Loyalty's About Value, Not Freebies

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A Forrester Research brief published early this year states that "successful online retailers will start shifting their focus from acquisition to retention by reaching out to customers with unexpected and tangible signs of appreciation -- with gifts. This proactive customer service will require cross-organizational customer satisfaction metrics that identify who gets which goodies."


The folks at Forrester are right, of course. Current marketing costs for building awareness can't be sustained. Forrester makes the point that "at a few dollars a pop, occasional retention freebies are cheaper than e-Toys' $33 or E-Trade's $289 per-customer acquisition costs." The greatest challenge is not getting people to the site but creating relationships that result in loyal, repeat and profitable customers.


There's a lot more to the building of customer loyalty, however, than a few freebies. The story has been told of a cellular phone company that sent out a prepaid 30-minute long distance card to select high-value customers at the anniversary of their phone service activation. While the company received many nice customer comments, the anniversary mailing did not change customer attrition that was running industry wide at 30 percent per year.


I enjoyed my gift last month of a car coffee mug from Jeff Bezos, thanking me for my business in 1999, but it won't change my life enough to make me loyal to Amazon.com.


When bricks-and-mortar retailers began to understand the value of customer retention, they rushed into all types of costly bribes under the guise of loyalty programs. Most believed the points and discount programs would build loyalty, yet customer satisfaction rates remained at an all time low.


The average consumer in the United States who participates in loyalty marketing programs belongs to 3.2 programs. Sixty percent of U.S. supermarkets now have loyalty programs, yet household panel data show that heavy shoppers give their preferred supermarket chain only half of all their grocery spending. One half of all U.S. households now belong to a loyalty program. In Chicago; Charlotte, NC; Los Angeles; New York and Buffalo, NY, more than 70 percent of households shop with some retailer's loyalty card. All of these programs are capturing valuable customer knowledge. Many are driving sales; few are building loyalty.


Successful strategies to retain customers must go beyond gifts and loyalty program rewards that are not building customer loyalty. The answer to keeping customers coming back is not freebies or points and discounts. It is customer relationship management.


Online CRM has raised customer expectations. The customer is now saying, "Stop relying on information about me and start paying attention to information from me." That's the secret of CRM, and it requires a dedicated process of learning to understand the values important to individual customers and using that knowledge to deliver benefits the customer really wants, making it easier for the customer to do business with the company. This type of customized customer treatment builds a learning relationship that modifies customer behavior over time as it strengthens the bond between the customer and the company.


In the foreword to my latest book, Loyalty.com: Customer Relationship Management in the New Era of Internet Marketing, Martha Rogers describes this learning relationship as follows: "I know who you are. I remember you. I get you to talk to me. And then, because I know something about you my competitors don't know, I can do something for you my competitors can't do -- not for any price."


The requirements for building the learning relationship with the customer are the same for offline and online marketers, but the online marketers have the big advantage. I have heard the Internet called the ultimate focus group. On the Internet, companies can send customers targeted online communications, either as a Web page in HTML form, streaming media or personalized e-mail.


Ernst & Young recently summed up a special report on the Internet by stating that "Technology has long possessed the ability to change the world. The Internet is set to unleash the most powerful transformation yet.


"Why? Because it gives business the ability to have a dialog with individuals. The Net helps us understand their wants and needs. It minimizes the sacrifices consumers have to make to buy products and services. The Web offers consumers what they want, the way they want it, in a way that is unique to each person."


Using the Internet to establish a dialog with individuals is what it is all about. Dialog means a lot more than just talking to the customer based on the knowledge in our databases. Customers will give you information about themselves in exchange for specific services rendered. The important thing is that once customers have invested their time in giving you their profile information, it is unlikely they will go to a competitor to start all over again.


The only real values are the values you add for your customers and the values your customers deliver to your company. Real value is not in the data or the technology. It's in the customer knowledge and your use of that knowledge to manage customer relationships.


This is where so many offline points and discount loyalty programs miss the mark and fail to deliver added profit. They are collecting information and using the latest technology. Few create the type of dialog to develop the active one-to-one learning relationship that can turn the information into knowledge that provides value for the individual customer.


Internet marketers have many advantages over their bricks-and-mortar counterparts. Customers will give permission. They will allow us to establish relationships. Customers now expect companies to adapt to them. They want suppliers to understand their unique needs. But they must believe the relationship is worthwhile, and they must be assured that the time they spend to give us information will result in benefits they will value.


Relationships are built on trust and dialog. Customers will not be fooled into a relationship based solely on a points or discount loyalty program. Learning from every interaction and creating dialog is the secret to e-loyalty.
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