CRM - June 2008 - (Page 24)

area all feature customer loyalty cards that give a free reward equal to the purchases that they are making,” one poster on the site noted. “Rather than getting a free shot of syrup (which I don’t use), I would rather be rewarded for coming back the way other businesses already do for me. Everyone likes a little appreciation!” Starbucks, in turn, has promised “to leverage technology to create innovative ways for Starbucks to connect with our customers and build loyalty programs,” and already responded in April 2008 with the first phase of a Starbucks Card Rewards program, “rewarding registered cardholders and providing unique new benefits when using their cards in Starbucks stores,” according to a company release. Still, instead of cultivating deep-seated loyalty, most companies focus on oneupping each other for the short-term win. “That’s got to be demoralizing for them,” Cottle says. “To get a customer, [they’ve] got to make their stuff cheaper all the time.” At some point, instead of being a competitive advantage, loyalty programs become just another commodity. And companies know it: Cottle says they’re really feeling the burden of being “held hostage by their own loyalty programs.” In a CRM magazine column last year (“Keeping the Store,” February 2007, page 48), experts from consulting firm McKinsey & Co. said that “[a]n analysis of more than 50 U.S. retailers over the past 10 years reveals that store sales growth for retailers with loyalty programs has averaged about 2.3 percent, while sales growth for retailers without loyalty programs has averaged 4.3 percent.” The problem with loyalty programs isn’t just that everyone around you has one. It’s that the superficial bond will last only as long as your competitor’s offer isn’t equal or better—and yet it’s a potentially fatal mistake to compete solely on discounts.“Coupons and rewards have no resilience,” argues Bill Bleuel, professor of decision sciences at Pepperdine University’s Graziadio School of Business and Management. “It’s a short-term activity that maybe gets the customer for a short period of time, increases cash flow, or 24 [helps] get rid of some old inventory— but it doesn’t build long-term loyalty.” Bleuel goes so far as to call rewards “unnatural.” Unlike the other three fundamentals of a company—product, process, and relationships—rewards can exist regardless of whether or not a company is doing well. “You can have a crappy company, a bad product, and terrible service—but have good coupons,” he says. Customers always want to save money, especially as the country faces a recession, but a rewards program on its own is not enough to brave the attacks of competition. Although recent studies have shown consumers are valuing price GET TO KNOW ME In fact, the upside of loyalty programs may outweigh the race to the pricing bottom. Once customers register for a program, companies find themselves with a wealth of valuable information— from identity traits to spending habits— that marketers can use to focus targeting and improve satisfaction. Companies are often conflicted between customer acquisition and customer retention. Sugar describes his own experience with wireless Internet service: An early adopter, Sugar had a wireless connection seven years ago, before most of his neighbors even knew what wireless Companies are being “held hostage by their own loyalty programs.” over service, companies cannot expect this trend to last forever. (See “Price Check, Aisle 5,” May 2008, page 20.) The fast-food industry, for example, is saturated with low-cost, high-frequency transactions, and low switching costs. Even with higher-value transactions such as plane tickets, every airline offers mileage points, making customers unlikely to stick around if another airline offers a better deal or better rewards. The only way to differentiate is by making an emotional bond to enhance loyalty. Loyalty programs themselves aren’t the problem here—the issue is marketers believing that loyalty programs are the cureall for their competitive woes. “[Loyalty] is something you have to work on,” says Phil Sugar, chief executive officer of Delaware-based loyalty-and-rewards platform Smart Button. Loyalty vendors, he says, can’t ensure quality service or topof-the-line products. Each business has to get all its ducks in a row first. What firms like Smart Button do, he says, is “show you how [to] use this to be your best.” was. He recently discovered his neighbor had signed onto the service—and had received a free Wi-Fi router, a free digital camera, and six months of half-price Internet. When Sugar called to complain that he deserved to be treated at least that well—over the seven years, he says, he’d referred 25 people to the company—he was told that he wasn’t eligible because he wasn’t a new customer. “So I said, ‘Well, I’ll be eligible when I go to [a competing wireless provider].’” For most industries, the full extent of customer value comes from the relationship long after the purchase. Once you get them through the door, you need to keep them. On the other hand, the Chili’s restaurant chain faced a unique problem: More than enough total customers were coming in, but the company wanted each customer to come more frequently. Customers who register for the restaurant’s loyalty program qualify to receive free points good for future purchases; by sharing their dining preferences, customers provide information such as whether www.destinationCRM.com CUSTOMER RELATIONSHIP MANAGEMENT | JUNE 2008 http://www.destinationCRM.com

Table of Contents Feed for the Digital Edition of CRM - June 2008

CRM - June 2008 Contents Front Office Reality Check Customer Centricity The Tipping Point Making Mashup Masterpieces Trouble in the Air CRM on Twitter Is SaaS Ready for Its Contact Center Close-up? CRM: In the Public Interest Required Reading Lollipop Loyalty Best Practices Series: CRM & eCommerce eGain NetSuite Infor Longwood Software Vovici The Second Coming of 2.0 Believe the Hype About Hosted Contact Centers All Talk So Hot It’s Cool Linksys Gets Shaken, a Community Is Stirred The Risky Risk Business Awana Hears a SaaS Sermon Secret of My Success Re:Tooling Scouting Report Pint of View

CRM - June 2008

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