Marketers who, just a few years ago, were focused squarely on customer acquisition have been forced by the recession to reverse course and ensure that the company is retaining customers.
It's not an easy undertaking.
"Many of these firms are ill-prepared for retention programs," said Suresh Vittal, principal analyst with Forrester Research. "Retention versus acquisition and engendering loyalty requires a far better understanding of your customer than your prospects when acquiring them."
Understanding customers requires an understanding of the data describing them, and that can be particularly difficult.
For most marketers, Vittal said, the discussion starts with customer churn, but even that can be difficult to define. The challenge is determining why customers leave, or in some cases, when it's OK for them to leave one brand but key to retain them for another. It's not a specific answer for many companies.
"Say they get past that hurdle and into loyalty and retention programs, there's another level of challenge here, both with programs themselves and the data -- and that is understanding who is the most valuable," Vittal said. "We want loyalty but we want loyalty from those we determine are most valuable. Customer lifetime value, customer margin, net incremental revenue, products per customer, high margin products per customer. There are all kinds of refined metrics marketers are starting to think about."
For many marketers, according to Vittal, it's not just a matter of accessing and accumulating the data but agreeing on a definition. Many organizations cannot agree on what defines “a customer” or how to determine what each customer means to the organization, particularly for companies with multiple brands and product lines.
Step 1: Find and define customer data
Companies should begin their evaluations of customer data and customer loyalty with a data audit, suggests Jill Dyche, partner and co-founder of Baseline Consulting, based in Sherman Oaks, Calif.
"Get people to just start talking about this. Once you do that, that's when you do data audits," she said. "Is [customer data] inside the enterprise? Is it outside? Can we get at it? What are the challenges intrinsic to the data?"
The challenge is far more difficult than most realize. Not only are there often different definitions of "customer" throughout an organization, and different definitions of what makes a loyal customer and how valuable a loyal customer can be, that data is spread throughout the company.
"There's a naïve view there's a single system of record, and we just need to forklift everything into a data mart and everything's golden," Dyche said. "Then they realize there's not one system of record but dozens, with no single version of the customer. Hard decisions need to be made about which sources are authoritative for which data."
That's leading some organizations to embark on data profiling initiatives, she said, evaluating the data, where it is and what's needed. It can even be a challenge to get customer data from external sources like Dunn & Bradstreet and Axciom and bring it inside the firewall.
Step 2: Share the data – and the customer
Defining and understanding the data is just one step. Ideally, marketing also needs to share the data.
"The loyalty conversation is very much an operational one," Dyche said. "We are segmenting our customers based on their value and treating them differently based on that value. That's where customer service and marketing interlink. It's very rarely the customer service organization that is going to determine lifetime value of the customer. The extent to which we can use that information not only to communicate to customers but also to understand the communications channels and the messaging to support customers is a best practice. That all comes back to the data conversation. The extent to which we can share data across functional areas is the extent to which we can share that customer."
But sharing data across the organization often requires additional investments in data management technology – and that can be a challenge for marketers. Many companies are reluctant to spend on data initiatives, like data quality software, Dyche said, though some companies are willing to spend on business intelligence or data warehousing because they see that as a differentiator.
The extent to which we can share data across functional areas is the extent to which we can share that customer.
Jill Dyche, partner and co-founder, Baseline Consulting
"When companies invest in data quality, it's because something broke," she said. "It's more likely to be the result of an event rather than a strategy, however wrong that is. Very few executives will say, ‘We're going to review our loyalty program, and this time our data is going to be good.’"
Worse, the recession has severely limited organizations' willingness to spend, according to Vittal.
"I see very little appetite for tech spend at the moment," he said. "Right now, there is no such thing as a capital expenditure. When they do release funds, you need a bulletproof business case. We need to do the hard work to figure out how to use these technologies we've already invested in. Unless the marketing group can show a direct contribution of these programs to driving revenue to the bottom line, it’s very difficult to get funds today."
Step 3: Ask the right questions, in the right channels
Adam Sarner, research director at Stamford, Conn.-based Gartner Inc., suggests marketers leverage their existing investments as much as possible and turn to free or low-cost initiatives like social media to jump-start their loyalty programs.
"The Web 2.0 stuff means there's a lot of potential collaboration from both sides, a potential meeting of minds," Sarner said.
Rather than spending on classic promotions such as implementing a redemption engine where customers who buy nine items can get the tenth free, marketers can get new insight from social media.
"I think the back-and-forth collaboration with things like social media, where you can have that two-way communication, [means] you can understand what a customer wants and needs and how to anticipate them over time," Sarner said.
Web 2.0 means there's a lot of potential collaboration from both sides, a potential meeting of minds.
Adam Sarner, research director, Gartner Inc.
For example, spending a little money to put up a message board and learn from customers what it is they want from a loyalty program can pay off considerably down the line.
In fact, Sarner believes loyalty programs go through swings in popularity, and at the moment they're on the upswing. The problem is most companies never got loyalty right the first time around. Are companies getting it right now?
"No, is the short answer," Sarner said. "They haven't asked the right question. If you look at loyalty programs, it's a big database of points. It's very difficult to understand the ROI. Look at the airlines. There are billions of unclaimed miles, and customers hate the airlines. There's a big disconnect here."
So how do companies figure out what questions to ask – and how to get customers to answer?
According to Sarner, marketers need to determine a hierarchy of needs from the data they want for their customer loyalty programs.
"The first step is to demonstrate a value proposition. Airline are you going to drive me from point A to B?" Sarner said. "Then it’s determining customer satisfaction. Customer feedback and customer satisfaction is good, but it's satisfaction -- it's not loyalty. Did you bring me from A to B? Yes, but so can 15 others."
Enticing customers and personalizing the experience is where loyalty comes in, he said. Does a customer prefer free shipping over another perk?
"You're trying to build up the interaction, and you're doing some planning," Sarner said. "We're going to pay people off, but we have a chance to ask people questions about where we're going."
From there, companies can begin to understand things like what decreased defection from a specific customer segment means. In fact, segmentation is often missing from a lot of loyalty programs. Once organizations are listening and asking questions, they can begin to anticipate customers' future needs.
"That's the idea. Loyalty becomes loyalty management," Sarner said. "It's not necessarily a payoff of ‘what's in it for us?’ but ‘what's in it for them?’ and it becomes a mutually beneficial relationship."
But beware the common pitfall with this approach, he warned. Too many companies are simply collecting feedback, storing the data somewhere and asking customers the same questions over and over.
"That meeting of the minds is never done, so it falls short," Sarner said. "They don't even extract value from the program. It's awash with problems. That's why these programs fall short and go through pendulum swings."