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How can I improve relationships with key customers?
Posted Apr 21, 2003
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Most retailers are lost in when it comes to customer loyalty. They treat their best customer and their worst customer the same way every day. They don't know who their best customers are, and they don't know how to track or reward customers for their shopping behavior. Loyalty has become a dominant marketing tool in many industries, including airlines, hotels, telecommunications and financial services. However, retailers (which we will broadly define as any business with store locations) have just begun to look at loyalty programs at the corporate level. How can this be? With the huge success and clear return on investment (ROI) of loyalty programs in other industries, why has retail missed the boat? There are two primary reasons retailers are so far behind other industries: customer tracking and merchandising. The Key: Customer Tracking Retailers have found tracking customers to be a major challenge for many years. If you go into a typical retail store and pay cash, they have no idea who you are or whether you are a first-time buyer or deeply loyal customer. In most cases they cannot track credit card, debit card, or check users either. Although many retailers have attempted to use their own "store-brand" credit cards as a customer tracking or loyalty tool, these cards reach far to few customers to be effective. Today retailers have a number of options to develop programs that allow them to track, recognize, and reward customers based on their unique behaviors. Many online retailers have already mastered the "science" of unique customer treatment. Amazon.com, for example, does an exceptional job of tracking your purchases and making targeted recommendations to you based on your prior behaviors. They even make targeted upsell offers by bundling like-items with a discount, or they repeatedly encourage you to reconsider items that you simply browsed. Their customer-focused marketing model is both incredibly smart and effective. However, few offline retailers have even attempted this kind of "modern merchandising." The Hangover: Merchandising Retailers seem irrationally hung up on using mass, old-fashioned merchandising techniques and mass advertising to drive customer purchase behavior. Many retail executives have made the mistake of clinging to the academic "Four P's of Marketing: Price, Place, Product, Promotion," while most other industries have converted to some form of targeted customer relationship management (CRM). Let me be clear, CRM has gotten a bad rap as an expensive "technology platform" over the past couple years...but everyone seems to forget that CRM is really a strategic business approach, not a technology tool.
The Strategy: Unequal Treatment From a loyalty perspective, CRM demands that all customers are not created equal. Discrimination, profiling, segmentation, scoring, and modeling are all good things when it comes to effective customer loyalty marketing. Those retailers that fail to realize this are in for a brutal wake-up call from their competition. Behind the scenes a handful of retailers like Home Depot, Nordstrom, and Sears are developing customer value scoring and even full-scale customer loyalty programs. Within each retail niche, the first company to effectively launch an initiative will be the first to reap the great benefits of loyalty marketing. The Results: Marketing ROI As mass advertising becomes increasingly expensive and decreasingly effective, most companies are searching for a way to show a clear and measurable marketing ROI. What the heck is marketing ROI? In the old days marketers would place ads and hope to see some sort of sales lift down the road. Today marketers need to be able to justify their budget with clearly correlated marketing results that show a positive ROI. The assignment for retailers is Herculean. Rather than putting ads in newspapers, tracking toothpaste sales, and testing how high store shelves should be, retailers now must focus on their lifeblood: customers. Surveys and focus groups are a nice way to find out what customers attitudes are, but too often, their behaviors do not match with what this research says. That is why retailers must find an effective way to track, measure, and recognize customers with highly targeted rewards, benefits, and communications. The Battle: Acquisition Versus Retention Many industries are hung up on attracting new customers and bringing people into the stores with special prices, coupons, and offers. That's nice. But the enlightened marketer knows that no matter how many new customers you attract, you will still lose big if you let the good ones leave you. "It's the retention, stupid." Many companies that have focused all their energies on mass acquisition have then dropped the ball by failing to track, recognize, and reward best customers who then walk out the back door and never return. So no matter how many new customers come in, their revenues stall. Many loyalty programs are truly designed as best-customer retention programs. Again, the problem for retailers is that they don't know who their best customers are...so they can't work to retain them. Far too often retailers use price specials and coupons to bring people into the store, but in doing this they focus their customers on price and make them highly susceptible to the next best offer from the competition. For an example of why acquisition-only marketing is dangerous, look no further than the long distance telephone industry three to five years ago or the credit card industry over the past three years. Their strategies have focused on stealing customers with price or rate offers, and now this cannibalization approach has bred a whole new category of price-shoppers who have horribly low loyalty to these companies. Let's hope retailers can learn from these lessons and turn their focus to retention and customer loyalty before it's too late. The Conclusion: Last Call Twenty-one years ago American Airlines launched the first loyalty program of the modern era with the groundbreaking Advantage program--the first "miles" and frequent flier program in history. American revolutionized the entire airline industry with this basic concept: reward customers for desired behavior (loyalty) and treat best customers in a special way. Today hundreds of points, rewards, and miles programs have been launched in many industries all based on this basic but winning concept. It's last call retailers--act now before it's too late.
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