O N E T O U G H Q U E S T I O N :

TWO VIEWS OF CUSTOMER LOYALTY

Customers who see themselves as loyal may not be in the eyes of a brand. What’s a marketer to do?

One of the biggest

challenges with customer

loyalty is the often-

conflicting definitions that

marketers and customers

have regarding loyalty.

In grocery, for instance,

customers who purchase

bulk items monthly may

consider themselves

loyal; however, the

grocer they buy from

might not because—

despite the regularity of

their purchases—those

customers aren’t buying

their staples from that

grocer. And buying staple

items weekly is how that

grocer defines loyalty.

So, the question for

marketers, then, is

this: How should an

organization best reward or

recognize customers who

see themselves as loyal,

but aren’t in terms of how

the company defines it?

Or does the company not

reward those customers,

instead encouraging them

to become loyal in the

way it defines loyalty?

Here, several customer

loyalty experts provide

their advice:

-GINGER CONLON

TABLE OF CONTENTS

7 Brandon Logsdon President and CEO, Excentus, Justin Yoshimura Founder and CEO, 500friends

4 Brad Marg Chief Operating Officer, Clutch

5 Scott Gillum President and Channel Practice Leader, gyro Washington, DC

5 Stefan Koenig CEO and Cofounder, Hull

6 Errol Greene Solutions Develop-ment Director, Clear Harbor LLC

BRAD MARGChief Operating Officer, Clutch@ClutchSuccess

Rewarding any loyal customer should begin with a data-driven understanding of consumer preferences. This will allow a brand’s marketers to deliver a consistent and personalized expe-rience, as opposed to simply offering one-size-fits-all discounts. Rewards in the form of blanket discounts often end up diminishing customer relationships and eroding profit margins instead of building brand loyalty. Because different con-sumers interact with brands in different ways, it’s necessary to tailor rewards to align with how consumers define themselves as loyal.

Across many industries and brands today, the concept of building customer loyalty has largely been relegated to a simple transaction; a “buy three, get the fourth free” approach. This one-dimensional approach has widely taken the place of rewarding consumers based on their preferences and behavior, and instead treats all customers the same.

Customer loyalty can be defined in different ways; the key to effectively rewarding loyalty is by shaping rewards based on individual con-sumer behavior. Although one customer might not be spending nearly as much as the next, her constant positive social media posts not only demonstrate loyalty, but also bring value to your brand. For this customer, responding via the brand’s social media account aligns with how she interacts with the brand and might ac-tually be a more valuable reward to her than a product discount.

Rewarding consumer commitment should not come down to defining loyalty in a singular way or through a singular reward. Instead, brands should reward customers based on how they interact with the brand to deliver value to the consumer and grow successful relationships.

“THE KEY TO EFFECTIVELY REWARDING LOYALTY IS BY SHAPING

REWARDS BASED ON INDIVIDUAL CONSUMER BEHAVIOR”

STEFAN KOENIGCEO and Cofounder, Hull

@koenigst @Hull

Far too many brands undervalue returning customers and focus instead on acquisition, despite the well-known fact that it can cost seven times more to win a new customer than to retain an existing one. It’s crucial for brands to recognize and reward loyal customers—even those who, based on their purchase frequency or visits, may not meet their internal definition of “loyal.”

It’s a costly mistake for brands not to know the lifetime value (LTV) of their individual cus-tomers, let alone risk losing the customers who provide higher value over time. Understanding customers on an individual level is necessary to effectively reward them and increase their LTV. What types of products do they buy and how often? What time of day, week, month, year do they visit? With that knowledge, and through proper customer segmentation, brands can make customers at all levels truly feel valued. Using the grocery example, if customers who make major purchases on a weekly basis are eligible for a convenience offer, such as free door-to-door delivery, this can moti-vate customers who make their purchases on a monthly basis to change their habits to the grocer’s preference.

Public-facing loyalty programs can be expensive and time-consuming to implement, and often reward customers based on frequency instead of lifetime value—which don’t always go hand-in-hand. Instead, simple customer loyalty recognition through emails and coupons requires less investment, and can steer future purchase decisions toward the brand’s defined loyalty cate-gories. The key to defining your ideal loyalty vehicle is to understand what drives and motivates your customer base.

SCOTT GILLUMPresident and Channel Practice Leader, gyro Washington, DC@sgillum @gyro

The answer to the question, “How should an organization best reward or recognize customers who see themselves as loyal, but aren’t in terms of how the company defines it,” starts and ends with data. The marketer must decide which loyal customers are valuable, and which are not. Typ-ically, the output of customer loyalty analysis will show four distinct customer tiers:

Tier 1: The 15 to 20% of customers who are of high value and should be rewarded for their loyalty.

Tier 2: The 30 to 35% of customers who are valuable, but have the potential to be more valu-able if given the right incentive. A cost-benefit analysis will net out what type of incentive marketers should use to drive them into the first tier.

Tier 3: The 30 to 35% of customers who fall below the desired profitability target. This segment will be more difficult to move up to tier two. The strategy for this group is “up or out.” Marketers should target incentives to this segment to move them up, if they don’t move, then have a plan to reduce the cost to serve them.

Tier 4: The 15 to 20% of customers who are unprofitable and unmovable. The goal here is to reduce service cost or let them go.

Rewarding valued customers ultimately comes down to defining which segments are the most valuable to you. Figure that out then reward them or move them up or out.

ERROL GREENESolutions Development Director, Clear Harbor LLC @clearharbor1

Any customer who buys from a company on a consistent basis is a loyal customer, just a loyal customer who needs to be migrated to becoming a more profitable customer.

That’s done by offering incentives that best serve both the customer and the business. For instance, once the customer is on site or online, a company could of-fer a special incentive of real value to get them to start buying promotional goods and services. Companies need custom-ers who purchase regularly and profitably, but with today’s level of competition, that must be earned.

How? Delivering a custom shopping experience that’s enhanced well beyond that of a non-loyal customer is the first step. Giving customers individual, not-available-to-the-general-public service and discounts on promotional items are also good steps. Making the shopping ex-perience so convenient it causes custom-ers to question if it’s really worth the extra effort to buy from another vendor is an-other best practice. Providing an annual cash-back award also works well. Custom-ers will think twice about shopping else-where if there’s a large end-of-year award to be had. They gradually become aware that every purchase elsewhere shrinks their incentive award, which makes them think twice about spending money some-where else.

The bottom line: All customers are valu-able. It’s up to companies to provide a unique customer experience and value so great they choose to expand their business.

“THE BOTTOM LINE: ALL CUSTOMERS ARE VALUABLE.”

JUSTIN YOSHIMURAFounder and CEO, 500friends

@500friends

The chasm between a customer’s and a marketer’s definition of loyalty is down to both a differ-ence in the metric by which loyalty is measured, and a misalignment in the brand’s positioning. Once these differentials are clear, the marketer can use loyalty-based rewards to recognize such customers and align their behavior to the brand’s definition of loyalty.

Here’s how, for each circumstance:The difference in measurement is due to customers’ equating loyalty with spend instead of

profitability. Ultimately, a customer will see themselves as loyal if they spend a large amount a few times or a small amount numerous times. Both are irrespective of the margin and profitabili-ty to the brand. The opportunity is to reward these customers in a way that incentivizes them to become more profitable at the same spend level. Many grocers, for example, attempt this today through couponing offers for higher-margin private label items to those customers who buy bulk brand-name items.

The misalignment in brand positioning is due to customers’ view of the brand being more limited than its aspirational branding. In the example provided, the customer only purchases bulk products and not staples. That could be a result of how the customer sees the brand: a low-cost and bulk seller of groceries. This may differ with the marketer’s branding around convenience, access, and value; all of which are geared toward the purchase of staples and bulk goods. The opportunity here is to identify the relevant segment and target them with communications to reinforce the messaging around the brand’s desired positioning.

BRANDON LOGSDONPresident and CEO, Excentus

The reality about loyalty is that customers are not static groups of people. They’re dynamic individuals who exhibit varying degrees of loyalty that evolve and change over time. Loyalty en-compasses a spectrum of customer activities, experiences, behaviors, tendencies, marketplace factors, and history with brands and retailers.

The real challenge for brands is this: If your customers’ definition of loyalty is at odds with your own, perhaps it’s time to change or broaden your definition of what it means to be loyal. If cus-tomers engage with you across a spectrum of activities and engagement levels, shouldn’t your definition of loyalty also match that spectrum?

At the Fuel Rewards program, which we run and operate, we’ve taken a fresh new look at cus-tomer loyalty, because we learned that it extends far beyond “active/inactive” or “loyal/non-loyal” categories. Data from today’s marketplace—mobile, transactional, social media, loyalty program,

merchant, etc.—can be immensely helpful at identifying tangible and relevant loyalty segments. We optimized our approach to loyalty by merging universal spend data with our loyalty data to identify eight new, dynamic customer segments, each with its own behaviors, activity patterns, tendencies, and preferences. With dynamic segmentation, our marketing team can fine-tune mes-saging, content, and promotions so we can communicate relevantly with all of our members across a spectrum of loyalty metrics.

When marketers can target communications specifically to encourage more activity, more spending, and more engagement with our program and merchants, the opportunities for loyalty expand and continue to grow.