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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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Managing brand – the most profound KPI’s and their impact

Brand as a roadsign

If your brand was a road sign and didn’t have context, emotions and expectations attached to it, it’s like there was no sign at all and the road to destination wouldn’t look comfortable or secure. If the sign does have a meaning for the customer but you are trying to sell something that is out of that world, it’s likely that you face difficulties creating interest, demand and closing deals. Brand extensions are not an easy game either and you should be prepared to work a long time to change and expand your brand perception before making money. Brand can be associated with very narrow specialty or more generic qualities. However, brand is not brand if it’s not recognized and it doesn’t stand for something. Virgin is a great example for a branding of attitude and founder’s mindset more than specific product or service range or Apple, which has done usability and design profile along with technology. Technology isn’t why people pay more for Apple than PC though. You can become a mini brand having all qualities of the brand in smaller area or niche business and then expanding that area. That’s the most likely way of actually succeeding in brand building profitably. (Check another article: Brand as a roadsign)

Real brands can emphasize optimisation of buying when they are considering customer journey. People pay attention to their signs and are likely to consider them when choosing a solution from the brands context. It’s about keeping the customer’s attention and closing the deal. For labels, it’s about selling.. and selling cost money. No one will buy a label unless it’s much cheaper or someone actively sells it to the customers. This is a major challenge when trying to penetrate a market and getting your product or service noticed and approved. Gillette is a great example of using brand as a defensive force. When new brands have tried to enter a market, Gillette has issued 3 at the price of 2 offers and stuffed people with their products for a year resulting zero sales for the newcomer.

The most profound brand related KPI’s (Key Performance Indicators) that influence the customer journey and commercial success most are:

  1. Awareness
  2. Top-of-mind
  3. Preference
  4. Brand perception = attributes that translate as customer perception of context, value and personality
  5. Liking

Brand awareness

Brand awareness, spontaneous and aided, are profound figures. A roughly acceptable brand heuristic is that awareness often equals trust. If the brand is well-known, it is likely to be considered and trusted also. However, there are eg. Car brands that are very well-known but don’t have appeal resulting sloping sales regardless of their brand awareness. If the brand is un-known it doesn’t exist in customer’s consideration and therefore has no way of making major sales without very pro-active sales activities or increasing the awareness of their brand. Even if a customer would notice the brand, he is likely to ignore it.

Top-of-mind is a figure telling which brand people first think of, when asked to tell which brands they would consider. In many cases top-of-mind is very important. Especially, in fast-moving consumer goods and e.g. Phone services in which people call to ask for advice. 911 must have almost 100% awareness and a top-of-mind position in order to be able to help people when they need it.

Preference rate could be considered as a GPS device that takes the driver to the right destination. When you are driving with a GPS on, you don’t actually pay attention to alternative options and act on the directions the GPS is giving for you. Strong habit and strong preference rate have very similar behavioural influence. Preference is often asked from customers before they actually initiate buying process. It’s a measure telling what brand people think they would most likely buy. It’s an important indicator of brand health and should be treated that way. It is a meaningful KPI figure. However, it can also be misused. In most brand-tracking cases that we have seen people have been told to choose the most preferred brand even if they didn’t have one. We have allowed customers to give none as an answer. No preference combined with potential brand options has been a very efficient way of capturing business dynamics. In some businesses we have analysed 76% of customers had no preference but a majority had three brand options that were equally good in customer’s eyes. There is no GPS to consider in those markets. No preference percentage gives a meaningful indication of customers consideration but it requires from the tracking that it also track brands that customer consider as option for the most preferred brand.  If the brand you are working for is not in top three as a preferred brand or is not considered as an option, your brand doesn’t exist in the customer’s consideration. The very first thing to do in case of any business is to become considered! If you are not considered, no one will buy you unless you sell the brand in actively.

Let’s consider a practical case in travel for example. TNS and Kantar Group are offering national and international studies that have very large sample size and concentrate on customers’ perception of brands, their most recent purchases and lifestyle. In case of travel you can share customers to roughly three groups:

  1. People preferring your brand (Lower distraction sensitivity – driving on GPS)
  2. Neutral customers, who consider you as an option along others (no GPS) and
  3. Those who wouldn’t even consider you or would certainly not buy

Based on such data, mostly used by media agencies for their clients, you can tell how many people are in each group nationally, what have they purchased most recently and what are they like, demographics, lifestyles and behavioural preferences. Having this knowledge is a great eye opener and really supports management work in defining priorities and how to engage with people. Behavioural differences between preferring customers and neutral are very important. Considering sales the ratio of preferring customers is around 2/3 most recent purchases and in case of neutral customers around 1/3 or less.  Customers who are neutral let all competing brands to their consideration and check all available offers or use comparison platforms, which narrow comparison and democratize brands to same level of information. In such environment brands lose their opportunity to create unique experience and services in a meaningful way. Preferring customers on the other hand come directly to company’s website or directly contact their customer service and thus allow direct service experience by the brand.

BRAND PERCEPTION

Brand perception has to do with people’s heuristics of the brand. What the brand means for them? What is it related to? What is the context? In different businesses there are clear factors in brand perception that have a clear connection to sales. Such factors could be eg. Trust and security, technically advanced, great design, cool, fun, high quality, leader in trends, most durable, etc. In each business it is important to leverage qualities that influence decision-making most and stay in touch with the market and what kind of qualities drive it. The change of drivers could be fast and profound like it was in case of Nokia. Nokia is no longer the most appreciated mobile technology brand it used to be. Apple’s iPhone and Google Android are shaking the business profoundly. Understanding which attributes drive sales, marketshare and preference should guide the priorities in brand development.. in all customer interfaces and communications.

BRAND LIKING

Preference often require conscious consideration, comparison and decision making. It is best suitable for product and service areas where you make “bigger” decision. Liking is more subconscious and spontaneous emotional reaction to the brand. Liking could also be the first step to preference, an opportunity to become noticed and considered.

Liking the brand is a figure that has become more and more important due to digital influence. You can have high preference without liking because of superb product price/quality without being liked very much, but liking the brand has direct influence in preference even if your qualities were not quite that superb. There’s more to liking though. People have more currencies than the content of their wallet. They can speak their mind, write blogs, rate your product, influence your search results or offer you very important feedback or ideas for improvement.

Brands cannot be “created” one way – it’s the people’s perception of a company or product. Brand is no longer a noun; it has turned in to a verb. You could actually think brand as an agreement between a customer and company. Customers can agree or disagree with the agreement, resulting a perception, which could be good or bad. However, a brand cannot exist without the other party. Brand is social by nature. Still, a brand has never been as social as it has now become because of social media and online influence channels that customers are now very effectively and actively using. Customers have real power now that is global, not just local peers. No doubt that customer behavior has changed. It has completely changed in many areas and will continue doing so. Digital influence is the biggest disruptive force along the customer journey.

In current automated communications and self-service oriented world where customers are made responsible for servicing themselves there are many practices that don’t really support brand’s emotional development. Majority of companies consider customers as mass medium, measure “cost to serve” and try to push cost down, build loyalty programs that ask you to buy more and show loyalty in order to get higher discounts and benefits or offer time based commitments as agreements for discount. It’s very much a world of rational thinking. Rational is good but also neglect customer’s social currencies as value. You could call this approach “the indifference marketing”.

In social mediums people interact with their peers. It’s often, but not necessarily, a private space. In this space a brand could gain enormous value if customers would accept it within this context. A customer has enormous social capital. He can judge the brand as stupid or embrace the brand and support it. Customers are actively using their capital and they are getting more and more effective tools at their disposal just to practice this capital to the most. For example WOT, Web Of Trust, crowd sourced trust-rating of websites and brands has currently almost 60 million people rating brands and websites. Any people who have WOT application in their browser has reputation score visually presented after every single link available online.

WOT is a wonderful example of customers’ currencies becoming more and more influential. WOT is an ultimate rating tool. If some company act unethically, spam, or in any way prove not to be trustworthy, >30 million people in WOT start giving red to the brand . As an outcome, company’s online reputation score will become lower and eventually red. Red means, that if you try to enter the company’s website, you get a full page size warning stating that other people have rated this site to be dangerous and not trust worthy. Would you do business with such a company?  How likely are you to do business with a company like that has bad trustworthiness?

Social influence online has an enormous steering power. As people treat brands and companies as entities anything and everything the company does also influence their trust rating. If a brand is misusing child labour or employees, has unfair practices, questionable ethics or doesn’t respect environment, it shows in their trustworthiness score. Customers currently rely very much on other online users feedback, even if they are complete strangers. As companies have noticed that people love to rate products and brands and are interested in comparing them, new companies and services emerge constantly. The power is moving a way from institutions like traditional mediums, which have made product reviews and thus defined which products sell and which don’t. Currently smart brands are turning customers to their ambassadors and creating same effect, only it’s completely dependent on people, the customers, which make it feel very interesting and trustworthy.

Currently customers are taking the ultimate power and becoming sellers them selves by turning blog pictures in to online retail channel with Kiosked –service (kiosked.com). E.g. A fashion blog can sell every single garment or accessory represented in photos appearing in the blog. People are creating their own audiences and creating their own image by blogging and making their bellowed products available for followers and readers. Brands are just chips in customers’ games, which they can endorse or decline. Again, liking the brand is the number one thing driving such endorsement.

Liking influence all currencies the Customers have:

  • His personal detailed information
  • Promise to record purchase history (loyalty card)
  • Decision power to all his own purchases
  • Freedom of speech and opinion
  • His own time
  • His personal peers and personal status amongst them
  • Endorsement
  • Own creativity, experiences and ideas.

Of all the currencies above, I argue that most are not rationally driven and liking the brand influence them all!  You can’t tell people to tell others they love your brand or tell them to recommend your products and services to others. Also, you can’t expect people to help you make your products and services better unless they do it with their own free will. It’s all about liking.

The most advanced brands have understood that these emotionally driven assets could prove to be extremely valuable and find ways of harnessing them. Open innovation and customer boards are great examples of just that. The good companies will win. Forget about the Adam Smith’s invisible hand, it’s become very visible and very effective. Blogs, ratings, discussion forums, Twitter, Facebook.. It’s written all over the digital canvas.

SEE NEXT:

How segmenting 3.0 changes marketing and management https://futurecmo.org/2016/03/16/segmentation-3-0-disrupting-marketing-media-and-management/

How to take advantage of Brand’s position very fast with Behavioral Economics Making millions with pennies – Behavioral Economics approach

Author: Toni Keskinen, Marketing Architect & Customer Journey Designer

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

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Symbiosis strategy – Creating the ultimate customer value proposition

Whenever two organisms of different species exist in close physical contact to the benefit of both organisms, that’s symbiosis. Symbiosis can occur between animals, plants, fungi or any combination thereof. Each organism contributes something that benefits the survival of the other, and in turn receives a survival benefit of its own. This is business version of Symbiosis as a strategy

Wikipedia: Symbiosis (from Ancient Greek sýn “with” and bíōsis “living“)[1] is close and often long-term interactions between different biological species. In 1877 Bennett used the word symbiosis (which previously had been used of people living together in community) to describe the mutualistic relationship in lichens.[2] In 1879 by the German mycologist Heinrich Anton de Bary, defined it as “the living together of unlike organisms.”

When talking about Symbiosis, we are looking for the possibility of the ultimate value proposition for a customer, which is impossible to produce alone. We consider Symbiosis model as a major evolutionary concept and strategic approach to collaboratively create value that would be impossible to deliver alone.  The idea of Symbiosis between customer and company can be described with levels of synergy: a) product centric b) customer centric c) sybiosis

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Symbiosis

The idea of Symbiosis was an outcome from the first meeting I had with Jarmo Lipiäinen when we started writing Customer Journey Management – the book. It was there all along but became more and more exciting as we really started working on it. We came to conclusion that Symbiosis is also possible and doable in many forms in business as it is in nature. The driving force for the Symbiosis is to find the ultimate value proposition and create collaboration in order to achieve it. Most often the ultimate value is a blind spot for companies in certain business sector just because it is impossible to reach solo.

Writers and ideologies that we have been influenced by are C.K. Parahalad’s texts about open innovation and how to co-create value with consumers. Co-creation and open innovation have become major methodologies for corporate development for a reason and proved that people are prepared to engage in dialogue with companies as long as it is relevant and mutually rewarding mentally and financially. The final confirmation for our thinking was Michael Porter’s article about how to create shared value and re-create capitalism in Harward Business Review 1/2011. Here’s Mr. Porters speach about the approach

Models of Symbiosis

Symbiosis can be based on direct collaboration between company and customer or between companies creating value together for customer. In Michael Porters shared value theory the symbiosis is between society and business. We came to conclusion that there are four general models of symbiosis which can also be combined:

  1. Shared Value = Symbiosis between society and business
  2. Platform/standard based = Symbiosis between platform owner, partners and customer
  3. Co-created = Customer & company
  4. Coalition = Several companies working together for a customer

Symbiosis strategy 1) SHARED VALUE

In the first year of business school, there was a professor visiting from the university of Beging. He told how foreign companies had to integrate in the society in order to become accepted and actually do business in China. Chinese customers required companies to establish their position in the market and become accepted. Company should contribute society by employing people, invest in local production, support local schools and educate people to work for them. It now seems that also western markets are beginning to require higher ethical standards from businesses.

Mr. Michael Porter has developed a theory of “shared value”. Shared value is about creating long-term competitive advantages by engaging with societies in deeper level. He used and examples comparing corporate social responsibility ideology like fair trade as an example. Fair trade pays a little more to farmer in order to improve farmers living conditions and consequently the products cost more in store where consumers eventually pay more too. In shared value example, the company doesn’t pay extra for farmers, but educate them, invest in better transportation capabilities, provide farmers with more effective production capabilities. By doing this, the company now gets higher quality products at the same price as before, only the farmer’s now get 200-300% more income than before. The products cost the same as before, the company has secured production and the farmer and society where the production is done benefits much more than fair trade could ever offer.

Mr. Porter argue that during the past 30 years companies have completely concentrated on maximizing profits. In recent years business increasingly has been viewed as a major cause of social, environmental and economic problems. Companies are benefiting their owners at the expense of broader community. This has put capitalism system under siege.

Symbiosis strategy 2) PLATFORM/STANDARD BASED SYMBIOSIS

There have been symbiotic customer & partner relationships in the past. However, current communications technology, software and service development has resulted an outburst of this business model. It has become more and more evident that companies can simultaneously be interdependent and interproductive towards the ecosystem operating in symbiosis. This model exists with in the ecosystem, but ecosystem can also exist without direct interdependency and –productivity.

An icon for platform based symbiosis and actually, shared value too, is Microsoft with Windows. Windows has led the way as computers have become natural parts of our everyday lives. Windows became the standard along with MS Office’s word, excel and power point and Internet explorer. Due to dominant platform position, other software developers have been capable of cost efficiently developing all sorts of applications and software for it and increased the level of service PC has been capable of delivering for all of us. Windows and other Microsoft products resulted enormous profits for Microsoft but also IBM, Oracle and thousands of other information and communication technology and software companies. Further on, as computers spread so fast Windows also played important role in the Internet revolution. At society level, Microsoft has enabled major increase in profitability at global level. Microsoft in general and especially Windows has changed the world.

Symbiosis strategy 3) CO-CREATED SYMBIOSIS

Co-creation has re-emerged as new way of creating value and business concepts from online environment and created a lot of fuzz as such. In the online environment most games and services would be empty without people interacting on them. The businesses actually rely on customers to create meaning for the frame, platform or game they are providing customers with. World of Warcraft, Facebook, Habbo Hotel, LinkedIn, the list is endless. In these cases the company provides customers a platform for communications, social interaction and fun. Customers co-create the meaning and the company funds their business by selling users attention to advertisers. Advertisers on the other hand also participate in value creation for users and co-create value both ways. In these cases each party act selfishly and use the opportunity of a) great free and fun communication platform as a customer b) great reach and dialogue opportunities as an advertiser c) enjoy the scale and free value creation by users and advertisers enabling commercial success as a platform owner.

Another form of co-creation is the rise of mutual companies. These companies are owned by their customers and have representatives for the owners steering the company.

Wikipedia: A mutual, mutual organization, or mutual society is an organization (which is often, but not always, a company or business) based on the principle of mutuality. A mutual exists with the purpose of raising funds from its membership or customers (collectively called its members), which can then be used to provide common services to all members of the organization or society. A mutual is therefore owned by, and run for the benefit of, its members. Members could benefit from dividends or lower cost of service.

North European countries are welfare states that have a cultural fusion combined from socialist thinking and pure capitalism. In these countries the state has strong role in healthcare, welfare and education. In these countries anyone can study in University and get allowance from State to support your studies. Educational level is at very high level in average in the total population. All this is financed with successful capitalism and taxation that benefit from commercial success of companies, capitalism in a word. North European model could be considered as a model for Shared Value in the state level. As the economic turmoil is shaking ground of how nations are organising the North European model is gaining traction. In this culture Mutual companies are doing very well. For example in banking and retail the market leading players are mutual and other mutual companies are also doing better than companies in average.

Symbiosis strategy 4) COALITION BASED SYMBIOSIS

In 2004 DMA event in New Orleans I was privileged to see when Mr. Robert Gierkink from Loyalty Management UK presented the Nectar –loyalty card case and really showed how it is possible to create Symbiosis between companies in order to create much higher value for customers in order to fight against competitors and really challenge them with pure customer value.

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The core idea of Nectar –loyalty program is to join forces and relationships of several companies in to one single program in order to enable stronger hold of customers in variety of different contexts and also offer higher reward for buying from this coalition. As a brand Nectar program is very skilfully positioned as high value for both coalition partners and customers.

The idea of Nectar was to spread current customer relationship and tie it to new partners enabling effective cross selling operation and increase in sales for all partners resulting a tool for market growth in all participating partner categories. The idea of Symbiosis between partners was very well argumented both rationally and emotionally. This symbiosis materialized as Nectar, which was positioned as a customer servant supporting customer’s individual needs and behaviour in his personal life. Nectar’s role as a program was to give individual advice and hints suitable for your consuming and lifestyle. Nectar does it’s job in order to integrate new brands and companies to customer’s life and rewarding for it.

Nectar worked too, it dropped the cost of acquisition and customer care program by 50%, cost of mailing was 1/44 compared to before. Partner companies like Barclaycard increased their turnover by 9% in the first year and BP sold 4% more at lower cost. In Direct Magazine Sainsbury reported that their responses to Nectar’s targeted mailings in paper and e-mail have increased by 300% and estimated that it has 50% efficiency improvement in understanding and segmenting it’s customers.

After Sainsbury launched Nectar for their customers, according to financial statements, their profit rose 14,2% from previous year and 10,8% in the following. At that point Tesco reacted by doubling their advertising investments and struck back by recruiting new members to their Clubcard program. In the following year Sainsbury’s profit decreased by 2,9% from previous year. However, Nectar profited participating members by coalition Symbiosis and increased value for customers resulting stronger steering power and pull towards companies participating in the program.

Conclusions about Symbiosis

There’s nothing new about synergy. Companies collaborate and have always operated in win-win relationships. However, we feel that most of the companies actually don’t look for the ultimate value proposition but settle for the second best. The four models of symbiosis: Shared value, Platform based, co-created and coalition models often occur in the way that they are combinations to some decree. Still, we think these four distinctive models offer a full perspective of what can be done and where you should look for such opportunities. What we predict and anticipate is a new breed of corporate collaboration, which means new burst of holding companies offering new value propositions based on combined synergy value from different companies concentrating on their core business but creating completely new value in collaboration.

Please comment and contact us about symbiosis strategy. This is the first time we publish this concept and we would love to have it validated academically.

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If you interested in alternative Loyalty strategies check out Loyalty strategies for pragmatists

Here is a whitepaper about how to come up with Symbiosis potential that I wrote way back 🙂 NOTE: in the square with segments from 1-4 the number 3 segment is about Habit driven behavior and that has not been defined in the text.

SEE ALSO

Lost insights and Corporate Blind Spots

Business Design with customer centricity

How to enable smart company and avoid corporate autism

Author: Toni Keskinen, Marketing Architect & Customer Journey Designer

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

Join FutureCMO Movement LinkedIn Group here

Loyalty for pragmatists – it’s not about loyalty schemes

This post is about loyalty. Loyalty is about people’s willingness to stay as a customer or re-purchase when the time comes. Attrition is about customers leaving the company (defect).  For one reason or another customer relationships end inevitably, in grave at the latest. Here are some learning’s about reasons for attrition and ways of avoiding it as well as possible.

Most established companies could get enough new customers relatively easy. The biggest effect on revenue comes from attrition. In many cases new customers could take two years to breakeven. When any customer who has been a customer for more than two years leave or stop buying repeatedly, it’s directly away from profits. If customers leave before breakeven, their effect has been negative. The easiest profit increase would be an outcome of increased loyalty.

Let’s take a look at some loyalty strategies:

  1. Rational  
  2. Emotional Loyalty
  3. Habit based loyalty
  4. Legal loyalty
  5.  Structural bonds
  6. Imprinted customers
  7. Symbiosis strategy (subject to another article: Symbiosis-strategy-creating-the-ultimate-value-proposition/)

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. 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 program effectively lower the best customers profitability. It’s completely rationally driven model that create a behavioural pattern for customers to buy when it’s cheap. Naturally, they don’t if you don’t have an offer for them.

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 solutions from a single company result 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.

Newspaper and magazine subscription sales are a great example that illustrates what kind of damage you can do to the market with your own actions. Short-term victories could easily result long-term losses. Similar fight has also been raving around mobile handset and connection plans. When companies are concentrating on new business, they easily neglect the effects of such orientation to their current customer base resulting negative churn. Another example could be mortgage marginal wars, selling home loans at almost non-existent loan marginal just for the sake of market share. People could be lazy but they are not dumb. If loyalty becomes twice as expensive compared to small efforts and feels unfair and at worst offensive. Such strategy is not likely to create a lot of sympathy or feeling of being appreciated as a customer.

If you are making strong offers, you need a justification for them. Justification equal short term and special conditions enabling such offers. If you don’t have justification people start expecting lower rates in general and just stop buying at normal price. Rational loyalty is a strategy that works for price fighters and low cost offerings that don’t have a brand or other competitive tools. For others, rationally driven programs without further consideration should be considered dangerous. Buying loyalty is bad for business.

Emotional loyalty

In many cases one of the strongest driver of loyalty is the brand. Brand as a whole has its foundation in customer experience, quality, integrity, service, ethics, corporate responsibility and values. If the brand feels right for the customer he’s less likely to consider competitors. Also, the loved brands don’t lose customers without warning. If customers love you, 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 dialogue or giving you advice how to improve your service even more or what new services they would love to buy from you.

As the world is becoming increasingly transparent any actions the company does influence the brand. Where is the production done? How does the employer take care of employees? How environmentally conscious the company is? What kind of values the company is having it’s foundation on? How do those values show for me as a customer? In current business environment there’s too much of everything all the time. It’s very difficult to differentiate yourself by offering or pricing. For customer loyalty programs stand for them showing their loyalty to the company. There are stages from bronze to gold and your role is to climb up that ladder. If you do, you get stuff even cheaper. Great. Completely opposite strategy that is more emotionally driven is to consider how the company can show loyalty towards the customer. How do you take care of your customer? 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?

IKEA is an amazing case of combining rational and emotional value in to a complete package. IKEA has justified their “democratic” business approach by making it clear to all customers why they can offer premium quality at low cost. How they are solving your challenges at home at affordable cost. IKEA marketing is about Scandinavian design, the advertising highlight high quality and beauty and the prices next to products are not the core message, but they effectively look like a bargain in that context. IKEA Family loyalty program is quite rationally driven but the company brand has more to it. IKEA’s service processes are also in place and it’s easy to return or exchange purchased products without questions asked. Once you have visited IKEA, the other options don’t really feel the same ever again. If IKEA had chosen to emphasize price, they would have been just another low cost player and would never have become such dominant global player.

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 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. 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. Actually, customers find out about the invoice after it’s already paid. Another great way to avoid attrition and increase predictability is to sell service for certain period of time.

When people establish behavioural 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. If you have any way to enforce habits you should take them.

If the business environment is turbulent and advancing very rapidly you could come to situation where your existing customers are clearly paying too much to the point where you just can’t justify it anymore. Finnish telecom operator Elisa doubled broadband customers speed twice in two years because the price of bandwidth was decreasing so rapidly. This approach generated strong loyalty and healthy margins because the brand actively improved service level according to market conditions. Such approach strongly enforced customer’s habit and decision to stay with the company instead of changing to another one. Combination of rational and emotional response enforced habit.

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. Relationship driver services are major issues that are big enough to question the current relationship. This is rare though and in case the bank meets, even close, the other offers, people will stay. Online banking is like water, 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. Previously most of the profits had come from bigger investors and bigger loans. 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

Especially in case of professional service, customers are not necessarily loyal to the company, but person they are in 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 interface, 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 for 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.

In car sales it’s a known fact that the best car salesmen have customer relationships that follow them and exchange from one car brand to another just because the person is advising them to do so. Getting people imprinted to the people they are buying from should be considered as a strategic loyalty approach.

In business-to-business customer relationships the change of contact person is one of the most likely discontinuity probability increasing situations. Relationships are personal and the new person equal almost the same as changing the partner. It is really important to handle such situations carefully.

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. Customers want to have a new mobile phone every two to three years. The need to get a new handset created natural discontinuity to relationship. Mobile operators have oriented at offering 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 months agreement and were sold with handset subsidies. Against your 24 months agreement you got the mobile phone at 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.

If customer is not really experiencing very bad service, they are likely to stay in the current relationship. Human nature is lazy and towards many product and service ranges, indifferent. If customers are happy, they could ask offers just to bargain with current partner. That’s still better than losing clients. People rarely start actively comparing other options if they are satisfied. If they do, it’s most likely to check the pricing. In order to gain market share in a business like this brand has to actively sell and create discontinuity with sales. Electricity agreements are 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% and the power which 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? In case of larger IT companies, structural bonds are the biggest driver of loyalty. When you buy an ERP (Enterprise Resource Planning) system and your company becomes completely dependent on it to function, you certainly have bought a structural bond. It’s an interesting approach to loyalty to create value in which the customer becomes dependent on. There’s interesting consumer applications to this too.

When Polar Electro introduced their wrist top computers with heart rate monitoring they soon created online Personal Trainer to supplement additional training advice for users beyond possibilities in 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 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 training history. These platforms effectively still create structural bond although it’s 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.

Facebook also has such a 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 company actually managed to winback 80% of already lost customers. Win back operation was probably the most profitable function the company had ever created.

When you are trying to develop your company’s customer relationship excellence, you can’t just look in to customers who are happy. 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.

Some actionable and easy advice

Here are some advice for improvement in loyalty, customer experience and business with customers using your services or products:

  1. When you are developing your offering and customer relationship, you should try to recognize the contexts and motives your customers are using your products and services in and what is their value in use. Understanding value in use and delivering a service experience hold insights for improvement and innovation. Single purchase could be changed in to continuous relationship by turning your product or service in to a platform that allow creation of even higher value and new solutions that increase value, profitability and scale.
  2. You need to have a communication channel with customers. If you have a loyalty card offering or continuous relationship that is easy. If you are selling 3i- services or products (high investment, -interest or –involvement), people are willing to give their contacts for you. If you are in FMCG of CPG business, you should still strive to get people to connect with you directly or using platforms like Facebook or Twitter. Direct connection with your customers enables feedback, advice, and introduction of new, capturing dissatisfaction and making it right. Connection to customers is vital for improvement and creating a feeling of relationship – it’s the company’s most valuable asset. It should be taken care of keeping that in mind.
  3. If you collect data from your customers, they expect you to use it. Asking questions from customers and capturing their customer behaviour on card transactions equal promise. Brand’s responsibility is to redeem that promise.
  4. Communicating personally is respect. Understanding customer and communicating personally show appreciation and create emotional loyalty. Asking questions and responding personally is rarely used method of engaging and creating emotional relationship that is capable of breaking habits and creating new ones.
  5. Analogical is becoming premium in the era of digital communications. Face to face, phone service by a person and traditional mailings are becoming statements of respect and appreciation in highly digitalized businesses. Just think about receiving a letter from Facebook or Apple. That would really be special J A hand written note as a letter would really indicate that someone has taken the time to consider you personally.

Author: Toni Keskinen, Marketing Architect & Customer Journey Designer

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

Join FutureCMO Movement LinkedIn Group here

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