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Are You Firing Your Customers?

  |  December 4, 2002   |  Comments

Loyalty practices are a mess, because current marketing practices are just plain wrong.

With the right data, marketers can get better results. They can parse lists of people, households, job titles, computer models, and so on and send messages to those more, rather than less, likely to react. They have more of the right data about customers, past and present, than about strangers. With CRM solutions doing the crunching, they're winnowing through the ranks of their company's customers, treating each according to her current and future value. That's today's vision of loyalty. The reality is different.

In practice, too many marketers are busy firing their company's worst customers. Using statistical tools to score their lists for probability of response or purchase, they cut from the bottom. Of course, deleting the worst-performing deciles from any list is always the right thing to do. It's almost certain to increase response rate and/or decrease cost. Even so, it does not necessarily generate additional revenue, and it's a one-trick pony. Once you lop off the very bottom, you'll soon start cutting into valuable customers, past and present. Some, with the right treatment, could become more valuable. At best, this is low-hanging fruit.

Too many marketers are just catering to their most-demanding customers. They buy those customers' propensity to repurchase with incentives, rewards, privileges, and other benefits. Marketing has trained consumers well. A few have become quite savvy; some have become demanding. There's a large segment of customers in every category whose tendency to repurchase is for sale. What many marketers call loyalty is factually a cost of reacquisition.

The relationship between marketers and responsive customers is something of a self-fulfilling romance. Marketers spend time and money proffering house-branded credit cards, company magazines, private mailings, and special events, tailored to those who respond to such attentions. Some customers do respond and sign up because they expect and get benefits. Indeed, a recent article in the Harvard Business Review caused quite a stir by examining the costs of loyalty at a price. It warned marketers about the dangers of spending most on those who require most.

Too many marketers ignore customers who are actually most loyal. Few marketers can totally ignore the actively loyal. Lead customers, early adapters, product enthusiasts, and opinion influencers are all wooed and courted to the degree to which the acumen and resources of enterprise management allow. But the passively loyal -- those of us who go back to the same companies repeatedly because we're too indifferent, lazy, or stupid to go elsewhere are almost universally ignored.

Ironically, the passively loyal contribute disproportionately to the ranks of every company's most profitable customers. They typically pay the manufacturer's suggested retail price without discounts, incentives, and reductions and without getting spiffed with frequent-flyer miles, cell phone minutes, hotel nights, and other redeemable points. The indifferent, lazy, and stupid are low-maintenance and highly profitable customers but are ignored by the companies that have them. For that reason, they're vulnerable to the blandishments of others.

It's no secret but not said often enough: The lion's share of all the billions spent on marketing is spent teaching and encouraging consumers to be disloyal. Unless the target is a first-time buyer in a category, every acquisition campaign targets some other companies' customers and explains why they are better off switching from their current brand to some new one. For every pitch to buy the latest and greatest, one company's acquisition is some other's betrayal.

Firing the worst customers at one extreme, catering to the more demanding customers at the other, and ignoring most of those in-between: Loyalty practices are a mess. But three principles can be effective guides through any set of particulars.

Lester Wunderman, the founder of the company I work for, articulated the first: "Acquire with the intention to retain, and retain with the intention to grow." Intention over time has implications. Perhaps most relevant to this readership, patience, respect, and discretion in the solicitation and use of data are appropriate to and best practices for a relationship. They also would constrain aggressive marketers.

The second principle concerns a company's relationship-focused behaviors -- responsiveness (reactive) and attentiveness (proactive) -- to its customers. In research conducted by the Wunderman agency, responsiveness to customer-initiated contacts is responsible for the largest part of what customers score as a positive brand relationship. Those scores soar when responsiveness is combined with a small amount of unprompted and unexpected attentiveness. Honing and mixing responsiveness and attentiveness is the path to building a relationship, one that is greater than the sum of its parts.

Third, relevance is key. This aged principle was proven (again) in the success of a loyalty program we recently engineered for a giant retail chain. No dollar-denominated discounts, high-quality rewards, or credible and entertaining information -- alone or in combination -- produced the desired results among the chain's club members. Only when a segmentation schema based on attitudinal and past-purchase data was applied to sort and parse these benefits was relevance achieved. It was relevance that drove the desired loyalty behaviors and consequent business results.

The examples are fresh, but the truths are old. Building relationships and always being responsive, occasionally attentive, and usually relevant are attributes of a company everyone likes to do business with. Such principles infuse human meaning into abstract buzzwords and gee-whiz technologies. They bring loyalty programs to a very practical ground. In landing them there, we also hope to abolish the term. People are loyal to their country, religion, or family -- not to an automobile or toothpaste.

Let's deflate the loyalty puffery and focus instead on the more plain-spoken task of increasing propensity to repurchase.

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ABOUT THE AUTHOR

Len Ellis Until recently, Len Ellis was executive vice president at Wunderman, where he charted the course in data-based and technology-enabled marketing communications, including the firm's strategic alliances and worldwide interactive strategy. Earlier, he was managing director, interactive integration at Y&R 2.1, a Young & Rubicam start-up consulting unit. He joined Y&R Group as managing director, interactive services at Burson-Marsteller. Len led interactive services at Messner Vetere Berger McNamee Schmetterer EuroRSCG, and started and led the information industry practice at Fleishman-Hillard. Len's book of essays on marketing, based in part on this column, is "Marketing in the In-Between: A Post-Modern Turn on Madison Avenue." He received his Ph.D. from Columbia and reads informational and mathematical theory for fun.

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