Versión en PDF Send this page Versión para imprimir
Products and services are copied, reproduced, and imitated. Clients have become progressively intelligent, and, and they study, examine, choose, and decide. Churn rates are going through the roof. In this framework, retaining the client, the principal ingredient of any company, has become critical. Loyalization is a term being used often. So often, in fact, that it is used for practically everything, as indiscriminate and massive a marketing action is. Loyalization is not only retaining or creating a link with a client. This concept must go beyond that and be anchored in value: knowing only how much a client is worth to the company, it will be possible to apply profitable strategies that retain, reward, or invite the client to abandon. Shedding light on the basic relationship between strategies of loyalization and segmentation by value shows that traditional techniques included under the umbrella of “loyalization” are proving to be not very effective. All companies aspire to having loyal clients. Why? It is assumed that because it is easier to attend to them, it is easier for them to acquire new products and services – cross-selling, up-selling – and they have a higher level of
The existing relationship between loyalization and client profitability and, at the same time, the sales action, is absolutely critical. Neither are all loyal clients profitable, nor all profitable clients loyal. This premise, as simple as it may seem at first glance, explains many of the
resounding failures that existing loyalization programs are experiencing. In order to intelligently loyalize, an extremely deep knowledge of the client portfolio is imperative, as well
as an accurate segmentation strategy. If the company decides undertake loyalization actions, and it has not previously made an exhaustive analysis of its clients, it could easily find that its retention actions not only don’t bring results, but also become a machine for loss of financial and human resources.
Werner J. Reinartz, Professor at the prestigious INSEAD at Fontainebleau, has recently developed a minutely detailed investigation among 400 multinational companies with big worldwide recognition, which debunks many of the falsehoods that have habitually accompanied the concept of loyalization; falsehoods that still create a great deal of confusion. These are the three most common ones:
Falsehood 1. Loyal and new clients cost less . It is more profitable to loyalize portfolio clients that have been with the company for years than recently obtained clients. The principal is relatively simple, but it is essential: the majority of clients already know their value. They are aware of their weight and influence in the market. They expect, therefore, to receive rewards accordingly from the beginning Falsehood 2. Loyal clients are willing to create greater benefits for the company: in many of the investigated companies, those clients designated as “loyal” had spent a considerable period of time paying prices up to 10% less than new clients. Falsehood 3. Loyal clients have a great referential power and serve as recommenders: The report did not detect almost any link between the length of the client-provider sales relationship and “word of mouth” recommendation.
In the last few years, “points programs” have spread through all types of companies and sectors, flooding portfolios with customers that have loyalty cards. The usefulness of these cards needs to be reviewed. Initially conceived in order to award loyal clients with discounts and advantageous prices, “Loyalty Cards” have lost much of their attraction because, in many cases, they treat everyone in the same manner, thus losing their initial vocation as a “plus”. This is a problem that certain companies in sectors such as Leisure &Tourism are facing (airlines, hotel chains, etc.), since they have not known how to transform their cards into segmentation, linking, and loyalization tools. The proliferation of points cards has unleashed a “plastic war” in which the “wallet share” is the key reference index. In this “war”, the companies that have known how to “enrich” their cards are winning. They do not limit themselves to distributing them indiscriminately, but rather in a framework of an intelligent loyalization program.
In their effort for dialogue with the client, with the goal of creating a link that makes it difficult for them to change providers, many companies are betting on “Customer Clubs”, with notable results. These allow the company not only to understand and get to know the client, but also to activate the “sleeping” clients and control their abandonment possibilities. Customer Club management makes it possible, on one hand, to extract all the potential from loyalty cards, but above all, it helps to establish an authentic “one-to-one” dialogue with the client, in such a way that their link to the company is resistant to the competition’s actions.
Correct management of customer clubs allows:
Internal reports at Daemon Quest indicate that appropriate club management not only brings benefits such as the de-seasoning of sales, but also increases the frequency of the client’s purchases, use of loyalty card, and the average purchase price by percentages that go from 50% to 90% in comparison to those clients that do not belong to the club.
Some companies, within or outside our country, are especially standing out in the creation of client clubs, not necessarily exclusively involving the brand, but also like-minded interests. For example, Heineken has caused their clients not only to associate the brand with beer, but also with cutting-edge concerts and all types of musical events geared towards the youth segment.
One emblematic example is the club created by Harley Davidson. HOG (Harley Owners Group) has more than 900,000 members all over the world who share the passion for making the “Harley style” a lifestyle. Members of HOG enjoy a motorcycle rental program (“Fly & Ride”), tools for easy shipping of motorcycles, a highway assistance program… In Europe alone, between April and July of 2005, there are a dozen events planned for “Harley” lovers that are members of the HOG club. What other company can boast that their clients have their brand name tattooed onto their body?
It would help to distinguish between the concepts of “loyalty” and “linking” with a company, because they are not identical, and they frequently lead to errors. A simple example is enough to explain the difference: a client might be extremely linked to his or her bank – with direct deposit, direct payments, personal loans, mortgage credit, etc…- but as soon as he or she has the capital to invest, they choose any other financial entity that is more specialized or that inspires more confidence. This would be a clear case of a linked client, but not loyal. Putting more emphasis on the degree of client linking vs. loyalty is something the majority of companies should pay attention to. Another critical focus that loyalization strategies should strive towards is client abandonment prevention, which is beginning to become a serious problem in sectors that are extremely subject to churn, such as telecommunications, banking, retail, and more recently, utilities. (see pg. 13). As consumers, we are all loyal to certain brands, and we are all willing to recommend them…in the same way we’re willing to “pulverize” those brands that have let us down.
In fact, Daemon Quest studies reveal that a satisfied consumer tells an average of five people about their positive experiences, while a client with problems tells an average of nine people. Applying Customer Intelligence techniques can reduce the churn rate by between 18 and 36% on average.
With Data Mining techniques, it is possible to develop “abandonment paths” and detect events that determine which clients are about to “fly” to the competition. This means establishing an “alarm” system that, based on the behavior of clients who abandoned a company, allows us to detect those who show similar symptoms, before it’s too late.
It is not always necessary to prevent abandonment. An appropriate loyalization strategy allows us to detect which clients to retain, but also which ones do not interest us because of their scarce or non-existent link and their high maintenance cost. Adopting “exit strategies” for unprofitable clients (the infamous below zeros) is a delicate matter, but every company should have them planned.
Hardening tariffs and prices, providing minimum services or imposing stricter conditions are some of the most common formulas for “inviting” those “outsider” clients to abandon the company and avoid them “contaminating” clients we’re interested in. Doing away with 5% of unprofitable clients can create improvements in results from between 10 and 15%, according to Daemon Quest data. Analyzing and predicting are the key words underlying any loyalization Strategy. “You can buy people’s time and presence in a specific place. However, you can never buy enthusiasm, you can never buy loyalty…that, you have to earn”, affirmed Martin Luther King, long before marketing experts struggled to find out how to retain their best clients…
The prestigious Client Strategy forum CRMGuru recently an extraordinarily interesting report on the degree of consumer loyalty and linking to their providers. Under the title “The Loyalty Connection: Secrets to
Customer Retention and Increased Profits”, this study reveals that churn is beginning to become a big headache, especially in some countries: for example, in Great Britain, the abandonment rates in the telecom sector are between 25 and 30%. Despite the fact that 80% of the 500 high-level executives surveyed say that client loyalty is “very or extremely important”, only 22% claim to invest in retention and loyalization. A closer look into what they big multinational executives understand by loyalization is revealing: 64% define loyalty as repeat purchases; 58% as the client’s recommendation power; 54% as an emotional commitment to the provider, and…only 32% identify loyalty with those clients that increase their purchases consistently over time! The majority continues to stress the crucial relationship between loyalization and real value and the client’s ability to shop around; an absolutely key relationship in terms of profitability.
_______________________________________________________________________
[i] Werner Reinartz, Jacquelyn S. Thomas, V. Kumar. “Balancing Acquisition and Retention Resources to Maximize Customer Profitabilituy”. Journal of Marketing. Enero 2005.
[ii] Fundamentos de Marketing. William J. Stanton, Michael J. Etzel, Bruce J. Walker. McGraw Hill.
[iii] Daemon Quest. “Loyalty, Profitability and Churn Report”. Mayo 2003
First publication in marketing and clients strategy
From the end of classic theories to new client strategies. Abstract The old techniques of...
