Customer Loyalty And The Pareto Tyranny.

Customer loyalty is much prized and much misunderstood. The obsession with it is such that companies often confuse habit for loyalty. They see their healthy sales figures and believe they have loyal followers rather than habitual customers. They believe this right up until the point when a competitor disrupts their market and their "loyalists" suddenly jump ship.

Last week, at an airline innovation forum, I also saw that this leads to customers misinterpreting loyalty. They were heavy users, they were anointed by loyalty schemes and they were not satisfied. They had a sense of entitlement derived from the belief that their perceived loyalty should be rewarded.

But are they really loyal or are they merely conditioned by habit and the switching costs implicit in reward schemes? Haven't they essentially made their purchase decisions of their own volition? Haven't they decided that this was the best value available to them? Shouldn't that be enough? They've assigned their lazy loyalty and if they didn't think it worthwhile wouldn't they have moved on?

Apparently not. These customers felt the key to the airline's future was to serve them, the heavy users, better. And many businesses feel that too - citing a bastardised confluence of Pareto and the idea that it costs more to get a new user than to retain an existing one.

The latter is technically true, but if it leads to customers expecting special bonuses then it's not far from competing solely on price. If they say they want more for the same price, it's not very different from saying they want the existing offer for less and, as we know, if you compete on price you're saying you don't really value your offering.

This is the heart of the loyalty conundrum and the received wisdom that companies should focus on the 20% who provide 80% of their profits. There can be no argument about focusing on keeping them happy by providing the best product/service but that should be a given for all customers. It's smarter still to exploit their "loyalty" and profitability by trying to sell them ancillary products and services which will contribute to the growth of a business.

But how much extra profitability can be wrung out of them? Too many businesses overlook the potential for real growth that lies in nurturing a proportion of the less profitable 80% towards true loyalty and greater profitability. If you can generate true loyalty in them via excellence of customer service, constant improvement or alliance with some shared belief, their sheer numbers mean they can have a significant impact on your bottom line.

Without knowing the actual numbers involved, I'd hazard a guess that an airline that could engender that in the back of the plane might reap rich rewards. Indeed if they could get economy passengers to pay a ticket price a couple of percentage points higher than that of the competition, they might, in fact, be doubling the profit margin of the largest part of their customer base.

The key to customer loyalty is not the creation of a pampered elite, it's about maximising the number of profitable customers.

It's Spreadable Marketing, Not Viral.

In a New York bar last month, a (non-media) university friend of his asked the rest of the table to explain what Faris actually did - apart from use very long words that she didn't understand? We laughed, he pled guilty and we continued drinking.

This month, he's written an excellent post derived from his own thinking and his attendance of MIT's Future Of Entertainment conference. It gives us the simple language with which to clarify what viral marketing really is.

What we mean when something goes 'viral' is that LOTS OF PEOPLE CHOOSE TO PROPAGATE IT. It requires people to do something. Voluntarily. For their own reasons. It is not simply a new way to broadcast our messages through populations. It suggests we push, when in fact they pull

In other words, it's not interruptive advertising. As Henry Jenkins said at the conference, it's much more about gifting and

you don't put a catalog in a gift! That's gauche advertising. And viral advertising is basically this: "here's free media, give it into your friends as a gift, also it includes advertising!"

That doesn't work because, as Douglas Rushkoff said

"People don't engage with each other to exchange viruses; people exchange viruses as an excuse to engage with each other."

This is where marketing is going. This is where it has to go.

That's Not Marketing Either.

Actually, no. A brand should exist solely to meet a customer need and, if it does, then its needs and those of the customer will be congruent. A construct doesn't have independent needs.

On the other hand, a company does have independent needs and this suggestion is more a reflection of the interconnectedness of marketing and corporate strategy than anything else.

Successful corporate strategy connects the needs of customers to the need of a company to achieve a return on investment. Not vice versa.

Breaking Up Is Hard To Do.

Rightly or wrongly, I stopped looking at my blog stats well over a year ago. That way neurosis lies. But, via my RSS reader, I am informed of how many of you kindly subscribe using that tool.

Overnight, not having blogged in two days, I lost three subscribers and that got me thinking. Had I (or Loren Feldman) offended readers with my Motrin post, had I bored them into submission, had they just lost the blog-reading habit or had readers switched to another RSS system? I have no way of knowing.

And it's important to know why people don't want what you're offering. Not because you should shape it to every person's whim, but because it's as informative to understand people's aversion to your product/service as it is to understand their loyalty. Motrin's biggest failing was not being ready to deal with that aversion and thus not engaging with it.

Keeping your current customers happy is a crucial business skill, but your new customers (and thus growth) are people who don't yet use your product/service and who just might share the views of those who are leaving you. Do you bother to find out what those views might be?

The Shaky Foundations Of Neuromarketing.

That is the problem with all neuroscience. We don't really know what we are seeing when we watch the brain work. Is it the thing itself - the thought, the flash of insight - or just an aspect of it, the bark rather than the dog.

Professor Lawrence Parsons - Sheffield University.

Marketing Headache, Motrin-Style.

There has been a little kerfuffle in interweb land this past weekend. Most people won't have noticed it. But some people got quite excited because Motrin were very slow in reacting to the "noise" and didn't apologise and/or explain that they had been joking as quickly as they should.

The whole sorry saga is detailed here and includes what I had intended to be my only comment on the furore.

But I was forced to blog about it because of the intervention of the honeymooning Loren Feldman who gives an alternative perspective.

Criminalise Your Customers?

Tara pointed me to this story about a Dutch coffee-shop chain that

By continuously changing the names of their store networks to such things as OrderAnotherCoffeeAlready, BuyCoffeeForCuteGirlOverThere?, HaveYouTriedCoffeeCake?, BuyAnotherCupYouCheapskate and BuyaLargeLatterGetBrownieForFree...is able to both promote items as well as guilt patrons into realizing free WiFi really isn't

That's smart as far as it goes. But it's indiscriminately interruptive of all wi-fi users and, more importantly, guilt is not the primary emotion you want to engender in your potential customers.

Far better to focus on the wittier messages rather than the hard sell. Far better to seek to make the miscreants (not to mention all those freer-spending wi-fi users) feel part of the community and invested in the fate of the business. Far better in the long run and far more likely to cause them to return.


Addendum: In line with this downtime interaction spotted by Iain, they could also use their interruptions to seek positive opinions or poll their miscreants about why they're not buying coffee.

Speed Marketing (Geeks In A Crypt).

So, I found myself in a crypt full of geeks.

Theoretically, I was there to learn some more about cloud computing, but instead I got a lesson in bad marketing.

If you're allocated five minutes to present your thinking and insights, you can do one of two things. You can try to cram your regular half hour into the reduced time which involves subjecting your audience to a blur of slides and/or an avalanche of speed-reading.

Or you can acknowledge that five minutes is not thirty and tailor your presentation accordingly. Embrace the limitations that are set rather than see them as an inconvenience. You may not impart as much information, but at least it will be heard.

Missing The Bus.

So, let me get this right. I could buy a coffee for £3, but rather than do that I should buy one of your £3 coach tickets and travel to an unspecified location where I can then spend some more money to buy a coffee I could have bought some hours ago?

Isn't the point of travel to enable you to do something you couldn't do where you were? Isn't the point of this example that marketers should always ensure that they and their media contractors know what it is that they're selling?

Alone In The Crowd.

Marketers are increasingly trying and failing to inject social interaction into their activities. The key is to realise that something which seems social may not be social at all.

In this article about Sleeveface, one line stuck out.

"We know this one woman who got into it, and she used to do flash-mobbing. But she says you'd just turn up, do something funny and leave, so she didn't get to meet anybody. Sleevefacing is more social"

Too many markerters/advertisers think it's enough to turn up, do something funny and leave. It isn't.

Your Customer-Driven Future.

At the heart of the VRM philosophy is the intention to impel businesses to move away from a customer-focused approach and towards a customer-driven outlook. Some recent developments at Tesco.com (the online service of the UK's largest supermarket chain) provide an opportunity to clarify the distinction.

Customer-Focused

Tesco were the first UK supermarket to launch an online shopping site, but its initial iteration seemed to have simply cut and pasted their warehouse stock-lists into a template. Whereas a supermarket shopper would select the shelf for the category, identify their favoured brand and then select the size of product they wanted, hereyou had categories listed by size of product. You found yourself looking at a list of the various 250 ml aerosol deodorants and then the various 100 ml deodorants. An experience at complete variance with what you understood shopping to be.

I recall writing to the CEO and being told that things would get better and of course they did. But this was customer focus in action. Target those shoppers who might be net savvy and keep them in the fold by giving them a website as soon as possible regardless of its usability and the experience it offers them. Customer focus is about putting the passive customer in your cross-hairs and deciding when you squeeze the trigger.

Customer-Centric

Last week at the Microsoft PDC in Los Angeles, Tesco.com announced among other things that they had created software that enabled any online shopper to use their webcam as a barcode scanner when setting up their online shopping lists. That's all about making the process easier for the customer. It's about thinking about how the customer behaves and how you can make it easier and more agreeable for them. That's arguably a good definition of customer centricity.

But it's splitting hairs. Customer centricity is still not enough because the imposed passivity remains and the customer only gets what they're given and nothing that they've driven. Echoing Adriana's earlier post, Doc Searls twittered this week from a web 2.0 conference in London,


Customer-Driven

The key to customer-driven lies in the verb. There can be no doubt here, the user is in charge and actively directing the process.

In a move that really hints at the customer-driven future, Tesco.com also announced last week that they were opening up their API. By summer 2009 anyone will be able to create widgets and programs that can facilitate the use of the system. Many of those geeks will be existing customers who have had frustrations with the current system or who have identified ways that make the process easier for customers.

The outcome should be that customers will be able to drive how the service works for them, that Tesco.com will gain a richer knowledge of their needs, and that those customers will be better customers as true loyalty displaces habituation.

You can make as many proclamations as you like about being customer-focused or customer-centric, but do so in the knowledge that you are well behind the curve. In a collaborative, post-messaging world, your "focus" has to "centre" on creating a customer-driven business.


Bonus link: The guy from Tesco who made the announcements has a blog.

The iPod Generation Isn't A Generation.

While participating in a panel at Mondays's VRM conference, I made a comment about the need for all businesses to recognise that the iPod generation were accustomed to having an entirely personalised music experience and that this technologically-driven expectation would spread into every area of their life.

I was bemused by some of the audience's accusations about my use of a generational generalisation and their insistence that they were more technologically-aware than their kids. No doubt they are. For me, it was not the make up of the generation, but the behaviour that was the issue. The reaction, however, was based on traditional segmentation thinking which defines all "generations" as age-ranges.

The iPod generation is the first "generation/group" who've experienced iPods. They are purchase-defined, they are behaviourally-defined, but they are not age-defined. Indeed, I've always doubted that any segments really were.

It may be correct to infer that the younger members of that generation will have a greater sense of entitlement to personalisation because they have known nothing else. It is not correct to assume that the older ones think very much differently, both because technology is agnostic and not ageist and because that sort of thinking is predicated upon a chronological definition of generations.

If you insist on simplifying this complex world by putting individuals into boxes, then do so based on how they behave and how they think. Not on what it says on their birth certificate.


Image via kristabel.

Managing Expectations.

Imagine how people will be feeling tomorrow if things don't go as they've been led to believe. Anger, disenchantment and distrust will prevail.

When your marketing efforts overhype what you can deliver or you fail to fulfill your promises, the same feelings pervade your potential customers. It may not be as palpable, but the emotions will be there. Just as deep and just as damaging.