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Progressive Rewards Deliver Maximum Returns
Turning Loyalty Programs Into Profit Centers
Amit Shankardass & Channing Rollo
[email protected] [email protected]
www.clientlogic.com
DMD Conference 2004 Page 2
• Loyalty Concepts
• Program Types
• Operationalizing Loyalty CRM
• Case Study Examples
Agenda
DMD Conference 2004 Page 3
The Problem
U.S. enterprises spend more than $1.2 billion on customer loyalty programs that do not significantly increase profits. Companies must embrace a new
generation of programs that broaden customer appeal and integrate with CRM.
- Gartner
DMD Conference 2004 Page 4
Importance of Customer Loyalty
• Increased longitudinal economic returns
• Reflects the level of value a company delivers to customers
• Enhanced reputation Beware the Satisfaction Trap
Source: Gartner
Optimize Yield (CRM)
Revenue
Cost
DMD Conference 2004 Page 5
Customer Loyalty Hierarchy
Source: Gartner
Types of Loyalty Programs
DMD Conference 2004 Page 7
Loyalty Tool: Clubs
Pros:
• Target large interest group
• Encourage purchasing behavior
through bonuses and rewards
• Provide steady, reliable revenue
for company
• Easily personalize customer
interaction
• Make loyalty convenient
Cons:
• Limited product/service
applicability
• Non-exclusive merchandise
• Require responsive customer
care, fulfillment and CRM
• Plans may mandate negative
purchase option
DMD Conference 2004 Page 8
Loyalty Tool: Continuity
Pros:
• Positive and flexible purchase
option• Provide steady and reliable
revenue for the company• Exclusive product offerings• Easily personalized for
customer interaction• Allow customer to enjoy periodic
opportunity to shop
Cons:• Target niche interest groups
• Limited product/service
applicability• Require highly responsive
customer care, fulfillment and CRM
DMD Conference 2004 Page 9
Loyalty Tool: Private Label Exclusive Rewards Program
Pros:
• Allow RFM targeting,
segmenting and monitoring
• Create brand loyalty
• Ongoing communications allow
familiarity, affinity and trust
• Create an incentive to return
• Ongoing return of value lessens
the chance of defection
Cons:
• Require extensive marketing
and record keeping
• Long-term costs to the company
• Must be supported by effective
CRM, or risk being seen as a
bribe
DMD Conference 2004 Page 10
Acquisition Tools: Coalition Programs, Coupons, Prizes
Pros:
• Drive customer traffic
• Low-effort promotion
• Broaden buyer spectrum
• May assist in creating customer
loyalty only if experience or
product “delights”
• Possible use for data
collection and/or surveying
Cons:
• One-time offers produce one-time shoppers
• May attract primarily swing buyers
• Spread thin customer attention and
business across coalition merchants
• Lack incentive for customers to remain
vendor loyal
• Increase market share only during
promotion; may reduce gross revenues
• Almost zero customer loyalty effect
Operationalizing Loyalty CRM
DMD Conference 2004 Page 12
Objectives
High-Value
Customers
Samplers/Non-Loyal
Moderate-ValueCustomers
Segmentation is the Key
ConversionTo
High-Value
RetentionReward
ConversionTo
Moderate
DMD Conference 2004 Page 13
Loyalty Functionality
Source: Gartner
DMD Conference 2004 Page 14
Required Components for CRM
Customer Segmentation and Preferences
Customer Data Collection
Data Analysis
SegmentationValue/Rank
Objective Per Segment
Technology(Channel & Infrastructure)
Channel Personalization
Multi/Cross Channel
Management
OptimizationReporting
Offer/Action Management
Offer AnalysisCustomer
Offer Design Channel
Offer Design Offer
Management
Ma
rke
tin
g D
ata
ba
se
Case Study Examples
DMD Conference 2004 Page 16
Case Study: Success With Retailer
Client:• Marketer of premium consumer perishables and related gourmet products
• Direct mail marketing, outbound telemarketing, member-get-member, etc.
Client Came to ClientLogic for:• The ability to target specific communications and offers to specific customers
• Convert multiple systems into one customer view
• Buyer’s Choice Continuity– Represents 95% of client sales volume
– Several different clubs
– High member churn each year
– Negative option for annual program
• Catalog– One-time orders, 4th quarter peak
DMD Conference 2004 Page 17
Case Study: Customer Value Pyramid
$170MM(30%)
$214MM (38%)
$181MM (32%)
Total Revenue Customer Strategies
CoreCustomers
$1,000+ / 5%
SamplersUp to $499 / 83%
ModerateShoppers
$500-999 / 12%
Retention / RewardCall Center RoutingPriority Call HandlingMilestone RewardsPremium Loyalty Programs
Conversion To CoreChurn ReductionPay Loyalty ProgramUp-SellsCross-Sells
Conversion To ModerateRecovery ProgramsPartnership MarketingList Rental
DMD Conference 2004 Page 18
Case Study: Churn Reduction
Challenge• Critical business risk: out of business by 2007• Customer churn at 39.2% per year and increasing by 5.7 points/year • Acquisition stable at 21.8% per year Solution• Risk model to classify every customer into a group based on his/her
risk for canceling account• Specialized training programs for CSR - Risk Handling Certifications• Route “high risk” customers to certified CSRsResults• Churn decreased 1.1 points/year vs. increasing by 5.7 points/year
(approximately $8MM annualized in saved revenue) • Identified behaviors of high-risk customers -- enabled client to develop
alternative product offerings for migration and further stabilization
DMD Conference 2004 Page 19
Conclusion
• Loyalty programs must be data-
driven, sustainable, progressive in
reward giving and brand-centered
• Regardless of the loyalty program
tool, segmentation is essential
• All initiatives must be personal and
communicative
Optimize Yield (CRM)
Revenue
Cost
Progressive Rewards Deliver Maximum Returns
Turning Loyalty Programs Into Profit Centers
Amit Shankardass & Channing Rollo
[email protected] [email protected]
www.clientlogic.com