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In the Fold
Loyalty isn't dead, but traditional loyalty programs might be.

As a top executive at Hertz since 1995, Griff Long has spent a lot of time on the road — and when he travels, he knows what he likes. Flights by United. Rooms by Marriott. Rental cars by — well, he didn’t really have much choice there. It’s all been very safe and predictable, very easy, and it’s never really had anything to do with loyalty, at least in the marketer’s sense of the word.

Of course, to those who might be crunching the numbers at United Mileage Plus or Marriott Rewards and have seen Long’s huge point totals and consistent bookings, they probably think they have hooked a pretty big fish. So, they keep sending him more rewards and incentives — all of which are completely unnecessary, since he was going to choose them anyway … at least so long as their prices were in line. If not, well, he’s a member of every other travel loyalty program, too. 

The truth is that customer loyalty is an elusive goal. It’s hard to attain, harder to retain, and nearly impossible to measure. In a world in which 50 percent of us now carry the internet and all its user-generated reviews and price comparisons with us everywhere we go, erstwhile “best” customers are a couple of finger swipes away from becoming merely erstwhile customers. A consumer may have religiously bought thousands of dollars of electronics at B&H Photo over the years, but if some no-name store in New Jersey or Florida has that HD camcorder for less — not to mention free shipping and enough four-star user reviews to bolster his confidence — well, off he goes. Loyalty be damned.

As marketers, we pursue customer loyalty relentlessly. We measure it indirectly and imprecisely, as if staring at the solar eclipse of ROI. Probably more times than not, we ultimately conclude that our ability to keep the Griff Longs of the world shopping for our brands is more dependent upon the economy, our competitors and the customers’ whims than on our own marketing prowess. In this age of 365-day 360-degree marketing, when consumers can control the messages they want to receive and where the concussive jolts of the recession have left everyone loyal to nothing other than their bank accounts, true customer loyalty would seem to be dead.

But it’s not time to write the obit quite yet. As our own research has shown, the use of Big Data can easily translate into smart content-driven marketing that can keep customers coming back for more.

Loyal to a Price or a Brand?

Certainly there is an element of the consumer base that cares mostly about price, not a whit about brand, and will staunchly oppose any efforts to slap golden handcuffs on them through frequent-flyer miles, warm-and-fuzzy advertising campaigns, or any other marketing efforts. Call them the Piggy Bank Crowd.

Piggy Bankers spread out their Sunday morning FSIs, obsessively compare prices, and plan their lives accordingly. They may like Staples a bit more than Office Depot, and Office Depot way more than Office Max, but if that 32GB flash drive is on sale at Office Max, it’s game over. There is not much point for a marketer to try to win over Piggy Bankers other than through price promotions, because as soon as a competitor offers a lower price, these little Piggies will go to another market.

On the other end of the spectrum are the consumers who love a brand no matter what. Call them the Philosophers. To Philosophers, price doesn’t matter (much). Advertising holds no sway. They love your product mix, or your in-store experience, or your commitment to sustainability, or whatever — and the worst Yelp review ever isn’t going to dissuade them.

For a marketer, it’s important to know who the Philosophers are, and to try to let them know that you know who they are. (Studies we did at Balducci’s, an East Coast specialty grocer, showed that the loss of even one customer from the top decile, with average spending of $542 per month, would take 6.3 customers from the other nine deciles to replace.) Nevertheless, it is not worth spending too much money against this group either, because in their eyes you can do little wrong. They are going to be there for you, anyway.

Rather, it is the in-between group — call them the Swing Shoppers — to whom most of the Big Data loyalty marketing effort should be directed. These are consumers who know your brand well enough to want to shop there occasionally, but not all the time. They are driven partially by emotion and partially by pragmatism. Both of those are levers you are capable of adjusting.

Dropping Off the Face of the Earth

In an unusually clear experiment we conducted for a supermarket chain, the movements of a discrete group of customers were monitored over time, using their frequent-shopper card activity as a reasonable surrogate for all store visits. We started tracking 10,254 households known to have shopped in one of the stores during January, and followed them for the next three months.

We found that, in the absence of any novel promotions or consistent communication, 23.2 percent of the January shoppers failed to show up in any of our stores even once in February, March or April. That is, nearly one-in-four shoppers dropped off the face of the Earth — maybe because they moved out of the trade area, but more likely because they simply shifted over to competitors who offered better deals and prices. Thus: Piggy Bankers.

brickwallConversely, 34 percent of the original shoppers came back at least once in each of the next three months, displaying true loyalty to our brand: Philosophers. As for the Swing Shoppers, 21 percent visited in one out of the three subsequent months, and 21.9 percent shopped in two out of three (see chart). These were the customers we were most interested in reaching, because they were shopping in our stores enough to know who we were, but were clearly spending most of their weekly food dollars elsewhere.

The following year, we implemented a innovative program that allowed customers to earn discounts in their favorite departments instead of just on items that we designated; and we significantly increased our communications to them through direct mail and newsletters containing vendor profiles, targeted feature stories, and coupons. Then we tracked a discrete group of households in the same manner as the prior year. The result: Only 14.5 percent of January customers dropped off the face of the Earth this time around (down from 23.2 percent), while 48.8 percent became every-month shoppers (up from 34 percent).

Those were encouraging numbers that reinforced our belief that customers do become more loyal when you create meaningful content and customized discounts. But the reality of the still-high level of defections (about one in seven) was humbling, and should give every marketer pause when considering how to measure and invest in customer loyalty.

This finding was further enhanced in another fascinating experiment conducted with Discovery Channel. At the time, Discovery had numerous mall-based retail stores, direct response ads on its cable networks, a catalog and an e-commerce site, all linked together with their Passport frequent shopper program. This enabled us to send out highly customized content and discounts — and in so doing we made the fascinating, um, discovery that for a multi-channel retailer, loyalty shows up in some unexpected ways.

In this instance, we had identified 59,000 customers who had purchased telescopes through Discovery, and we created a targeted and customized direct-mail piece to try to sell them some accessories for their specific models. The mailing was a complete dud, with just 144 recipients using the coupon we had sent. So, if all we were doing was analyzing coupon redemptions, we would have concluded that these 59,000 customers had exactly zero loyalty to our brand … or perhaps that we were looking at loyalty through the wrong end of the telescope.

But through the Passport program, we were able to track activity in all channels. And, sure enough, another 539 recipients bought a telescope accessory without using the coupon (more profits for us), and an astounding 6,824 others bought some non-telescope item from Discovery shortly after the mailing hit, worth a total of $370,979, or about five times the cost of the mailing. They were being loyal Discovery shoppers — just not in the way we had expected.

In the final analysis, it appears that customer loyalty isn’t dead, but traditional customer loyalty programs might be. There are Griff Longs in nearly every business — customers who appear to be loyal Philosophers but who, in fact, are at-risk Swing Shoppers. The old marketing strategy of locking them up by rewarding them with points just won’t work. Instead, customized content and discounts are the key to their hearts and wallets, and marketers must be prepared to look under a lot of rocks to gauge the true success of their efforts.


joe dobrow
JOE DOBROW is founder of Brickwall Strategy. He was previously the head of marketing for Whole Foods Market and Sprouts Farmers Market, among others. He can be reached at jdobrow-@-brickwallstrategy.com.


NOVEMBER / DECEMBER 2012 | PDF | Subscribe | Home