Let's begin this discussion with the understanding that, before we can get to the "truths," we first have to get past the semantics of the term "relationship marketing."
Debate continues as to how to describe what we do. Some call it Loyalty Marketing; others call it Direct, Frequency, One-To-One, or CRM. These terms are all right and, at the same time, all wrong.
Relationship marketing is comprised of all these elements - and many more. Today's business paradigm looks nothing like the comfortable one of five years ago. Dynamic and integrated touchpoints and channels (both virtual and real) are re-defining the marketing process. There are no walls; we are all interconnected through intranets and the Internet. Speed is now measured in broadband width not MPH.
As our marketing world continues to change, every business needs to adopt a carefully crafted position that supports how to best interact with its customers. It's not the same for every company and no canned program will work in all situations.
Let's examine these truths to understand why they are so important in the marketing planning process. By learning how to incorporate them into your own operation, you can develop a relationship marketing program that will help you keep your best customers and impact those that have the opportunity to spend more.
TRUTH #1
Customers are no longer loyal. They will bolt for a penny and are actively seeking new and better ways to shop. Mall traffic is down, Internet traffic is up. Any correlation? In the B-to-B world, face to face sales calls are being replaced by emails and on-line ordering. So much for the traditional loyalty factors such as a friendly sales person and customized service. We used to live in the age of the never-satisfied customer, then it was the never-satisfied real-time customer. Today, the world is real-time and the never-satisfied customer is in control of the selling process and can bolt with the click of a mouse.
TRUTH #2
Customers don't really want a relationship - but companies do. Customers have been bombarded with telemarketers, junk mail, and electronic spam to the point that they don't want relationships. However, management wants them. It is a logical premise: Acquiring new customers is expensive and relationships with them can be very fragile. Current thinking in many companies is that a relationship marketing program can extend the life of a customer. That's true as long as management understands what is driving the dynamics of the relationship; trusted products and services and customer service that exceeds the customer's expectations.
Unfortunately, many companies only want to have a relationship with their "best" customers but that thinking is flawed. A more productive philosophy to embrace is that "everyone has potential." Furthermore, you must understand that:
Your best customers can leave
Your marginal customers can buy more
Consumers can become customers
TRUTH #3
Customers want information. The company that controls the flow of information and keeps its name in front of customers has a chance to extend the customer's lifecycle. Control is easier said than done because there are so many touchpoints available to customers. Companies need to expand their communications network to cover alternative paths that customers may use. Finding the right pattern and the right timing requires an on-going process of testing and evaluation.
TRUTH #4
Customers not only want to be thanked for their patronage; they expect it. This can be as simple as a follow-up "thank you" letter after a first or major purchase has occurred. Yet, so many businesses overlook this simple step. The logical extension is to create an incentive program that rewards customers for their continuing patronage which can be based on the idea of "Spend and earn; Redeem and save." A typical concern is that this will reward customers who will buy anyway - scary thinking in today's dynamic competitive environment. However, every company should have ways to reward their customers through both hard and soft rewards. Travelers like frequent flyer miles but they like their "platinum status" a lot more when arriving at the check-in counter. Monetary rewards have become a fact of marketing plans, but they should be coupled with soft rewards as well.
TRUTH #5
Customers control the selling process. Gone are the days when a company could put a price on an item, run some ads, and customers would blindly buy. It's back to the touchpoints and it is as simple as a trip to e-Bay or an Internet search button. Here's a personal case in point: I was looking for a letter folding machine recently. My first stop was an Internet search where I found several choices all for over $1,000. Then, on a whim, I went to e-Bay and found one of the same choices for $475. In the "old days" I would have found a folding machine at the local office supply store or looked at their catalog.
While searching for the perfect folding machine, I noticed that a well known office supply vendor has identified our office manager as a primary buyer and is sending her personalized "Private Sale" catalogs. Their classic call to action is a front page headline that boldly announced: "Hurry! Now you can buy SKU 245-308-478, No. 1 Paper Clips, at Your Private sale Price of $1.15 per 10-pack. Others will pay $1.39 per 10-Pack, You Save $0.24." I also found a partnership binder from them addressed to Group 3 Marketing. Almost every page was personalized except the "Delivery Memorandum" requesting $75 orders that was inappropriately addressed to "Dear Valued Customer."
Their management should review Truth #4 and instead of personalizing an individual sale item, develop a strategy to reward a business for its continued patronage. The $0.24 savings isn't going to cut it when a similar catalog from their major competitor promotes their No. 1 paper clips with a $0.25 savings - and maybe only a $70 order. All this retailer has to do is announce that every time our company spends $75, a $5 reward can be applied to a future purchase. Five bucks looks a lot better than twenty-four cents.
TRUTH #6
The Lifetime Value of a customer is not relevant; what is relevant is your company's Lifetime Value to the customer. For years, direct marketing experts have created formulas to calculate the lifetime value of customers based on macro forward-thinking assumptions. The formulas are not disputed, but their underlying static assumptions do not reflect today's real-time multi-dimensional marketing environment.
Today's dynamics demands that companies know their customers, their demographics and their purchases. Purchases at the SKU level with corresponding frequency patterns are important in determining not the lifetime value of a customer but where each is in their lifecycle of buying. As a company pieces together lifecycle dynamics and clusters customers, it has a better chance of marketing to them in a meaningful way.
If a company is experiencing significant, measurable churn, it may not be the customer's lifetime value that is the issue. Instead, the company's lifetime value to its customers should be examined. Through communications and rewards, a company can build relationships that can extend its lifetime value to its customers.
TRUTH #7
Overly complicated programs fail to keep customers. They won't understand it. They won't spend more or shop more because of different reward levels for different spending levels. And sales associates won't understand it and will be frustrated when customers question them.
Airline programs have had success with complicated programs, but only because they have kept their mileage rewards fairly consistent, while promoting partnerships and soft rewards. Airlines have the luxury of setting rewards that suit them while many other businesses do not experience "empty seat" reward dynamics.
TRUTH #8
Keep reporting simple and focused on the customer. Management often gets caught up in analysis paralysis and loses sight of the reporting focus. Management should establish clear and measurable reporting benchmarks for their program such as number of members, their activity, their sales as a percentage of total sales, etc. Decile reporting is a critical component to understand customer behavior and how customers are shifting their buying patterns.
TRUTH #9
WHAT IF? Ask it often. Experiment every chance you get and don't call it testing. Tom Peters would say "screw around vigorously." It's easy. With a known universe of customers, a company can target specific ones and determine if a certain offer triggers a positive response. There are many reporting tools that deliver a wealth of information. Management should never be afraid to try something new. If it works, expand it. If it doesn't, little is lost and we learn while we prepare for the next idea.
One such idea came from the Musicland marketing team in 2000. WHAT IF Replay members were offered the opportunity to give Replay memberships as gifts to their friends who also love entertainment? Good idea? Let's find out. Members in top decile #1 and a scattering of members in the 2nd through 4th deciles were targeted and sent a personalized invitation and order form. About 4,000 were mailed and eight were returned. Needless to say, this did not make the 2001 to-do list.
We stopped at nine truths so no one would think these are commandments. Although relationship marketing is not brain surgery, it does require technical discipline, scary customer-centric thinking and a willingness to try new ideas that have one goal: deliver sustainable, profitable growth by marketing to known customers in a way that competition can only hope to mimic.
