February 2003

By Daniel Kastner, POPstick

In the film Blaze, Paul Newman's character cautions, 'Never trust anyone who says, 'Trust me.'' The same warning could be issued regarding technology providers who claim to be able to automate customer loyalty. The fact is, customer loyalty must be earned, not automated.

Because loyalty is built by people rather than tools, a successful loyalty campaign combines focus, planning and technology to help an organization's people interact more effectively with its customers.

So let's return to first principles. To increase customer loyalty in the information age, a company should follow three basic steps: identify targets, develop a plan and select the tools. This process is just as effective for market leaders as it is for emerging companies. Following is a summary of each step, with a particular focus on the most effective technologies to power the initiative.

Step One: Identify Targets
For most companies, it is financially irresponsible to dedicate significant relationship-building resources to each customer. The simple truth is not all of your customers want a relationship with your company. Identifying which customers may welcome the relationship, however, is a bit more complex.

Many marketing experts cite the '80/20 rule,' which generalizes that a company derives 80 percent of its profits from the top 20 percent of its customer base. According to this school of thought, a company would suffer diminished returns if it were to dedicate resources to building relationships with customers below the top 20 percentile. But no company can afford to bet its business on such a narrow group of customers and ignore such a vast universe of potential buyers. 

To ensure long-term growth by focusing on a much larger customer segment, a more practical metric is the 'Golden Ratio.' Identified by Italian mathematician Fibonacci, this irrational number turns up throughout nature ' from the petals on flowers, to the spirals on shells, to the structure of the human hand. For today's marketer, it is also an optimal starting point for a loyalty program.

Roughly 62 percent, the Golden Ratio provides marketers with a percentage of customers that is both manageable enough to allow for meaningful interaction and large enough to protect the company against uncontrollable attrition. 

Depending on the nature of your business, there are a variety of ways to identify your 'Golden Customers,' or the 62 percent of your buyers who are the best loyalty building targets. The most common criteria are frequency of purchase and annual revenue generated. Whether you track purchases using complex customer relationship management (CRM) systems or basic spreadsheets, these numbers are relatively easy to generate.

Golden Customers present tremendous long-term revenue potential for a company because they have established a history of purchasing, but have not yet offered a maximum share-of-wallet in the way that the top 20 percent of buyers have. 
The next step in the loyalty building process is to develop a strategic plan to sustain loyalty with top-tier customers, build meaningful dialog with Golden Customers, and establish awareness with lower tier customers. 

Step Two: Develop A Plan
Any successful loyalty program will affect a range of departments, including marketing, sales and even IT (after all, someone has to run the CRM system). Therefore, to develop an effective plan you must collect input from experts in the areas of branding, direct marketing, customer service, product sales and database management. 

Assemble a customer loyalty task force, and encourage each participant to identify departmental and organizational challenges and opportunities. Further, because pride of ownership correlates directly to quality of work, assign each task force member a meaningful, but not daunting, responsibility. For example, the branding expert could take ownership of the color scheme and logo placement in all outbound materials.

The plan should include strategies designed to graduate customers from their segment to the group above them. Although a secondary concern, it remains important to try to grow marginal customers into consistent, revenue-generating buyers. The table below (Table 1) illustrates one effective way to divide focus among the three tiers of customers.

Table 1

It is also critical to solicit IT input to the technology selection process (see Step Three). Carve out a trusted advisor role for the task force's IT representative. To avoid initial objection, ensure your colleague that you will only evaluate technology that requires no training and presents minimal integration issues. 

A final caveat is to avoid time drains. The most effective way to sidestep delays is to secure senior approval for the plan as early as possible. Further, many promising loyalty campaigns become stalled and ultimately are abandoned because the marketer aims to address too many needs at once. Reduce the campaign into smaller, manageable segments and associate goals with each phase. This approach will not only maintain a high level of marketing activity, but it will also demonstrate consistent results.

Step Three: Select The Tools
Technology helps people achieve goals more quickly. Marketers are often dazzled by the breadth of functionality offered by today's high-tech solutions, but given that time is a major factor in any loyalty campaign, it is advisable to begin with solutions that will help you achieve the specific goals identified in your phased plan. 

The technology category that best fits this three-step process can be described as 'automated interaction tools.' These solutions present few training or integration challenges, and they offer a cost-effective way to reach a limitless number of customers and prospects. Designed to engage a customer with rich media, facilitate online and offline dialog and capture actionable information on purchasing intentions, automated interaction tools enable marketers to leverage the Internet's bi-directional capabilities to understand customer's unique needs and meet those needs in real time. 

Within the automated interaction tools sector is a range of technologies designed to help build dialog between a company and its customers. Some of the most effective technologies include personalization/dynamic matching, progression, profiling, tracking/ notification and value opting tools. Following is a series of summaries describing the uses and benefits of each of these technologies.

Personalization and dynamic matching are fundamental to any successful loyalty building campaign. Most marketers fail to give Internet users the credit they deserve. Your prospects are savvy. They recognize a blast e-mail campaign immediately, and most of them will delete uniform, impersonal promotions without reading them.

It is also essential to recognize that 'personalization' requires far more than simply incorporating a prospect's name into promotional content. A truly personalized campaign dynamically matches messages to the recipient's profile (e.g., title and purchasing history) and behavior (e.g., the amount of time spent viewing different areas of the promotion). It is only by recognizing and acting on the unique attributes of each prospect that a meaningful dialog can be established between marketer and target. 

Progression. Today's personalization technologies enable marketers to structure campaigns in a decision-tree format and deliver variable messages based on the individual's interaction with the promotion. 'Progression' refers to the next step in the campaign process: Once you have engaged the customer and established a degree of trust, it is essential that you glean actionable information from the prospect. For example, because the emphasis of interaction with Golden Customers is personal dialog, a progression tool, such as a dynamically generated survey based on a customer's purchasing history, could spark a call from the a familiar sales rep or even a letter from the CEO. For lower tier customers, the completion of the same survey may generate an e-mail from the company's marketing team. 

Positioning. The most important field in any e-mail is not the body, but the 'from' line. All correspondence looks more professional ' and is more often read ' if the sender's name is a person with whom the recipient is familiar. Even if a third-party provider broadcasts your e-mail campaigns, it is possible to assign a particular marketing or sales executive's name to the 'from' field. Further, to facilitate the offline dialog, it helps to set up a campaign-specific mailbox for each sender. This practice enables your sales team to respond quickly and personally to each customer who replies to the campaign. 

Profiling. Effective profiling enables a marketer to strike a balance between message delivery and data collection. Each point of communication ' whether in the physical or virtual worlds ' provides a valuable opportunity to learn more about a person's needs, interests and preferences. The better a company is able to meet those needs, the more loyal its customers will become.

Understandably, many marketers consider data collection, storage and mining to be not only a daunting task, but also an initiative that must be started at the company's highest levels of management. Not all data collection, however, requires a massive data-mining overhaul. For most companies, it is sufficient to glean only the most actionable layer of customer feedback at each point of interaction. To achieve this goal, the marketer needs no more than very basic tracking and notification tools. 

Tracking and notification. Many e-mail and interactive marketing agencies have created proprietary, imaging-based software that allows users to know who viewed their campaign, how much time the person spent viewing each message, and most importantly, what the recipient did with the promotion afterward. Of course, it is important to track recipient behavior to find answers to the factual questions, such as: Did he delete the promotion? Did he forward it to a colleague? Did he opt-out? Did he request further information? Did he accept the call-to-action, such as schedule a meeting or register for an event? 

More advanced tools even allow marketers drill more deeply to find out how many times the recipient viewed the campaign, why he opted out, if the person included a note when he forwarded the promotion to a colleague'and in some cases even capture what that note said. 

Once the customer's volunteered and behavioral responses are captured, it is critical to differentiate hot leads from cold ones and get actionable information in the hands of the company's sales team quickly because, again, relationships are built by people.

To empower sales personnel, it is important to select a marketing services and technology provider that offers advanced notification tools. Smart campaigns automatically direct certain responses, such as meeting requests, to the in-box of the corresponding sales executive. By escalating favorable responses, the technology helps the company isolate its most important customers and take the appropriate sales and relationship-building action. 

Value opting. Facilitating opt-outs is not only a legal imperative; it's also good business. One of the cornerstones of loyalty is trust, and if an automated campaign does not offer customers an easy way to decline subsequent promotions, that trust is lost ' along with all potential for future loyalty. Value opting is the evolution of this principle. Based on the assumption that a company has limited opportunities to learn about each customer, value opting presents a final option for the target to volunteer information prior to opting-out. A brief survey can be embedded behind the opt-out button, offering the individual the opportunity to disclose why he is opting out and share the names of others within his organization who may be interested in future promotions and offers. 

Although loyalty building is a process that takes time to achieve, if a company follows this simple, three-step process it can expect to enjoy preliminary returns immediately. The first indication of campaign success will be an increase in sales from customers already in the buying cycle. Other success indicators include the identification of new prospects through promotion forwarding, additional information on customers who respond to surveys and a spike in requests for further information. 

If an increase in sales inquiries and conversions is what you can expect in the first phase of a loyalty campaign, just imagine what you stand to achieve after you have leveraged planning and technology to equip your team with knowledge about each customer'and each customer with knowledge about your company. 

Daniel Kastner is the founder and CEO of POPstick, Corp. (www.popstick.com). His insights into Internet marketing have been covered extensively in the book, The Attention Economy, by Accenture executives Thomas H. Davenport and John C. Beck. Kastner is an award-winning composer, previously conducted research with the Music, Mind and Machine Group at the MIT Media Lab and was on the faculty of Boston University.