5 Loyalty Techniques to Improve CRM

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As stories of failed rollouts and disappointing results mount, many companies have shelved enterprise-wide CRM initiatives in favor of targeted baby steps. But are they taking the right baby steps?


To develop that 360-degree view of the customer that CRM pundits trumpet, you need to know not only who your customers are and what they've bought, but also what they dream about.


A well-crafted loyalty marketing program can be a crucial first step to pry the dreams from customers skittish about privacy, wise to targeted offers and numb to discounts. Integrated tightly with your overall customer relationship management strategy, a loyalty-marketing component can become a powerful engine for CRM if you keep these rules in mind.


Trade information for value. All CRM solutions begin with collecting data. But amid suspicious shoppers and looming privacy legislation, how do you get customers to raise their hands and identify themselves?


Twenty years of loyalty marketing have proven that customers will trade information for value. Most CRM consultants prefer to deliver value through personalization and discounts. But frequent discounts erode ROI and damage the integrity of your customer relationships by building loyalty to the deal, rather than to the brand.


Rewards offered by well-conceived loyalty programs, however, represent compelling, indisputable added value. By acting as deferred, accumulated discounts, loyalty point structures preserve margin and shift the customer's attention away from price and back to where it belongs: the relationship.


Finally, the most underestimated benefit to trading information for value is that, given a compelling, relevant offer, the customers will do the work. A good loyalty program with tangible rewards will have customers clamoring for more opportunities to identify themselves.


Use membership as an identifier. Airlines have understood for years what retailers only recently have grasped: If a customer isn't a member of your private-label card, co-branded credit card or coalition program, you have no idea who he is. He may love your customer service, your store layout or your location, but how would you know? You've never given him a reason to speak up.


Data miners stress having a key identifier by which customers can be tracked across channels and touch points. Without a frequent-flier number attached to your account, airlines have no way to know that you were bumped in Albuquerque, spent four hours in a delay at O'Hare and had your luggage lost in Cincinnati. Earning miles is the only way to get on their radar screen.


Likewise, by using loyalty program membership as an identifier, building a multichannel profile of a customer becomes easier. Brand your program across all channels - including point-of-sale, your Web site and catalog - and you then can funnel valuable customer information throughout the enterprise. Every transaction becomes more fuel to warm the customer relationship.


Rally around your most valuable customers. Companies that enact CRM strategies only to provide the same level of service to every customer are forgetting the cardinal rule of relationship marketing: all customers are not created equal. Organizing the enterprise around your customers isn't enough. You need to organize around your most profitable customers.


Retailers understand that a small percentage of their customers produce the lion's share of their profit. By focusing CRM deployment on high-value customers, it's easier to justify the cost and easier to predict the ROI when rolling out other CRM initiatives. Just remember to focus on resource reallocation rather than on incremental costs in order to avoid duplication of effort.


Let's say you're ready to roll out a customer service automation package. You've identified the most valuable customers in your database based on share of wallet, average transaction size, frequency of visit or whatever other metrics you value. Thus armed, you can implement differentiated service initiatives based on customer value, rolling out the red carpet for your most profitable segments with separate URLs, dedicated toll-free numbers and priority service. Your CRM efforts then serve as additional soft benefits, which, handled adroitly, can inspire customers to become more valuable in order to achieve elite status.


Once again, the travel industry has led the way. After all, what are tiered loyalty program levels by which airlines and hotels differentiate service but a basic form of CRM?


Use analytics to increase yield. As CRM efforts grow increasingly dependent on the bottom line, smart companies will focus on the science of analytics: data collection, mining and analysis. New software will increase the speed and accuracy with which data are processed. "Black box" solutions will do much of the work for you.


But the critical differentiator between winners and also-rans will be in how the data are used to increase the value of customer relationships. The goal of your CRM strategy must be to create and sustain incremental, profitable customer behavior.


Once again, your loyalty program can provide both the engine and the fuel to drive these efforts. Experimenting with your rewards rules engine by testing offers, tweaking them and analyzing responses can teach you how to motivate customers with short-term promotions. Meanwhile, the typically fat 20 percent to 50 percent member response rates to surveys can create inroads into gathering elusive but all-important "psychographics" data.


You can use this data to increase the yield from your best customers with product volume increases, upselling, cross-selling, new product sales and referrals. Increases in incremental revenue, revenue you wouldn't have without the help of your loyalty program, will tell you that you're on the right track.


Keep it simple. How cool would it be if you could separate your customers into two camps - good ones and bad ones - then cater to the good ones while letting bad ones twist in the wind? But customers come in more than two flavors. It's tempting to break customers into micro-segments and design complex rules structures to ensure that each segment is recognized and rewarded appropriately.


But the trick is to design clear, unambiguous rules that can be understood and practiced by the least-trained customer service rep in the company. To make this happen, you need top-down management support backed by a crackerjack IT team to help put the rules in place. If the hard and soft benefits in your loyalty program are relevant and tiered to customer value, then you've come a long way.


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