Transcript Wunderman Training - Database marketing Institute

Customer Loyalty
How you can foster
it and profit from it
Keynote
San Francisco DMA
March 16, 2006
5:30 PM
Arthur Middleton Hughes
VP Solutions Architect
Why loyalty is important:
Long term customers:
• Buy more per year
• Buy higher priced options
• Buy more often
• Are less price sensitive
• Are less costly to serve
• Are more loyal
• Have a higher lifetime value
Loyalty is measured by the
retention rate
90%
80%
70%
Percentage
Retained
from
Previous
Year
60%
50%
40%
30%
20%
10%
0%
1
2
3
4
Years as a customer
5
Retention pays better than
acquisition
Annual Profit
$48
$60
$40
$20
$0
($20)
($40)
($60)
($80)
($62)
New Customer
3rd Year
Customer
Two Kinds of Database People
Constructors
People who build databases
Merge/Purge, Hardware, Software
Creators
People who understand strategy
Build loyalty and repeat sales
You need both kinds!
Relationship Buyers vs
Transaction Buyers
• Transaction buyers are always shopping
for the best price. They have no loyalty.
• Relationship buyers are looking for a
friendly institution that treats them well
and provides good service.
• Relationship buyers will stick with you
when your prices go up.
• Transaction buyers will leave for a dime’s
worth of difference.
Loyalty and Affluence
• Wealthy customers are more loyal
• 92% of $125K+ are in airline loyalty
programs compared to 51% of all
• Wealthy customers do not want
discounts. They want status and perks.
Loyalty and Preferences
• Customers who register their
preferences are more loyal than others
• Once you know what they want, you
have to give them what they want!
• Awarding points or miles works.
How Sears Determines
Preferences
How I feel about brands:
• I typically buy top of the line name brand products
• I buy name brand products at a moderate price
• I am always looking for a bargain. I will try any brand if the price is right.
How I feel about technology:
• I buy products with the latest features & innovations
• I buy products with mainstream features & technology
• I am not interested in technology, keep it simple for me
Home status:
• Home Owner
• Renter
Create your
• Lived in my home for less than 6 months
segments based
• Plan to move in the next 6 months
on these
• Plan to remodel in the next 6 months
Presence of Children:
answers
• Baby (Age 0 - Age 1)
• Kids (age 1 - Age 12)
• Teenagers (age 13- Age 18)
• None
What Reichheld said about loyalty
•
Frederick Reichheld in The Loyalty Effect pointed
out that some customers are loyal and some are not.
•
He suggested that companies should start by trying
to attract the right kind of customer to begin with.
•
Loyalty and disloyalty can be predicted early in a
customer’s career.
•
One insurance company, he said, found that disloyal
customers were often:
–
–
–
–
Single people, rather than married people
Renters, rather than homeowners.
People who responded to low-ball discount offers
People who respond to temporary sales
How to determine your net
customer promoter index*
• Ask all customers a single question:
*Frederick Reichheld:
The one number you
need to grow
Determine your net promoter index:
(Promoters minus Detractors)
• 41 minus 24 is 17 – that is your net
promoter index
• Average of 400 companies was 16
• eBay, Amazon, USAA scored 75 to 80
Brian Woolf on Loyalty
Sales always grow when prices are cut.
Unfortunately, new customers
attracted by such promotions typically
exhibit low loyalty and require
constant ‘price feeding’ to keep
returning which means continued
lower gross margins.
Heavy promotional pricing is not a
recommended tactic for building
loyalty.
Ruin your customers with discount
price offers
• Low ball offers, discounts and coupons bring
in the wrong kind of customers
• They train your good customers to think
about price
• Discount customers:
– spend less, less likely to stay
– are more costly to service
– make good customers feel cheated
Maintaining loyalty
• Communicate with your customers often
– Thank you for your order
– Your order was shipped today track # 44455
– Did your order arrive OK?
• Make your communications relevant
– You have Release 2.0, Mr. Hughes
– Release 3.0 will double your speed
– To find out about it click here.
Many customers are profitable –
some are very unprofitable
79.67%
This 28% lost 22% of the
bank’s profits!
80.00%
60.00%
24.82%
40.00%
15.83%
1.52%
20.00%
0.00%
-20.00%
Bank Customers by Profitability
-21.83%
-40.00%
5%
11%
28%
28%
28%
Customer Status Levels
Your Best Customers 80% of Revenue
Your Best Hope for New
Gold Customers
1% of Total
Revenue
GOLD
Move Up
These may be losers
Spend Service
Dollars Here
Spend Marketing
Dollars Here
Reactivate or
Archive
Status Levels and Marketing
Segments
Status
Levels
Gold
Marketing
Segments
Business
Customers
Affluent
Retired
Silver
Young
Singles
Families
With Kids
Customer
Bronze
Low Rate
Shoppers
Check
Cashers
Marketing
Staff
Segments are essential for
marketing
• Many customers are quite different in their
purchase patterns
• Create actionable segments and determine the
value of each
• Use the results to focus your retention programs
and acquisition programs on the most profitable
segments
Building Loyalty by Cross Sales
Retention Rate by Products Owned
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1
2
3
4
Number of Products Owned
5+
How to sell a second product
• Customers who have more than one
product have a higher retention rate.
• Two reasons for second product:
– Profit from the new product
– Retain customers for the existing one.
• An insurance company with independent
agents used a model to predict the Next
Best Product for each customer
• Offered a 10% discount on first product if
second is purchased
Create personal notes from agents
Automatic follow up note
How did it work out?
• 89% of agents invited went to web and
participated.
• 52% created personal notes
• Recipient HH bought 11% more than the
controls
• Follow up letter created 8% more sales
• Follow up phone gained 43% more.
Conclusion: This method works!
• Personal notes increased sales by 140%
• Model prediction: Top decile sales 68% over
average and 195% over bottom decile.
300
Sales by decile
250
200
150
100
50
0
10
9
8
7
6
5
4
3
2
1
Travelers Insurance
• Costs 20 times as much to acquire new customers
than to retain existing ones
• Customers want communications
• Contacts should be conducted locally
• 1% increase in retention is worth $ millions
What the retention database
program provided
• Systematic process
• Turnkey operation
• Customer segmentation
• High quality communications at minimum
cost
• Personal, professional
• Building a customer relationship
• Agents paid all the expenses
Database Analysis to support
Travelers communications
• Profile the customer base.
• Who is staying? Who is leaving?
• Establish measure of customer
desirability
• Determine profitability
• Determine lifetime value
• Use these to drive segmentation and
retention strategy
What happens during a year
• Letter 60 days before annual renewal
• Annual review
• Thank you card in 1st quarter
• Cross sell postcard in 2nd quarter
• Newsletter in 3rd quarter
• Seasonal card in 4th quarter
Results…
• Increased the customer retention rate from 85.1% to 90.5% -compared to controls. Worth millions of dollars to Travelers.
• All previous programs had been subsidized . They had all
failed
• In this program, the agent paid for all. In prior programs, the
agent risked nothing
• In this program, the agents wanted to make sure that their
money was not wasted
• 62% of customers who left, never talked to an agent first
• 80% of people who talked to an agent did not leave.
Summary: how to build loyalty
• Recruit loyal customers to begin with
• Create status levels for your customers
• Create marketing segments
• Develop a relationship with each
customer
• Communicate often
• Sell a second product to build loyalty
• Work to build your net promoter index
Books by Arthur Hughes
From McGraw Hill. Order at
www.dbmarketing.com
Contact Arthur: [email protected]
Thank you!