How many customer loyalty programs do you,
personally, belong to? In 2015, according to the Colloquy Loyalty Census, U.S. consumers
held 3.3 billion memberships. The average American household was registered in 29 loyalty programs spread among retail, financial
services, travel, restaurants, and various other economic sectors!
Companies will explain that it’s
important to ‘play the game’ because they know how much more expensive it is to acquire a new customer than it
is to keep an existing one. Further they’ll quote chapter and verse documenting how customers who are points-program
members account for 3, 7 or even 10 times more hotel stays or how members purchase 20% to 90% more than non-member customers.
But Have the Programs Changed Customer Behavior?
We take the position that most of these “loyalty” points-programs aren’t really accomplishing
what they should or could be. Seldom, if ever, do the organizations running them conduct objective research that would
conclusively tell them whether the programs are actuallychanging customer behavior, or whether instead
the spending’s a self-fulfilled prophecy. Meaning the customers who are already buying more are the ones who find
joining programs more worthwhile.
Further, we have to question whether the points-programs create a level
of entitlement (often leading to a sense of unfulfilled promises and unmet expectations). At best, we wonder whether
most programs are simply binding customers to brands through a form of “golden handcuffs”.
Real Keys to Business Success
Despite the programs currently out there, we believe that
what most smart marketers and managers actually want are:
- Satisfied/delighted customers who keep coming back.
- Raving fans who generate positive word of mouth and brag
to their friends, relatives, neighbors, co-workers, and even strangers about a brand.
- Trusting supporters who are ready and willing to try new spin-off products
Chick-fil-A Thinks Differently
has achieved amazing levels of customer satisfaction and sales without a traditional loyalty points program. Instead,
in 2013, the chain created its own customer recognition program, the A-List Program. Customers
cannot sign-up for membership – it’s open by invitation only. (Most customers don't even know it exists!)
About 60% of locations now participate in the program which begins with local management identifying individuals they have
come to recognize as frequent customers (and often know by name). Those individuals are personally handed a written invitation.
They then go online and complete a membership form providing their name, email address, date of birth, and other information
such as their favorite sports team, etc..
Instead of Points...Unexpected Delights
Once registered, member customers begin
to receive customized rewards and communications from their local Chick-fil-A restaurant. Activities are completely under the control of the local manager and can
range from A-List member group dinners in the restaurant, to tours of the kitchen, to participation in a neighborhood cleanup,
or serving as an informal board of directors offering advice to the local franchisee. While corporate does offer suggestions,
programs are totally controlled at the local level. Invitations can be offered to anywhere from a handful of customers
at some locations to hundreds of recognized loyal customers at another.
We don’t have
access to program measurement. What we do know is that
from a single store the program’s voluntary participation by franchisees
grown to over half of the chain’s 2,000 restaurants in less than four years. We
have heard the enthusiasm with which corporate management
A-List Program. We see the continued growth in sales. We hear the voices of
And that sounds like success to us
It should be simple; some customers are
costing you money, so fire them! Activity-based cost accounting shows in dramatic fashion that for most businesses 20%
of customers generate all the profits! While 60% of customers help to cover fixed costs
- but are basically breakeven transactors. But alarmingly 20% of customers actually act as a drain
on profits. They demand too much servicing; they exploit discounts and return policies; and they haggle
and bully for the best possible deals. With this ‘client topography’, it would seem logical that all any
business needs to do is jettison its unprofitable customers and watch the remaining dollars flow to the bottom-line.
But, of course, the devil is in the details. In particular, identifying costly customers and, for that matter,
identifying currently profitable and potentially profitable customers has been challenging. Some businesses
naively believe they know their best customers because they must be the ones spending the most, or they're in the highest
tiers of a loyalty/points program. In most cases these indicators are overly simplistic and may not be accurate indicators
of truly profitable customers.
But How Do
You Identify Costly Customers?
To properly identify those customers that
you might want to lose, and for that matter to identify those customers who deserve extra effort to be retained (because they
are most profitable) we have promoted a customer scoring system we call SLP2 (as in Satisfaction,Loyalty, Profitability
and Potential). Each component has its own source. Satisfaction is
scores generated through survey feedback capture. Loyalty is a measure of historical buying
behavior. Profitability is modeled from servicing costs including: discounts required to close
sales and demands for after-sales servicing. Potential is based upon the share of category spending
currently allocated to the brand by each customer.
We've Come a Long Way
When we first introduced SLP2 to
the world some fifteen years ago, it was, to be kind, ahead of its time. We were frequently told (either correctly or
incorrectly), “We can’t access that information!” And in fact, most marketers lacked the systems to
precisely track individual customer’s buying behavior or to model profitability. But that was before CRM software
and the popularity of Big Data. With today’s information capture systems, most services and many goods manufacturers
can now access an entire history for every one of their customers! Further, most corporations regularly track customer
satisfaction, and many no longer shirk from asking share of wallet spending questions (to determine potential).
A concept like SLP2 has the potential for really making efficient and effective use of all that information.
Identifying the most valuable and the least valuable customers for the future of your business can take marketing and customer
service strategy to a smarter and more profitable level.
A Final Word About 'Firing' Customers
By the way, for all those who read to the end, we at Customer
Experience Partners, strongly recommend against ever “firing” any customer. If possible,
we recommend directing them to a product and service mix that turns them into at least a breakeven customer for the company.
Should that fail we recommend finding a way to introduce and escort them to a competitor. It will save a lot of pain for everyone
and avoid a lot of potential negative word of mouth.