership in the
m arket area.
The John D eere brand m eans a lot to D ave Raw n Farm
Equipm ent. It’s w ell know n for quality and Raw n finds that next-
generation farm ers are often loyal to the brand if they have grow n
up w ith it. John Deere reinforces this loyalty by m aking toy m odels of
its equipm ent for farm children to play w ith.
Raw n also believes that em ployee loyalty contributes to
custom er loyalty. “W e aim to m ake them proud to be w ith the
com pany,”he says.
Dave Rawn
Equipment Ltd.
Case Study 7
T h e D efi n i ti ve G u i d e to C u sto m er L o yalty 25
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26 T h e D efi n i ti ve G u i d e to C u sto m er L o yalty
m ay be particularly relevant to your busi-
ness: age, occupation, sports or lifestyle
interests, travel preferences, children’s ages,
industry affiliation and so on. You can tar-
get these groups w ith particular prom o-
tions, event rem inders, birthday credits and
so on in order to m ake the experience of
doing business w ith you attractive, relevant
and personalized.
Profitability Is the Point
Profitability of your frequent-buyer
program w ill depend upon the cost of the
rew ards and the response rate. You w ant to
m axim ize the ratio of response versus cost.
Cost of rew ards varies directly w ith
response rate. The larger your offer, the
greater the response rate is likely to be, and
vice versa. O ffering too little costs you in
term s of lost response –those w ho w ould
have responded if your offer w as better.
O ffering too m uch costs you in term s of
revenue you give aw ay to custom ers w ho
w ould have responded to a low er offer.
The trick, then, is to differentiate
betw een custom ers. Experts recom m end
scoring your best custom ers on a num ber
of variables that, in your com pany’s experi-
ence, indicate they w ill likely respond.
You have to analyze your sales figures to
determ ine w hat the indicators are. They w ill
probably be a com bination of dem ographic
characteristics or industry categories, w hat
products they buy, size of their purchases
and custom er life cycle stage (i.e., new ,
repeat, client, or advocate). There m ay
be others.
You can set out these scores using a
sim ple spreadsheet, allocating scores to
each variable and arriving at a total.
•M ake a low er offer to those m ost-likely-
to-respond custom ers.
•M ake a higher offer to less-likely-to-
respond custom ers.
Your budget is the sam e as it w ould
be w ith an across-the-board offer, but you
m inim ize the am ount of excess costs spent
on custom ers w ho w ill respond to low er
offers and you m inim ize the num ber of
responses lost because the offer w as too
low . In other w ords, you m axim ize your
ratio of response versus costs.
Measurement: Managing Frequent-
Buyer Programs
The best frequent-buyer program s
gather lots of inform ation. Som e of that
inform ation w ill help im prove your m arket-
ing and services, and som e of it is useful
to gauge the success of your program
against its objectives.
Som e of the key m easures for fre-
quent-buyer program perform ance are:
•Member sales, transaction volume
and number of “actives”: C alculate
spending per m em ber. C om pare to non-
m em bers. Ernex M arketing Technologies
Inc. reports that retail loyalty program
m em bers typically spend 15 to 45 per
cent m ore than non-m em bers.
•Points earned and points redeemed:
A nalyze w hether custom ers are finding
rew ards to be desirable and attainable.
C um ulative scores can suggest w hether
inactive custom ers should be rem oved
from the database to reduce outstand-
ing liability.
•Number of new members: A nalyze
grow th to determ ine the need to
im prove in-store advertising, or to
retrain staff or add incentives for
recruitm ent.
The Loyalty Credo
C ustom er loyalty is elusive and
difficult to sustain. It m ust be earned by
offering good value, and then it m ust be
cultivated by getting to know the
custom er’s needs, spoken and unspoken,
and addressing them w ith personalized,
value-added service. The basis for loyalty
is the trust of the custom er and the
honest desire of the vendor to provide as
m uch value for dollar as is fair and
profitable.
The success of a loyalty program w ill
ultim ately depend upon the people w ho
deal directly w ith custom ers. They m ust
believe in the values expressed by the
com pany and its products, and buy into
the loyalty program as part of that value
package.
Loyalty program s are therefore both a
m eans and an end, because they gather
inform ation that’s necessary to understand
custom ers better and they deliver added
value that m akes custom ers loyal. That is
w hy they are both a cost centre and a rev-
enue generator. They need to be m ea-
sured and tracked, adjusting costs to
optim ize revenue.
A loyalty program is a long-term
proposition, not a short-term prom otion. It
is a com m itm ent for years, not m onths.
There is no unearned loyalty.
R B C
Royal Bank also believes in rew arding its best
custom ers. RBC Rew ards does exactly that
w ith the nine eligible RBC Royal Bank Visa*
cards, w hich includes VISA C reditLine for small business , the
RBC Royal Bank Visa Business G old. A nd the RBC Royal Bank Visa
Platinum Avion cards. The m ore you use your card, the m ore
rew ards you earn.
You earn RBC Rew ards points at the rate of one point for
every dollar of purchases on the card. Your points balance appears
on your RBC Royal Bank Visa statem ent each m onth, and you can
start taking hom e rew ards for as little as 3,000 points.
True to the first rule of loyalty program s, the rew ards are sig-
nificant and achievable. Travel rew ards include airline tickets, cruis-
es, tours, all-inclusive holidays, hotel accom m odations and car
rentals. A lternatively, you can redeem points for m ore than 200
m erchandise rew ards, gift certificates for national retail outlets,
m ovie passes at Fam ous Players Theatres, or RBC Registered
Rew ards, –vouchers for investm ents in either of RBC Royal Bank’s
Registered Retirem ent Savings Plans or Education Savings Plans.
And Now a Word From Our
Sponsors: RBC Rewards
Case Study 8
When loyalty programs proliferated through the 1990s, consumers rebelled at
the number of loyalty cards jamming their wallets. That objection, however, is
about to be overruled.
Ernex M arketing Technologies of Vancouver, a sevice provider of electronic loyalty
m arketing program s, offers custom ers the ability to collect loyalty points sim ply by
paying w ith a credit card w hich they have registered w ith the participating vendor. The
vendor’s point-of-sale system interacts w ith Ernex’s real-tim e database over a D SL
Internet connection, elim inating the need for additional hardw are in m ost cases. Ernex
also tracks points and forw ards special offers to targeted custom ers.
Objection Overruled
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