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Is There a Loyalty Model?

                 So Many Things to Consider

                 So Many Ways to Get There



By Betsy Vavrin


Industry experts, rife with hopeful optimism in the early days of CRM and customer loyalty programs, thought CRM was the ultimate tactic to clinch and sustain a personal relationship with their customer.  They did not consider the breadth and depth of fundamentals we now know are necessary to achieve customer loyalty.

Nearly a generation ago, the Peppers & Rogers Group invented the term “1-to-1 Marketing” to illustrate the importance of customer relationships.  Their route to customer loyalty success follows the following four steps:

     1.      Identify (the most profitable customers)

     2.     Differentiate (acknowledge their status)

     3.     Interact (develop a dialogue with them)

     4.     Customize (create a conversation unique to each of them)


Often, companies accomplish the first three steps.  The fourth, "Customize", took CRM beyond the technical applications of personalization and into a personal customer experience that can only follow given the appropriate resources.


Other loyalty experts describe a “loyalty ladder” that customers climb as they move from their role as a prospect to that of a client and eventually an advocate.  Similar to the Peppers and Rogers Group, these are primarily attained through rather customary sales communications vehicles.  Follow up with the customer, cross-sell, signs of appreciation and status.


These and others’ works can be traced back to the original, definitive description of customer loyalty found in Frederick F. Reichheld’s historic publication, The Loyalty Effect.  In this precedent-setting book, Reichheld describes the factors contributing to customer loyalty, the results of increasing it and the economic fallout resulting from customer attrition. 


Although technology has generated greater customer communication options, the fundamentals have changed little since that original work.  The differences of opinion lie in how the process is defined.  


More recently, Reichheld has updated his concept of loyalty as addressed in the 2006 landmark book, The Ultimate Question.  He simplifies how to quantify tracking and measuring customer loyalty via asking one simple question: How likely is it that you would recommend Company X to a friend or colleague?


Based on ranking the responses on a 1-10 point scale, customers are ranked as:


     •     Promoters – users who give the company a score of 9 or 10

     •     Passives – users who give the company a score of 7 or 8 

     •     Detractors – users giving a score of 6 or less


Subtracting the number of Detractors from the Promoters then creates a ‘net’ score.  According to Reichheld, this ‘Net-Promoter Score" is a powerful way to measure and manage customer loyalty.


There continues to be any number of authors and scholars attempting to define the ultimate loyalty program.  As technology develops and experiences are shared, our knowledge will be enhanced continuously, and new recommendations will flourish.




Bottom line for any institution:  Start the process with the budget, capabilities, manpower and infrastructure available, and continue to build as these resources grow.  That means there still can be magnificent, sophisticated, cross-divisional, channel-integrating long-term goals. 


For those starting the process, the focus can be on those tactics that can be accomplished with the resources at hand, following the road map leading to more sophisticated long-term goals as additional resources become available.


What elements should be considered as the process begins?  


Broadly, these can include, but are not limited to:

     •     Determining specific, prioritized short and long-term goals

     •     Identifying the desired (measurable) improvements to reach specific goals

     •     Evaluating including point-based elements

     •     Exploring integration of communications across all channels (sales reps, call center,

email, mobile, direct mail, Web site, in branch)

     •     Defining technological enhancement needs and opportunity for implementation

Given the need to demonstrate a return on investment, refining these issues will be helpful



Additionally, tactical issues should be crystallized and prioritized.  They will happen over time – they are not necessarily all assigned priority ranking.  These can include:

     •     “VIP Program” status

     •     Email communications (research documents, analyst reports, special offers and notifications) determined by pre-selected customer interests

     •     Banker communications – ‘shelf items’

     •     Exclusive Web site access (reports, research, calculators, charts, etc.)

     •     Booklets/e-books on lifestyle issues (“What to consider as you marry”, “How does a new baby fit into the picture?”, “Preparing for your child’s education”, etc.)

     •     Alliances with financial publications, computer software and hardware manufacturers

     •     Events featuring recognized financial expert guest speakers

     •     New customer welcome and introduction to program

     •     Research – closed account surveys

     •     Points and rewards

These are add-ons to existing customer communications, and can provide the foundation for other enhanced, responsive communications that may become available should the institution be able to invest in behavior-triggering technologies.


The technology most immediately needed will track and profile each customer more efficiently, and assess the program’s capabilities and effectiveness.  This includes:


     •     Customer Profile.  Can we see the same customer profile regardless of which channel the customer chooses?  Do we know what percent of his assets are in each product type?

     •     Program Review.  Can we track and evaluate customer activity (and eventually, inactivity) from year to year?  Can we respond to customer’s feedback?

     •     Software.  What do we have?  Can it be upgraded?  Can it interface with the systems we are considering?

     •     Systems.  Can your current system communicate with the bank’s mainframe to get a single profile of the customer?


No company sets out to design a program that will not successfully achieve its goals. 


We all want to know that our investment of time and resources will pay off.

There is a plethora of products and technology available that can provide the ‘ultimate’ program for customer loyalty.  Not all of these are appropriate to every organization.  Each company is at a different stage technologically.  Each has a different risk position.  Not all want to make a seven-figure investment—even if the investment is amortized over time.

That is why it is important that your Customer Loyalty Program suits your priorities, supports your immediate goals and can grow with you as more resources are available and as corporate initiatives change.


Bottom line:  Think of this program as a process, not an end unto itself.


Betsy VavrinFounder and President, SMC Marketing, Redondo Beach, California

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