Using CRM to bolster loyalty and keep customers from switching to the competition
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"New electronic channels are tearing down some of the traditional barriers that keep customers from switching to the competition. Strong brands, good location, and being bigger are no longer as effective as they used to be in keeping customers around," writes Stephen Diorio in Chapter 11 of Beyond e: 12 Ways Technology Is Transforming Sales and Marketing strategy.
"Many organizations are investing millions of dollars in customer relationship management technology (CRM) in hopes of rebuilding these customer exit barriers. Marketers will be on the hook to make sure these expensive CRM systems actually keep their best and most profitable customers from leaving."
Beyond e offers nine customer exit barriers marketers can use to shore up loyalty. They are as follows:
1. Customer Learning Curve: Being Easier to Do Business With Than the Next Guy
Familiarity breeds customer retention. Finding ways of making your customers familiar with you enhances their "ease of use." This can be accomplished by providing customers with a more accessible base of knowledge about your company's products, processes, and range of endeavor. For example, eBay uses extensive online help menus that made millions of people see themselves as "experts" in the art of the auction.
In the business-to-business arena, the traditional methods of "educating the customer" can be adapted to lower-cost electronic channels. Sponsored industry seminars, for example, can be presented as live Web video and audio presentations. E-mail newsletters that combine high information value with an incentive (special sales, legislative alerts, couponing) are a very popular method of presenting company information, either to select groups of industry clients or broadly to the buyers of consumer products.
2. Process Integration: Becoming a Part of the Way Your Customers Work
Becoming tightly integrated with a customer's business can make it expensive, inefficient, or painful for that customer to sever the relationship.
Organizations can build this exit barrier through shared equipment and durable purchases or contractual commitments like volume purchase agreements. For example, the Sealed Air Corporation does not sell its famous bubble-wrap packaging products to its biggest clients. Instead it provides them with a "bubble wrap" machine that applies customized packaging right at the end of the assembly line while they are getting the product ready for shipping. Switching to a cheaper brand of packaging (like polystyrene peanuts) is a relatively easy decision. Stopping and changing the assembly line to pull out the custom equipment is far more disruptive.
IBM and Federal Express have translated this same concept into customer extranets that offer customized pricing, less paperwork, and package tracking. IBM's corporate extranets for its largest clients have custom pricing, order status, and help in administering "distributed buying" (which means hundreds of employee's can do all the work to buy their own PCs, but the purchasing manager is still in control of the big things like price, service contracts, and negotiations).
3. Personalization: Using Information to Match Offerings to Customers' Tastes
Using information about the customer can enhance the buying experience and overall relationship. Personalization has become highly competitive, with most online retailers attempting it to some degree. As discussed in chapters 3 and 4, consumers respond well to personalized marketing and now expect it as part of the shopping experience. Personalization is impossible without CRM. Companies need to collect and analyze customer information like click streams, buying behavior, and stated preferences. Technologies that can help build this exit barrier include basic customer databases, programs that track customer behavior, online customer preference surveys, dynamic personalization throughout the selling process, personalization engines, and targeted marketing (e.g., permission e-mail) and response function analysis.
Personalization is evolving far, far beyond "Hello [insert name]!" In 2001 an IMT strategies survey of marketers found that over 50 percent of firms were actively capturing, storing, and using more of this type of information in their marketing campaigns. Specifically, over 50 percent of respondents indicated their marketing departments were targeting marketing campaigns with information about customer's stated preferences, geographic location, scheduled events like anniversaries, and account histories, account status, as well as customer-defined privacy and permission guidelines. BMG Direct collects 240 categories of information on customers and uses these to customize in cross-sell and e-mail campaigns.
4. Mass Customization: Expanding Choice So Customers Won't Look Elsewhere
Relationships, no matter how strong, get stale. Marketers can prevent customers from looking elsewhere by offering a broad selection along with the ability to customize services to meet unique needs. Offering variety, mass customization, or rapid product evolution can minimize a desire for change.
For years, car dealers knew that "new car smell" was a subtle but powerful psychological force to help hesitant consumers trade in their dirty old car full of old coffee cups, cigarette butts, and loose change, and drive off in a clean sedan. In many situations the competition has one primary asset--it is shiny, new, and different. They will use this to pry customers loose. Steal your customers back with this same tactic. Mass customization is one way to simulate new car smell by offering new solutions, new configurations, and new service bundles. Expanded product selection also helps keep the relationship fresh.
Personalization and configuration tools also make it possible to offer products not available anyplace else, while catering to a mass audience. Levi strauss, for example, has undertaken several mass-customization initiatives: "Personal Pair" in 1994, and more recently, "Original Spin." Customers could design their own jeans by choosing from three basic models, five colors, and two zipper types, which yielded thousands of potential customer combinations. Neither experiment has continued, but each provided many gigabytes of customer preference data that the manufacturer could mine.
Using Web-based partnerships to expand selection is really a case of fighting fire with fire. Content aggregators on the the Web, such as price aggregator MySimon and the portal Yahoo, offer comprehensive selection in one place, giving customers no reason to look elsewhere first. One solution is to bring in Web partners that expand the selection and complement in-house products to create the impression of a more comprehensive product line.
5. Risk Reduction and Trust: Making Yourself the "Safer" Choice
Safe is better than good. Marketers can build loyalty by reducing the risk of using a company's products or services and generating trust through accumulated service history and support. Companies that adopt this exit barrier use psychological strategies to make switching appear too risky, even in the face of more attractive solutions. IBM has long benefited from the perception within IT organizations that "nobody ever got fired for buying IBM." DLJ Direct invokes customer trust in its online brokerage by stating that it "puts its reputation online."
How can CRM turbocharge this useful strategy? Organizations can build this exit barrier by implementing programs that track customer history or provide a high level of security for transactions. Warranties and guarantees can be linked to automated customer care programs that send e-mail reminders about scheduled maintenance or warn that a part should be replaced.
Proven performance and technical leadership burnish trust. Amazon's success can be attributed to the reliability of its patented one-click-shopping process. Customers also trust that the product will be delivered on time. Amazon built this trust through a combination of customer experience, innovative technology, and delivery performance. After Toys R Us botched Christmas delivery schedules in its first online retail foray, it turned to Amazon in an alliance deal to woo back risk-adverse online customers.
6. Loyalty Programs: Giving Economic Incentives for Customers to stick Around
Delivering incentives or benefits for frequency of usage (loyalty) or increased levels of usage are tangible ways of motivating customers to come back to you.
Loyalty programs like Green stamps and frequent flier miles have been a mainstay of marketers for years. Technology just makes them better and easier to weave into the sales and marketing process. Technology permits incentives for more specific consumer activities like reading an ad or filling out an online survey. This response gives marketers the flexibility to fine-tune the customer experience and motivate critical behavior.
Long a mainstay of bricks-and-mortar retention programs, examples of innovative loyalty strategies include American Airlines, which pioneered the frequent flyer program (subsequently embraced by all the major airlines), and Lycos, which has offered frequency rewards from NetIncentives for use of the Lycos portal. An early adopter of a points system now in use throughout e-commerce, its success helped launch literally thousands of incentive-based loyalty campaigns.
Point and frequency programs, volume discounts for business buyers, referral awards for the clients of service companies, and similar strategies have all been renewed with CRM technologies, which make it easier to test, adjust, and retest their usefulness across a variety of customer segments.
7. Brand Affinity: Giving Emotional Incentives for Customers to stick Around
Marketers can build loyalty by establishing a brand's "psychic" value through positive affinity or affiliation with a community. For example, cKOne, a Calvin Klein fragrance, targets Gen Y consumers through a worldwide cyber soap opera carried out via e-mail (see Case study, Chapter 3). The idea is to draw consumers of a particular demographic into a story and set of characters that they can identify with, and define the image/lifestyle of the cKOne customer community. Linking your e-commerce site to "destination" sites (e.g., ivillage.com, webmd.com) creates brand affinity through aggregating products and editorial content specific to a particular interest or lifestyle.
Individual organizations can build this exit barrier, using their own Web sites, by encouraging virtual communities with forums and chats. Kotex has done this successfully for years with its "girlspace" pages on kotex.com. Another tactic that works is making a company Web site into a destination Web site--the first stop for seekers to find related Web sites, or a clearinghouse for information on a specific business issue. This worked for CNET, widely considered the CNN of the Internet, because it consistently provided a wide range of reliable news and generous links to sources. This didn't work for Disney's original Web site, and its later Go.To.com portal. Both ventures failed because they too rigidly controlled outbound links and never created a community beyond a focus on Disney products.
8. Customer Collaboration: Talking and Listening to Customers More
Keep the customer's attention by maintaining an ongoing, value-added dialogue. This applies to customer interactions with the company itself, supply chain partners, and/or other customers. Organizations can build this exit barrier through extranets, groupware, Web-phone integration, customer interaction centers, e-care (interactive customer service), customer portals, Web conferencing, shared white boards, and trading partner networks.
Priceline.com stood out among a new breed of online price aggregators and auction sites in the competitive travel industry because it leveraged customer collaboration to build repeat business and loyalty. Priceline.com's innovation was that it enabled customers to name their price and participate in an auction. It reintroduced haggling, which appealed to a fringe element of customers. Priceline.com found a way to bring its customers into the process of airfare purchase. The innovative name-your-price hook helped make Priceline.com one of the first Internet megabrands--one of seven Internet brands recognized by over 50 million customers.
Priceline.com further managed retention through varied programs. One of the first was a dynamic e-mail management system that pursued customers after the first buy, with e-mail alerts and special offers that might be targeted around which airline the customer used most, or which category of destination. Unresponsive customers were dropped from the e-mail alert list at a speed that might alarm traditional direct-mail managers. Responsive customers and frequent buyers were rewarded with an upward cycle of special offers, incentives, and even more personalized product pitches.
Buyers liked the satisfaction of negotiating and naming their own price, which makes this collaboration a good exit barrier even though Priceline's business model was not perfect. The "reverse auction" pricing model actually gives most of the advantage to the seller, because only the airlines know the true cost and true availability of seats. Most travelers can make more informed decisions and in many cases get better deals on sites like travelocity.com where they can better see what fares and routes are available. But Priceline.com was effective because it made the customer feel like they were even more involved in the process. Bargain frequent flyers, it seems, would rather get their price than the best price.
9. Becoming a standard: Finding Ways to Become the Only Choice
Being the only choice is still a good way to keep customers. This involves dictating industry standards. The classic example is Microsoft, which has been using this strategy in operating systems (Windows), then browsers (Internet Explorer), and to some extent portals (MSN). In the open credit-card environment Visa is trying to become the standard by pushing the ubiquity of Visa acceptance among all merchants to combat the prestige of American Express. Beverage manufacturers also vie for exclusivity in delis and supermarkets across the world. No one can buy a Pepsi at a soda fountain when the only cola available is Coca-Cola.
The Internet environment provides more examples of de facto standards created through first-mover selling channel innovations than it does for market standards created whole out of first-mover brand awareness. The lesson here is that finding better ways to sell mousetraps is just as important to customer share as simply making better mousetraps.
Excerpted from Beyond e: 12 Ways Technology Is Transforming Sales and Marketing strategy by Stephen Diorio. Copyright 2002, Stephen Diorio. Used by permission of The McGraw-Hill Companies Inc. All rights reserved.