Customer loyalty. Companies talk about it, know it has value, would like to increase it, think they are investing in it and even believe they can influence it.
But they often know very little about their customers. For example, why are customers loyal or why do they stop buying? How do they value associations? What do they get from their loyalty? These questions are difficult to answer and become even more elusive in an interactive marketplace.
The traditional concept of brand loyalty is an artifact of the historical, supplier-driven – or product-controlled – marketplace. Brand loyalty often meant that people repeatedly bought the same thing because they either had no other choices or were not aware of their choices, because of geography or time constraints.
Today, consumers are more knowledgeable than ever about alternatives. Product labeling allows direct comparison of one product with another. A proliferation of media continually delivers targeted messages about products and services. The Internet not only has exponentially increased the amount and type of information available, but it also has erased geographic constraints. Consumers can compare products and offerings and can make decisions based on the best deal. As a result, value-added services, bundling of products and services, and loyalty and frequency offers and programs have become increasingly important marketing tactics.
This new, consumer-controlled marketplace is based on value exchange. Both sides – organization and consumer – must be fully informed of one another’s offerings and must provide what the other wants in order to build and maintain a loyal relationship. The bottom line is that companies must know their customers and must work to keep them. In this environment, loyalty does not belong to the brand or even to the customer. It is shared between companies and their customers.
The new economics of information. Today every business is in the information business. Information is the glue that holds value chains, supply chains and consumers together. Information also accounts for the preponderance of competitive advantage.
As the seller, you must provide as much differentiating information as possible. You also need to learn as much about your customer as possible so that you can match your offerings with his needs. It becomes a balancing act of richness and reach. The richness of the information available to consumers has increased significantly, and marketers are trying to catch up.
For marketers, richness and reach have traditionally been at odds. The more people you try to reach, the less richness in your message or product offering. Conversely, the smaller your niche, the more you can know about your customers, the more information you can provide, and the more you can customize your product to their needs.
Just as technology has provided consumers with greater richness in the information they have about products, it has armed the seller with the ability to know customers better and to tailor products and marketing messages to provide the greatest value to the customer. As a consumer, you can get everything you want to know about every brand of toothpaste from the comfort of your living room. As a seller, you can conceivably store information on 200 million customers so that you know something about what they want or need.
Sellers must leverage richness and reach. This is done first by adding richness to basic customer behavioral data. Then, customer knowledge can be used to provide more relevant products and offers and, through greater responsiveness to customer needs, to help create a stronger relationship.
Adding richness. Targetbase recently worked with a major hotel chain that had long enjoyed excellent reach with its flagship brand and had extended itself into various versions, several with completely different brand names.
However, the company had little richness. In tracking customers for its frequency program, the company focused only on the flagship chain and not on its various properties. It was not finding out enough about customer preferences and was not correlating customers with the various company properties.
Customers, on the other hand, had ample reach (because they knew about the different brands) and had rich information – they could easily explore and understand the different features of the properties, find out what was near where they were traveling and get information about room rates, for example.
Customers had this level of richness and reach for both this hotel chain and its competitors. In order to strengthen its relationship with its customers, the company needed to obtain a richer understanding of those customers.
The first step was to get more information about guests who were active in its hotel frequency program. Through customer profile questionnaires, we learned more about what customers were looking for when selecting a hotel. Guests were profiled to determine travel value and potential, to understand motivations, demographics and barriers, and to segment them into actionable groups for building customer brand relationships.
Armed with expanded information about its customers, the hotel was able to design a new communications program tailored to specific customer needs. For example, business travelers wanted to work in their rooms. They were looking for phone jacks for their laptops and room configurations that allowed them to be productive outside the office. Other travelers preferred to be more leisurely when they got to their rooms. Their preferences were focused on activities such as swimming, working out or having a nice meal. Other travelers – such as international travelers – were interested in specific locations or property destinations.
The program was launched with a series of direct mail pieces targeted to customers falling within the moderate and high-opportunity segments (i.e., guests who had high potential for return on investment). These guests received focused communications based on the segment’s specific needs. For example, guests who preferred to work while on the road received communications focused on how the hotel could make their trip more productive. For other segments, communications focused on property amenities such as room service, workout facilities and on-site dining options.
According to follow-up research, the communications program improved the overall perception of the hotel chain and increased guest preference for the frequent traveler program over other hotels’ programs. One of the most critical results of these targeted communications was that customers reported that they were made to feel recognized as valued guests. And – best of all – the attitudinal shift was followed by an increase in revenue. The program generated approximately $2.2 million in incremental revenue.
Today’s consumers know more about the products they buy, and they expect more from companies with which they do business. Loyalty is a two-way street, and both sides must receive value from the exchange. In this new equation, information is a critical element for success. Your customers know about you and your products and about your competitors’ products. You need to know about your customers so that you can give them what they want and, ultimately, build a loyal relationship.