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Loyalty in an interactive digital market


The concept of loyalty is a very profound human emotion like love and trust. Loyalty is an outcome of shared values and experiences, forged with time. It’s not a fling, its about integrity, trust and dedication. Loyalty truly is the holy grail of brand relationship even in the interactive digital marketplace. When we think about loyalty between people, we know that it takes a long time to develop such deep feeling of trust. The same aspect of time certainly applies to brands too. Brands are concepts you can see, feel and experience, even have a dialogue with via customer interfaces and people representing the brand in question.

Well, think hard and consider which brands, products or services are you loyal to? I would imagine there are some. Then think, which brands show genuine interest in you, making your life easier, helping you, respecting your wishes, sharing your values, trusting you completely. Can you think of any?

Companies are quite good at “doing things right”, professionally and operationally delivering what is expected from them. The superb quality of certain product does create trust and loyalty as such due to rational and emotional consideration. This is especially true when your life could depend on that product. On the other hand companies are not that good at “doing the right thing”. Doing the right thing has to do with a context of engagement, feeling of fairness and trust. If your phone breaks a day after the guarantee closes, what does the company do? In case you have bad luck and you fall behind you payments for some period of time, what does the company do then? If the company has a choice between 10% higher profit margin and environmental or societal benefit, which will they choose? There is a lot of data that shows, how profitable “doing the right thing” actually is in case of reclamation. When you do the right thing, listen to your customer, pay attention and do your very best to make things right, the customers reward such deed with their wallets and hearts.
So, my advice for brands is coming straight out of the Bible, Matthew 7:12, The Golden rule: “Do to others whatever you would like them to do to you.” This truth is eternal and applies to Brands on- and offline just as it does to people. Loyalty truly is a concept that takes time to evolve and it can only be earned over time.
Well, the concept of loyalty, in case of commercial operation, means that brands are measuring their brand loyalty with KPI’s like RFP analysis (recency, frequency and monetary), length of customer relationships, life-time-value, share of wallet and Net Promoter Score. All of these measures have to do with loyalty, but they could also be about something else. Not all behavior that appears to be loyal has to do with the concept above. Let’s take a look at commercial loyalty strategies:
1. Rational Loyalty
2. Emotional Loyalty
3. Habit based loyalty
4. Imprinted customers
5. Legal loyalty
6. Structural bonds
Rational loyalty
Most loyalty programs don’t deliver brand loyalty, really. That is due to the fact that people have all loyalty cards and they pick cherries from where ever they happen to find best offer at that point in time. Points based loyalty programs are often buying loyalty from customer. You get more discount when you buy more and you get offers only available for members. Loyalty can be completely rationally driven model that create a behavioral pattern for customers to buy when it’s cheap. Naturally, they don’t if you don’t have an offer for them. In the open online market its very easy make comparisons.
Most often, members also get bulk messaging in which there is nothing personal. A membership equals the license to sell. Selling is often positive. Customers consider selling as active relationship in which the company is offering new services and value for them (servicing by selling). Buying several products or services from a single company generate stronger relationship and lower attrition probability. Everything above is basically positive, better than no program. However, when customer relationship is based on rational decision, another company with more aggressive approach can do considerable damage.

Emotional loyalty
Emotional loyalty has to do with the true concept of Loyalty. Brand as a whole has its foundation in customer experience, quality, integrity, service, ethics, trust, corporate responsibility and values. If the brand feels right for the customer he’s less likely to consider competitors. Also, the loved brands become part of customer’s own identity and they don’t lose customers without warning. If customers truly love your brand, they let you know if your pricing or position is having a strong challenger and they actively ask your approach to the situation. Emotional loyalty is not price driven. You can have healthy margins and customers accept it. In such a position customers also offer their helping hand and are much more open to participate in open innovation or co-creation dialogue or giving you advice how to improve your service even further.
In current business environment there’s too much of everything all the time. It’s very difficult to differentiate yourself by offering or pricing. The truly emotionally driven approach to loyalty is to consider how the company can show it’s loyalty towards customers. How do you take care of your customers? How do you make certain that the value you are delivering to your customer becomes even higher? How do you solve problems that your customers have?

Habit based loyalty
In most businesses there comes a time when customers re-consider whether to buy the same brand again or to buy something else. If the customer is involved in continuous relationship it requires active sign-off from the current relationship. If you can turn single purchases in to continuous relationships in any way, you are likely to drive much higher loyalty. That’s the best part. Once the customer is engaged in continuous relationship it requires time and effort to close it. The bigger the required effort is, the less like people are to go thru with it. Some of the best psychological themes for loyalty are laziness and minimizing points of discontinuity creating experiences like billing. One of the great ways of improving loyalty is allowing customers to have automatic payment methods directly from account or via credit card (eg. Netflix and Spotify). As a result customer does not get direct invoice for the service delivered but it’s included in credit card invoice or directly paid from account. Attrition probability drop is quite significant with such a method and the relationships could continue for as long as the credit card is valid.
When people establish behavioral patterns like reading a newspaper every morning, their likelihood of attrition is much lower. Habit based loyalty is really about keeping the status quo. Low profile and making certain that there is no need for active consideration for the customer enable very profitable type of loyalty.
I have have been completely loyal to LensOn contact lens selling online store for the past four years. This is because they send me an email enabling me to repeat purchase with only two clicks. I didn’t even remember the brand, but in case I didn’t order instantly I would go back to my email and search: “contact lenses”. This search will bring me the email I am looking for and with only two clicks I’ll order new package of contact lenses. Because my credit card information is already stored in the service, this habit is extremely easy for LensOn to maintain.
Another fantastic case of habitual loyalty is online banking. The first online bank was issued in Finland and since then the whole retail banking has changed completely. People no longer have a reason to go to the bank. They can take care of all their finances online. As an outcome people have become user interface loyal. Only in case of major need for relationship driver service, like mortgage, people would consider changing their bank relationship. Online banking is like electricity, as long as you get it when you need it, there’s no problem. If you don’t, you have a major problem. If the service keeps on going there’s nothing to question the current relationship. Online banking enabled huge cost cuts and automated service processes. Cost to serve is now marginal. Once online banking was introduced and became a habit for customers, the vast majority of customers became profitable. Banking margins and profits have grown and the profitability has increased without attrition.

Imprinted loyalty
Customers are not necessarily loyal to the company, but person they are in a relationship with. If customers get imprinted to their counterpart and the person stays with the company, relationships could be very strong emotionally, rationally and habitually. Trusted person can be an enormous asset for a company. The online revolution has diminished the role of person-to-person relationships in consumer businesses. The role of brands and trust in service processes has substituted the void to some extent. It’s not quite the same but works too.
The company’s customer interfaces and people servicing customers should still be trained to reach for such relationships. The brand is as good as the person representing it. Some major hairdresser chains evaluate their employees based on the fact, how many of the hairdresser’s customers book their next visit from the same hairdresser. This measure is beautifully simple and revealing. Being a great hairdresser is not just about the quality of your work, it’s very much about the whole experience. Especially women open up and discuss at the hairdresser. They could easily spend two hours with the hairdresser and spend a lot of money on the experience. It’s about being heard, appreciated and pampered along with getting your hair cut and dyed.

Legal (Contractual) Loyalty
Mobile operators in Finland suffered from very high attrition rates after number portability was enabled. Churn rates reached +30% level even though customers were very happy with their operators. This is a great case proving that customer satisfaction DOES NOT EQUAL loyalty. Customers want to have a new mobile phone every two to three years. The need to get a new handset created natural discontinuity to relationships. Mobile operators have an orientation to offer good deals for new customers and winning higher share of dynamic market. This orientation led to higher advantage for changing a company than staying with the current one. These operators had same level of perceived value and customers had rarely real preference. Most customers had only options that were equally good in general. Only differentiating factors were the brand communications and current offers.
The operators started selling customers 12 month agreements, which offered lower cost calls in the evenings or weekends. These agreements sold quite well and led to lower attrition rates. Once 3G bundles were introduced they included 24 month agreement and were sold with handset subsidies. Against your 24 months agreement you got the mobile phone at about half price. These agreements dropped attrition rates below 10%. In other words agreements offered steady relationships and predictability. As a result mobile operators profits increased and people purchased more expensive mobile phones, which enabled major increase in the use of data creating completely new mass market. Everybody won. After the 24 month agreements ended, the attrition rates increased back to 15-20%. Although the attrition rate increased, they didn’t reach previously familiar 30% rates.
Human nature is lazy and towards many product and service ranges, indifferent. In order to gain market share in a business like this brand has to actively sell and create discontinuity with sales. Electricity agreements are a great example of this. Very few people compare electricity pricing and actively change a power company unless it’s actively sold. When you get a call offering you -5-10% and the offered power is produced with water and greener than your current option, it’s easy to agree. Even better, the new company also close the previous deal so that the only thing you need to do is say ”yes” on phone. It is possible to surprise a competitor with heavy attack in a case like this. Unless the competitor has closed agreements for certain period of time, they are likely to lose a lot of customers almost over night. Who would start comparing for 5%? Very few would. Who would accept such offer when it doesn’t require any effort? Quite many will. Only thing hindering people to accept such an offer would be to tie them in the relationship with an agreement for certain period of time.
Loyalty by structural Bond
What could you sell your customer to make him dependent on you? Structural bond is an interesting approach to loyalty and how to create value in which the customer becomes dependent on.
When Polar Electro introduced their wrist top computers with heart rate monitoring they soon created online Personal Trainer in the end of 1990’s to supplement additional training advice for users beyond possibilities of the cadget in it self. Personal Trainer recorded all your training to a database and created record. It helped analyzing your training requirements and results very effectively. In the early 2000 this was a ground-breaking innovation. When all your training history was online, Polar Electro had a structural bond on you. If you wanted to change to more advance training tools, you had to buy another Polar wrist-top-computer in case you wanted to keep your training record ongoing. Currently mobile phones have same functions and you can use variety of platforms for storing your data eg. Samsung back-up, Apple iCloud or Android saving to Google account. These platforms effectively still create structural bond although some of them are now cadget independent and available to iPhone, Nokia and android. Still, Polar Electro’s Training Tool is an effective loyalty driver for everyone who has been using it for the past decade. The current rush to “internet of things” will produce massive offering of services just like Polar Electro’s training tool. As this market is only just opening, every brand should consider right now, how can they lock their customers in.

Facebook also has a strong structural bond, your friends that are already there. When everyone is already there, it becomes very difficult to leave and completely stop using it. It is also very challenging for other services to get really active users, because Facebook is a strong habit and it holds your entire social life and has become big part of yourself – part of who you are and how you represent yourself to the world.

Attrition
No matter what you do, some customers will leave eventually. Still, applying effective win back strategies could diminish negative churn. One telecom company actually managed to win back 80% of already lost customers. Win back operation was probably the most profitable function the company had ever created.

Just one more advice, when you are trying to develop your company’s customer relationship excellence, you can’t just look at the customers who are happy and satisfied. Their responses will only strengthen the status quo and hinder innovation and adaptation to changing business environment. Lost customers on the other hand are a great source of insight and improvement advice. Any information that help you predict discontinuity, increase the probability of re-purchase, or shield customers from competitors influence and decrease retention clearly increase profitability.

Loyalty certainly is something worth thriving for. Just remember the Golden rule when you are making choices – even though you work in the interactive digital market place.

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About Author

Branding = Change Management and Operational Excellence

Over the past couple of years I have been involved in the development processes of SME’s and some major companies with hundreds of millions or billions in turnover. These processes are about change:

  • The emphasis is moving from advertising and external media to own touchpoints and communications with own customers
  • The marketing as such is becoming more and more targeted and measurable. Marketing has a business case and acts more and more like a business unit
  • The view is moving from products and services to customers and customer centric insight driven development
  • The development requires companies to change the way they operate and how they are organized
  • Big data about customers, their behavior and their needs is required in order to enable the change
  • The change requires companies to re-consider their KPI’s and what data do they use in order to increase transparency and enhance and empower internal innovation and cross-silo collaboration
  • This change must be managed and management must change in order to enable the change for better

I recently published my view on the new and re-designed 7P’s for marketing. In this article I already underlined the fact that marketing has changed profoundly. Brands are no longer created – they are earned. Brands live in customers’ minds and they grow from experiences.. own and peer experiences. In my opinion CMO’s are at the very core of corporate Must Win Battles like:

CMO and corporate must win battles

This is why I would say rather confidently that the path from good to great brand includes these stages:

branding, marketing, operational excellence

First: You need to have goals and vision. They act as a unifying master plan that everyone in the company can understand and accept. What kind of brand are we trying to create? What kind of customer experience and and relationship are we trying to deliver and earn? What kind of impacts are we trying to get?

Second: When you analyse the customer journey accross all touchpoints and channels, you get to see how are you currently performing, what and where do you need to improve. This is where the magic happens between your brand and customers

Third: You need to take a look at how does your company actually operate and how is it managed. Does your current ways support and enable the customer interface operations that you are trying to achieve. Are you organized right, do you have right kind of KPI’s, are different diciplines and silos working together or do you lose insights between gaps and inevitably cause corporate autism?

Fourth: Does your corporate infrastructure enable everything mentioned and planned above? Do you have legacy systems and technology, disconnected data etc. In case the technology and infrastructure doesn’t enable the change, how do you take action? What kind of roadmap and investments are required? What can be done fast, what takes more time and effort? What can be piloted and can you start the learning curve growth with some manual work that enable more effective technology implementation?

This same approach to change management can also be seen as work that moves from practical customer interfaces insights and understanding to top – not top-down. This is how it works:

upside down strategy workWhen I have been running these cases I have learned that this approach works very, very well. The reason is that everyone is involved and the process in it self actually enhances the learning and feeling of unity, shared goals and willingness to change. This is because the process inspires, makes difficult theory work feel practical and easy to adopt. Very often the process generates several small victories and improvements that can be implemented immediately. The good experiences start building up and people get the feeling that these things are really happening and we are really doing something meaningful. Once the plan is ready, the organisation has already moved several steps to the right direction and has become excited about the development. For the management this is extremely valuable situation, because they can just enable what the organisation is asking for instead of trying to order and manage changes top-down.

The reality is that the use of data and data driven operations are requiring new approach to technology and companies need to adopt it some how. Here’s an example about the use of external data ecosystem along with own data

Internal and external data use in marketing

The role of internal and external data:

the role of internal and external data in marketing and customer services

This is how I see the brand development in this day and age. Do you agree/disagree? Would you have any cases, experiences or hints how I could develop this approach further?

See also:

SEE ALSO:

About Author

Beyond HBR’s “truth about customer experience”

Harward Business Review just published a great article about Customer Experience and Journey. See here. The main point of the article is, that managing single touchpoint engagements doesn’t provide sufficient customer experience.

HBR - Truth about customer experience

My advice is: Don’t design just touchpoints – Design chain of events, proactive and reactive. Development and measurement is often done engagement by engagement. The service design approach also highlight such emphasis. I’ve done Customer Journey mapping and methodology development since 2004 and agree with the article, only it’s lacking tools and methods how you should approach the challenge. I can help with that.

I’ve written an article series about customer journey management and you can choose and pick, which areas you are interested in or read them as a series of articles:

  1. Customer Journey FLOW
  2. How to map and study Customer Journey
  3. Customer Journey stage 1: Brand as a platform
  4. Customer Journey stage 2: Initiation
  5. Customer Journey stag 3: Choosing and buying – cross-channel influence

In order to really do Service and CX design for the entire customer relationship, you need to understand that there are very different journeys to begin with.

  • Purchase journey (From awareness to consideration and transaction, Acquisition)
  • Service journeys post purchasing (Using the product or service, value-in-use)
  •  Planned (e.g. Address change, regular maintenance etc.)
  •  Unpredictable (e.g. Product failure, reclamation, insurance coverage, etc.)
  • Delivering a service as a customer journey (taking a cruise or flight, restaurant, using media, etc.)
  • Retail customer journeys (e.g. IKEA store experience)

Once you have both Insight and Topsight level understanding about customer journey in full, you need to take a look inside the company. What organisation bodies are involved with customers, what kind of technical environment direct their operation and what kind of data steers their actions. The reality is, that management reporting practices represent management understanding and decisions. The systems and technical infra on the other hand define how the corporate body acts. In case you need to change the way how the corporate body in total behave, you need to define required technical changes, change management and manage change. In my experience, creating Service Blueprints has been quite effective tool for both challenge recognition at current status mapping and Customer Experience planning.

The potential is absolutely amazing. The customer’s expectations are constantly growing harder to fulfill and companies that are agile enough to cure “Corporate Autism” and take the steps required to move from “inconsideration marketing” and mass mailings to service automation, Customer Experience and Journey design at total relationship level, can win marketshare and increase profits considerably. The business-as-usual approach is no longer sufficient, you need to free the full potential an organisation can offer and tear down silos in order to take advantage of synergies available.

In the big picture, your company must act professionally and fulfill minimum requirement perfectly. Failing these requirements cause criticism and decrease your NPS results. Acting human, being considerate, thoughtful and proactive on the other hand increase the number of people willing to recommend you and increase you NPS score. Succeeding in both cumulate earned trust, which is the foundation for long-lasting and profitable customer relationships and strong brand.

creating customer loyalty and trust_improving NPS

In case you do well, the process will enable you to design lean processes and define the best possible value your business processes can possibly deliver. In my opinion this is the Future for CMO’s position inside the company. It’s not the job for CMO’s to define business process management, but it’s the CMO’s responsibility to make certain that everything the company does, delivers maximum customer value and experience across all customer interfaces

Customer interface reach & effectiveness

In case you can capture customer contacts, you can start servicing and inspiring customers individually and simultaneously your capacity to influence increases. The bigger share of the customers buying in a certain category you have in your database, the more effective means you have to influence their behavior and market dynamics. The ultimate goal is to synchronize customer portfolio with product and service portfolio across all touchpoints and marketing interfaces.

customer portfolio_customer touchpoint & marketing portfolio_product and service portfolio

In my experience the only way to do successful customer journey and experience design and create sustainable management model for it is to do the work upside-down. You start from the actual interfaces, motives, contexts and people. From there you continue inside the company culture, practices and technology and design the strategy level after you understand everything else. Like this:

Bottom-up strategy and data analysis

The Holy Grail of customer value is Symbiosis. Check Symbiosis Strategy – creating the ultimate value  -article here.

This is a video by on Sep 12, 2013, It’s All About the Customer Journey

Author: Toni Keskinen, Marketing Architect & Customer Journey Designer, Toinen PHD

http://www.linkedin.com/in/tonikeskinen

Join The Future CMO Movement LinkedIn Group here

Marketing has an identity crisis – Blue Ocean dashboard

I just found Dr. Rod King’s Blue Ocean dashboard and process tools from SlideShare today and thought about how necessary it is to understand the whole value creation process in order to manage brand effectively. The number one branding responsible inside the company is actually the CEO, as he is often the only person in a company responsible for the total experience.

Brand identity is a reflection of the company, it has to be real and true. False promises and wrong kind of identity only generate dissatisfaction and distrust. You are what you are and you can improve, but you can’t stretch too far. Marketing is often responsible for the identity design, business managers are responsible for the experience. This approach doesn’t work anymore – The brand from the customer’s perspective is one single entity and the experience and perception must be a solid combination.

Mr. Graham Hill, well-known and great CRM and customer experience expert whom I respect very much just published an article: How Stupidity, Short-termism and Immorality Ruined Marketing in Customer Think -blog. Here’s a quote:

“If you take a step back you will see that the ethos of marketing has changed over the past 50 or so years. It used to be the driver of a three-step process of 1. understanding what customers want, 2. organising to give it to them profitably and 3. telling them all about it.

Today, this has been changed so that marketing is now the driver of a much more intrumental three-step process of 1. create more stuff that we already make or that competitors make, 2. tell customers about it over and over again, and 3. manage away the customer queries, complaints and returns as cheaply as possible.”

In my opinion the article just emphasized how important it is to act now and change the way how companies organize for marketing and define the role marketing has within the organization. (Below the article there is also great dialogue about the matter.) Read here

The CMO’s should have the best view on how the customers both perceive and experience the company and translate that reality for business owners and the CEO. Mandate for this position comes from the customers. The CMO’s role is to understand how the product/service range and customer experience influence the overall value experience, brand perception and preference, demand and capacity to generate premium pricing. CMO should define how the company should position different products and services in order to optimize the overall growth, sales and profit margin.

Dr. Rod King’s tools for Blue Ocean dashboard tool felt like rather easy and rapid tool for over all view creation, opening eyes for the whole. Here it is:

Naturally branding and brand identity has a lot to do with subconscious and emotions along with rational mind. The business owners are  rational, which doesn’t guarantee success and most certainly doesn’t drive willingness to pay premium. Business owners often demand rapid results, which easily leads to tactical marketing emphasis, which only decline people’s willingness to pay for quality and drives opportunistic customer behavior. This is where marketing must bring the magic in. Creativity has more demand now than it has ever had due to the cluttered market and overwhelming amount of marketing messages everywhere.
Marketing has a strategic role inside the corporate hierarchy, it’s time to act and wipe away the perception of marketing, that is now dominating business owners minds.
Let’s face it. Marketing has an identity crisis and Marketing as a “brand” is suffering from wrong “brand perception” and customer experience defects. Lets re-define the meaning of marketing, polish the “brand” and it’s value for other corporate board members. This is why Future CMO Movement was founded!
I hope this community could become a place for game changers to exchange ideas and share experiences. In case you think you would have great material to share, please contact me and I’ll grant you author rights for this blog. Contact me via toni.keskinen(at)gmail.com
Also check out these articles:

Author: Toni Keskinen, Marketing Architect & Customer Journey Designer

http://www.linkedin.com/in/tonikeskinen

Join Future CMO Movement LinkedIn Group here

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