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Thin Ice
That crackling sound underfoot might be your loyal customers.

A roundtable discussion featuring Chris Gabaldon of Ritz-Carlton, Michael Simon of Panera Bread, Jim Speros of Fidelity Investments, and Spencer Hapoienu of Insight Out of Chaos.

How is loyalty created and sustained?

Chris Gabaldon: I can’t speak for other brands, but at Ritz Carlton we have a platform that says we’re trying to create indelible marks on the lives of our customers. When a guest has an interaction with our brand, it can be simple or substantial, but the interaction should be one where the guest actually remembers it.

We believe in the power of memory. Emotions that are evoked through memories can create lasting impressions that result in loyalty.

So, when we think about creating indelible marks on the lives of our guests, it means that we have to do something that wows them. It can be as simple as a complimentary appetizer, or incredibly grand.

Michael Simon: There are really two levels of loyalty. A lower level is built on functional loyalty, or habit. So, for example, if you love coffee, you might go to the same Starbucks because it’s on your way to work, but your loyalty is really more connected to the product than the brand.

At the highest level, loyalty is built on trust, and trust through two lenses. One is that you know and trust a company to have your best interests at heart. The other is when you have either a shared sense of values or interests.

Jim Speros:Loyalty is earned through the customer experience and the consistent delivery of a quality product. It sounds very simple and basic, but the core of loyalty comes down to maintaining the bond of trust that you’ve established with customers when you first started with them.

That bond must be reinforced over time through consistency of experience and product quality. Loyalty can also be reinforced through social-media channels, to the extent that you are able to create word-of-mouth and advocacy, organically across social networks.

Spencer Hapoienu: To create and sustain loyalty, you need consistency and relevance. The product or service has to meet all of the expectations of the customer all the time. It has to be relevant not only in the way it delivers its attributes, but also in all of its communications and interactions with customers.

That’s not easy to do. It’s not easy to keep up with the changes in the marketplace because of technology and because there are so many options. But if you have created relevance and a relationship, the customer is more willing to give you some room to change the brand to keep up with their expectations.

Conversely, if you have no relationship with the customer and done nothing to be relevant, it’s easier for the customer just to move on to the next competitor.

What is the biggest threat to loyalty today?

Gabaldon: Consumers have access to so much competitive information that the danger of losing loyalty is with us all the time. The good news is that this gives every brand the opportunity to differentiate itself. The flip side is that the marketplace becomes so commoditized that brands give up on differentiation.

The airline industry is a great example of loyalty being built through programs, and not necessarily tied to individual brands. They’ve gone through about ten years of commoditization, to the point where the customer is choosing the brand based on route and price and not necessarily because of a strong affinity for a particular airline.

They may have a strong affinity for a particular loyalty program, but I would argue that some airline loyalty programs have become more important than the equipment, the services and facilities onboard the aircraft. That’s very dangerous because then it just becomes a race to the bottom in terms of price, and how many points and promotions you can offer.

Simon: The biggest issue is trust, because that’s what brings people together or drives them away. It’s so interesting how consumers view companies today. There’s a lot of data out there that shows a real lack of trust between companies and consumers.

Those companies that can show that they are authentic, that they are honest and transparent and continue to aspire to and reinforce those values, can build deep loyalty with their customers. On the other hand, there are a number of companies that have made mistakes along the way, and have done a disservice to the notion of trust. That’s the biggest threat.

That’s why it’s so important for us to be consistent: to walk the talk. At Panera, we often talk about “deeds not words” as a manifestation of how we treat our customers and how we feel about them. There is a litany of examples of companies that have talked one way and acted another.

Speros:One of the biggest threats to loyalty is short-term promotion. I see a lot of short-term promotional thinking in the marketplace, where customers leap for an offer that may sound good, but then after they get past the offer stage they are let down.

Trying to build loyalty on that kind of foundation is quite shallow. You may be able to get somebody to take action on some of these shorter-term promotions, but if you aren’t focused on the fundamentals that drive loyalty in the first place, the relationship will quickly deteriorate.

The consumer will move on to the next great deal that they get. We are dealing with a much more fickle consumer today, who is willing to experiment and try other products and services.

Hapoienu:The biggest threat is that each brand’s loyalty represents a smaller share of its category than it used to. People are now more loyal to a category than to a brand because technology makes it so easy for customers to find parity in product or service attributes.

As a result, it is more incumbent upon brands to maintain their share of the category loyalty. It’s no longer enough simply to add features and benefits; brands today also have to build customer relationships.

That means understanding what they like, what they don’t like, finding out how they use the brand and trying to cater to that as much as possible. The threat is that you cannot relax at all, because there’s always somebody else who is going to start picking apart at the fringes of your brand loyalty.

Has your view of loyalty evolved over the last five years?

Gabaldon: People used to be loyal to brands that they knew and trusted and it was really hard to generate loyalty for new brands. That has changed dramatically because of the ability to disseminate information through the internet and social networks.

Advertising provides one voice of your brand in the marketplace, but its real voice is portrayed by the circle of friends, followers and the community in which you participate. The ability to share those opinions today is just so far greater than it was even five or six years ago. Think about the fact that there are now a billion people on Facebook.

Building brand loyalty today means being transparent and relevant enough to participate in all of the right places and channels. We have to be authentic not only in terms of the experience with the hotel, but also in the social space, online, digitally. We have to be authentic in all of our interactions.

Simon: The outcome and intent of loyalty hasn’t evolved, but technology’s role as an enabler to drive loyalty has changed. Because of technology, we know more about our customers today, so we get a much deeper understanding of who they are behaviorally and in terms of their attitudes and values.

Technology allows us to connect and build those loyal relationships better. In a weird kind of way, it’s almost the same thing that dating services have done for people getting together. Technology has enabled us not only to understand customers better, but also reach them in ways that are more convenient and relevant to them.

Speros: The more fragmented the media world has become, the more the marketer has to think about how we leverage new tools and technologies to reinforce relationships with customers.

We use Net Promoter Score as a core determinant of whether or not we are driving loyalty. Net Promoter Score divides customers into three groups: promoters, passives and detractors.

What’s important is not only the score itself, and continuously tackling things that cause detractors to exist, but also what you do with the detractors when you find them.

So, you need to have a strong program for detractors and quickly follow up with them to get at the root cause and not allow the situation to fester. This has been very effective in driving consistent growth year over year in our loyalty scores.

Hapoienu: It used to be easier to sustain loyalty. Traditionally, you could count on retaining 90 percent of your top 10 percent of customers. Over time, that’s started to decrease; instead of retaining 90 percent, you’re only retaining 88 or 85 percent. That’s a lot of money because that’s your top 10 percent.

You can see that trend happening in every category. It’s harder to retain that intense level of loyalty because there are so many options, and technology has made those options convenient, if not less expensive.

So, again, the evolution is that you have to work harder and you can’t ever relax. You have to try to figure out how to connect with customers, because the only thing that may separate you from your competitors is whether or not you have a relationship with the customer. The only way to keep their loyalty is if they like the brand and have an affinity for the way you do business.

That’s a combination of having the data to know who those customers are, what they are interested in, where you can be relevant to them, and how you treat them from a customer point-of-view.

Is creating loyalty the most important job of marketing?

Gabaldon: Whatever you do — whether it’s marketing operations, or engaging the guest in unique, personal ways — if the outcome is loyalty, then that is the most important thing you do.

In marketing, a variety of things are important, and loyalty is one of them. But at the end of the day, you’re still trying to expose new customers to the brand and trying to tell your story.

That could be around relevance, new ideas, innovation or social responsibility. There are a lot of priorities in marketing that engender building loyalty.

Simon: It’s interesting. I’m not sure it’s our job alone. In the restaurant business, we could have a great conversation with a customer, but if the experience or the food isn’t right, we will not have a loyal customer. We are one part of a team.

Much of our focus is creating loyal relationships that translate into increased visits and frequency. We can create and enable that, but ultimately it’s through integrating with our retail operation. It’s that synergy that brings the relationship together at its best.

Everything has to be working, so marketing is really just a means of communication, of having a conversation and better understanding customers so that the Panera experience really satisfies their specific needs.

Creating loyalty is among the most important things marketers do, but we’re not working in isolation. We are working with our operators to create loyalty with the customer.

Speros:Loyalty is one of the jobs of marketing. I don’t think it’s the most important. It certainly ranks at the top. The role of marketing is two-fold: to drive profitable growth and cultivate customer relationships so powerful they result in advocacy for your brand.

That’s the two-fold track that every marketer needs to follow. If you blindly pursue growth alone and ignore your customer base, you have a leaky bucket situation. You’re losing key customers faster than you’re filling up the bucket.

Hapoienu: Creating loyalty is the most important job in marketing because unless you have a Steve Jobs in your back room creating a great new product every year or two, then all you can do is try to build a connection with your customers.

Most people have two or three brands to which they are loyal in a category. The question is: Can you be first among those three; second among those three; or even third among those three? If so, you’ll be happy. If not, you are cooked.

Which brands have won your loyalty and how?

Gabaldon: I’ve had a great experience with Allstate Insurance. I was in an accident several months ago that was not my fault. I thought I was in for several weeks of trying to deal with an adjuster processing my claim, not having a car — all the things you don’t want to go through.

But by 9:00 the next morning, an adjuster from Allstate drove to my house, wrote me a check on the spot, and had a rental car brought out to me. They reimbursed me for the deductible while I was waiting for the other person’s insurance company to send me a check. I’ve now also switched my homeowner’s insurance to Allstate because of the experience.

Simon: I have been following The Grateful Dead for 30 years — both the original group and later versions of it. While The Grateful Dead is a brand, it’s really more a community of shared values and interests. The music and the band are just part of what attracts people to the brand.

I have a strong loyalty not only because of my love of music, but also my love of the community and what it stands for. There’s a certain connectivity at their shows that brings us all together. There’s something powerful that happens that makes you want to do it again and again and again.

Speros: LL Bean has consistently been very effective at maintaining quality products, as well as knowing who I am, recognizing me as a valued customer, and rewarding the relationship.

Amazon has also done a fine job of maintaining loyalty. They do it by knowing me as a customer, through the tools they make available, and their consistent delivery of service.

Hapoienu: Other than Apple, I can’t think of any other brand I’m loyal to. I used to be very loyal to Nike, but now they are just one of three brands I’ll consider.

I always buy two pairs of running shoes at a time and it used to be that both pairs were always Nikes. Last time, I didn’t buy Nikes at all. I can’t be loyal to a particular Nike shoe anymore because they change them every year and you can never get the same exact shoe year after year.

Supposedly, this is because they are making improvements. But my attitude is: I liked the old one, so don’t change it just because you think it’s better. It’s not better for me. They do that all the time. I think all the shoe manufacturers do that; it seems to be the nature of that category, but I’m no longer loyal as a result.

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THOUGHT LEADERS:
hub loyalty roundtable

CHRIS GABALDON is chief sales and marketing officer, The Ritz-Carlton Hotel Company, where he is the strategic business partner to the global chief operating officer and leads global sales and revenue management.

MICHAEL SIMON is senior vice president and chief marketing officer of Panera Bread. Previously, he held various roles at Campbell Soup Company, including Pepperidge Farm and Godiva Chocolatier.

JIM SPEROS is executive vice-president and chief marketing officer of Fidelity Investments, where he leads the development of integrated marketing programs. He was previously CMO of Marsh & McLennan and Ernst & Young.

SPENCER HAPOIENUis president and co-founder of Insight Out of Chaos, a database and direct marketing company. He can be reached at spencer-@-iooc.com or (212) 935-0044.


NOVEMBER / DECEMBER 2012 | PDF | Subscribe | Home