The decreasing identification of new generations with brands or products for their attributes. The increasing number of available products and services has overwhelmed consumers with an unprecedented range of options of all styles and qualities in everything they would want to purchase. Have you visited a mobile phone store lately? Have you noticed the number of brands of automobiles, or examined the offerings of consulting firms in the market? If you have, you know the vast offering of products, brands and options that consumers have available. If you haven't, do it and you will see that the significance of the support of a brand is not the same that it was for your parents and grandparents.
While people in the past used brands as definitive guides for the quality and functionality of a product, nowadays consumers see beyond this and evaluate their options in terms of attributes of a product and the additional benefits that are given to them. How many times have you made a decision between buying two mobile phones with similar characteristics because one included some headphones or free calling minutes, while the other one didn’t? This behavior of searching beyond the brand and the product seems to begin since early ages, with experiences like the ones at fast food restaurants. If you have small children and you have taken them to one of those restaurants, you may know that the main factor in the election of the meal is not the food, but the free toy that comes with the meal.
Loyalty programs are the only way to establish a link and a channel to offer clients the treatment they deserve and to exceed their expectancies. Actually, if you have had any direct contact with a consumer at the moment of a purchase, you were probably asked whether you offered any loyalty program. Clients ask for them openly by their name.
Virtuous Spiral
The main benefit and the reason for the implementation of a loyalty program is client retention. At this point, we mention again the fact that clients need more than just being satisfied with a product to make a repeat purchase. They want to feel appreciated, valued, and rewarded for their preference, and a loyalty program is the only way to honor their wishes. The formula is really easy: the higher the frequency of purchase, the higher the accumulated value for the client. The higher the accumulated value, the higher the stimulus to continue with the repetition of purchase, thus keeping and increasing the accumulated value. The higher the accumulated value for the client, the higher the amount realized for the company. It's as simple as that.
From this basic formula, we derive the other benefits that are added to create a virtuous spiral. Repeat purchase of a customer is increased, and purchases to your competitors are proportionally reduced. With this plan in place, you can beat the competition.
When a good loyalty program is developed, it is important to use it to open a dialogue with your clients. It is through communication and collateral materials of the program that members get to know their benefits. Apart from using this to communicate with them, you also have to take advantage of this to obtain additional information about them. What products do they prefer? How do they like to consume their products and what uses do they give to them? Do they have relatives and friends who can benefit from your services? Which products and services do they need today and which will they need tomorrow? Once you have satisfied a client by showing him appreciation and value in his relationship with you, you can collect from him all types of strategic information in order to improve your products, grow your market share, and strengthen your relationship.
A consumer who appreciates the relationship with his vendor is willing to pay for the added value he receives. With a good loyalty program, companies can focus on developing and giving value, instead of deteriorating their margins and spoon-feeding their clients with frequent and aggressive discounts to move products.
If the consumer is happy with the relationship that he has with you, he will recommend you when the time comes, and a referral is worth more than a thousand ads.
Costs and return on investment
One thing that is widely misunderstood about loyalty programs is their cost. When you make an investment in your best publicity campaign, what is your return on the investment? Surely you develop a sophisticated algorithm to try to calculate the impact made, referrals obtained and sales made. Once these have been calculated, you compare them with your investment and you contrast them with your minimum rate of return.
You probably even include in the return an additional quantification for the creation of a brand that you developed along with the campaign, independently from the derived consumptions. When you assess the return on investment of your loyalty program, the calculation is very similar, but with an important difference: The impacts made, the referrals obtained, the incremental sales, and even the creation of value are inferred, known, and calculated clearly by your program. Additionally, the effectiveness of your efforts improve significantly thanks to the focus you choose based on the information you have about your clients.
As a reference, depending on the industry, the field, and the audience to which it is directed, a loyalty program contributes between 1% and 5% of the gross sales of the product or service.
The return on investment depends on the desired goal, but, as a reference, just remember that obtaining a new customer costs five times as much as retaining an existing customer costs. How many promotion strategies bring you a 5 to 1 return?
Mostrando entradas con la etiqueta customer loyalty. Mostrar todas las entradas
Mostrando entradas con la etiqueta customer loyalty. Mostrar todas las entradas
miércoles, 12 de mayo de 2010
miércoles, 17 de febrero de 2010
Do we all deserve loyalty?
From an airline company, to an architect, to a factory or a taxi driver, all industries, businesses and professional offices can develop a good loyalty strategy.
Loyalty is a theme that is complex and full of different views and opinions. But the question that must be asked is whether it is relevant to us all.
In a conceptual manner, one can ask: Are all industries susceptible to loyalty strategies? Or, more pragmatically: Can my business, profession or trade benefit from a loyalty initiative?
The indisputable answer to both questions is, YES! From an airline or an architect, to a factory or a seamstress, all industries, businesses, professional activities and professions can benefit from a good loyalty program.
Let´s test this! We may think that an independent taxi driver is not susceptible to loyalty initiatives for its customers: When an independent taxi driver thinks about his next passenger, he must rely on strangers that signal him from the sidewalk to carry them from one point to another, and then disappear without possibly ever seeing them again. The reasoning for this taxi driver is that the customer is simply the result of a coincidence of space and time, virtually impossible to replicate, and therefore irrelevant to deal with any loyalty strategy. Sometimes, the attitude is enough .
Now let's look at the situation from the client’s viewpoint. When the person is on the street and needs a taxi, does he simply approach the sidewalk, signal for a cab and climb into the first vehicle that stops for him? Of course not. First of all, the passenger considers whether he should take a taxi from the street or call for one. If he chooses the first, he gets closer to the sidewalk, begins to wave his hand, and when a taxi approaches, he enters the second phase of the evaluation.
After the taxi stops, the man considers: does the cab look legal and does it have it badges and documents in order? Is the exterior clean? Does the cab arrive at high speeds or moderate speeds? Does the driver approach the sidewalk prudently or negligently? Consciously or not, all these criteria have crossed the client's mind, all before even coming into contact with the service.
After the second evaluation phase, comes the third with these questions: Does the driver seem clean and pleasant? Did he greet the client with kindness and look the client in the eye? Does the driver start the meter as he should and does he specify the rate that applies to the trip? Is the interior of the car clean and neat?
Assuming that this stage passes and the client has reached a decision to take the taxi, the questions continue: Does the driver handle the taxi well? Does the driver offer route choices to reach the destination? Does he offer to open or close the window to make the trip more enjoyable? Does he play music? Does he smoke without asking if it bothers the client? Upon arriving, does he request payment pleasantly? Does he thank the client for choosing his taxi and does he wish the client a good day? We could continue to provide all the factors or criteria you use to evaluate customer service.
And finally, if this client were you, and you had an extraordinary experience in the taxi and know you’ll have another trip soon, do you ask the driver to wait or return at a certain hour? Or ask for his card so that you can call for him at another time? And then we ask the last question regarding the taxi’s service: Is he prepared to give you details so that he can be contacted for services in the future? In short, these taxi drivers have executed, knowingly or not, a good strategy for achieving customer loyalty.
Turning back to the pragmatic question with which we began this exploration: Can my business, profession or trade benefit from a loyalty initiative? YES, any situation where there is a relationship between a supplier and a consumer of a product or service presents an opportunity for loyalty.
Of course, complexity and implementation of the strategy changes depending on the trade or business and the customer profile. But if an independent taxi driver, an alleged victim of chance, can generate loyal customers through a good attitude, imagine what a proper loyalty strategy can do for a tailor, pharmacy, clinic, multinational financial services company, or the government. We all deserve loyalty.
Loyalty is a theme that is complex and full of different views and opinions. But the question that must be asked is whether it is relevant to us all.
In a conceptual manner, one can ask: Are all industries susceptible to loyalty strategies? Or, more pragmatically: Can my business, profession or trade benefit from a loyalty initiative?
The indisputable answer to both questions is, YES! From an airline or an architect, to a factory or a seamstress, all industries, businesses, professional activities and professions can benefit from a good loyalty program.
Let´s test this! We may think that an independent taxi driver is not susceptible to loyalty initiatives for its customers: When an independent taxi driver thinks about his next passenger, he must rely on strangers that signal him from the sidewalk to carry them from one point to another, and then disappear without possibly ever seeing them again. The reasoning for this taxi driver is that the customer is simply the result of a coincidence of space and time, virtually impossible to replicate, and therefore irrelevant to deal with any loyalty strategy. Sometimes, the attitude is enough .
Now let's look at the situation from the client’s viewpoint. When the person is on the street and needs a taxi, does he simply approach the sidewalk, signal for a cab and climb into the first vehicle that stops for him? Of course not. First of all, the passenger considers whether he should take a taxi from the street or call for one. If he chooses the first, he gets closer to the sidewalk, begins to wave his hand, and when a taxi approaches, he enters the second phase of the evaluation.
After the taxi stops, the man considers: does the cab look legal and does it have it badges and documents in order? Is the exterior clean? Does the cab arrive at high speeds or moderate speeds? Does the driver approach the sidewalk prudently or negligently? Consciously or not, all these criteria have crossed the client's mind, all before even coming into contact with the service.
After the second evaluation phase, comes the third with these questions: Does the driver seem clean and pleasant? Did he greet the client with kindness and look the client in the eye? Does the driver start the meter as he should and does he specify the rate that applies to the trip? Is the interior of the car clean and neat?
Assuming that this stage passes and the client has reached a decision to take the taxi, the questions continue: Does the driver handle the taxi well? Does the driver offer route choices to reach the destination? Does he offer to open or close the window to make the trip more enjoyable? Does he play music? Does he smoke without asking if it bothers the client? Upon arriving, does he request payment pleasantly? Does he thank the client for choosing his taxi and does he wish the client a good day? We could continue to provide all the factors or criteria you use to evaluate customer service.
And finally, if this client were you, and you had an extraordinary experience in the taxi and know you’ll have another trip soon, do you ask the driver to wait or return at a certain hour? Or ask for his card so that you can call for him at another time? And then we ask the last question regarding the taxi’s service: Is he prepared to give you details so that he can be contacted for services in the future? In short, these taxi drivers have executed, knowingly or not, a good strategy for achieving customer loyalty.
Turning back to the pragmatic question with which we began this exploration: Can my business, profession or trade benefit from a loyalty initiative? YES, any situation where there is a relationship between a supplier and a consumer of a product or service presents an opportunity for loyalty.
Of course, complexity and implementation of the strategy changes depending on the trade or business and the customer profile. But if an independent taxi driver, an alleged victim of chance, can generate loyal customers through a good attitude, imagine what a proper loyalty strategy can do for a tailor, pharmacy, clinic, multinational financial services company, or the government. We all deserve loyalty.
martes, 15 de septiembre de 2009
The secret weapon of successful business cases
The secret weapon
What helped increase the original Aeromexico purchase offer by more than 2.5 times? The answer: its customer base and brand loyalty. The buyers know this and are preparing to do what is takes to retain them.
In past months we have witnessed one of the most controversial chapters in the history of the Mexican business community: the process of acquiring the country's largest airline, Aeromexico. The players were Saba Group, a group of businessmen led by José Luis Barraza, and Grupo Mexicana.
The outcome was a public purchase conducted through, what many describe, as a process riddled with irregularities that left a bitter taste for the bidders and the public spectators--a very bad precedent for future bids.
There are many reasons why the sale of Aeromexico captured the interest of political and business communities in Mexico and around the world. One reason is that it affected the transportation and communication industries —which are key in the development and competitiveness of Mexico— but also threatened value and competitive strategies, and even national security. However, there was one point —a very critical point— in the deal that was overlooked by all: the airline’s customer base and brand loyalty.
The basis of it all
When you think of Aeromexico’s assets, you immediately think of its fleet of planes —which individually cost hundreds of millions of dollars, its airport and landing equipment, hangars, sales offices, and even its flagship Premier lounges. However, were these the assets that attracted the final $250 million for the acquisition of the airline?
The first offer made on August 22 by Mr. Saba —based on what they defined as a thorough valuation of the airline’s assets— didn’t even reach $100 million.
So what helped increase the original purchase offer by at least 250%? Without doubt it was its most important asset, both quantitatively and qualitatively: its strong customer base, which was forged almost 20 years ago through its Premier Club and Aeromexico-branded American Express card.
The Premier Club customer base is an important one because it represents a segment of people that travel more frequently than most. But most important, in theory at least, is that the airline has what I call the three basic rules to ensure customer loyalty:
a) Client information: Who are they, where do they travel, with whom and how much time does each spend on the road?
b) A process to exploit such information and thereby deduce patterns and significance of services and benefits for customers.
c) Professional and efficient communication with the client.
It is obvious that Aeromexico has executed the basics well and has reaped its rewards. This is clearly reflected in the number of members that benefit from Premier Club offers and services. So much so that today its customer base can be divided into two groups: Premier Club (CP)-only customers and those who are members of the club by virtue of Aeromexico-branded American Express card (CP/AE).
How much then is the Premier Club client base worth? It is very hard to say. It alone does not have much value, but with CP/AE it is very valuable. So much that Dario Celis reported that American Express was afraid that the airline would end up in the hands of the group backed by Banamex and lose its relationship with the clients.
The road starts here
Now that the airline is under the command of José Luis Barraza, will American Express’ fear materialize? Will the new management know how to approach and retain program customers and partners? How patient will the new administration be?
In the case that CP/AE clients are migrated to Banamex, will they be willing to change the method of payment recommended by Aeromexico? How many of them will end their relationship with the airline?
Only time will tell. Yet, we can be certain that Aeromexico, American Express and Banamex know what they can gain and lose in this new chapter and in the interesting battle in which the winner will not be defined by an opinion from the Federal Communications Commission, but by what they define as the continuous and recurring consumer preference. In other words, customer loyalty.
You can be in touch with us through: mailto:info@8ampersand.com
What helped increase the original Aeromexico purchase offer by more than 2.5 times? The answer: its customer base and brand loyalty. The buyers know this and are preparing to do what is takes to retain them.
In past months we have witnessed one of the most controversial chapters in the history of the Mexican business community: the process of acquiring the country's largest airline, Aeromexico. The players were Saba Group, a group of businessmen led by José Luis Barraza, and Grupo Mexicana.
The outcome was a public purchase conducted through, what many describe, as a process riddled with irregularities that left a bitter taste for the bidders and the public spectators--a very bad precedent for future bids.
There are many reasons why the sale of Aeromexico captured the interest of political and business communities in Mexico and around the world. One reason is that it affected the transportation and communication industries —which are key in the development and competitiveness of Mexico— but also threatened value and competitive strategies, and even national security. However, there was one point —a very critical point— in the deal that was overlooked by all: the airline’s customer base and brand loyalty.
The basis of it all
When you think of Aeromexico’s assets, you immediately think of its fleet of planes —which individually cost hundreds of millions of dollars, its airport and landing equipment, hangars, sales offices, and even its flagship Premier lounges. However, were these the assets that attracted the final $250 million for the acquisition of the airline?
The first offer made on August 22 by Mr. Saba —based on what they defined as a thorough valuation of the airline’s assets— didn’t even reach $100 million.
So what helped increase the original purchase offer by at least 250%? Without doubt it was its most important asset, both quantitatively and qualitatively: its strong customer base, which was forged almost 20 years ago through its Premier Club and Aeromexico-branded American Express card.
The Premier Club customer base is an important one because it represents a segment of people that travel more frequently than most. But most important, in theory at least, is that the airline has what I call the three basic rules to ensure customer loyalty:
a) Client information: Who are they, where do they travel, with whom and how much time does each spend on the road?
b) A process to exploit such information and thereby deduce patterns and significance of services and benefits for customers.
c) Professional and efficient communication with the client.
It is obvious that Aeromexico has executed the basics well and has reaped its rewards. This is clearly reflected in the number of members that benefit from Premier Club offers and services. So much so that today its customer base can be divided into two groups: Premier Club (CP)-only customers and those who are members of the club by virtue of Aeromexico-branded American Express card (CP/AE).
How much then is the Premier Club client base worth? It is very hard to say. It alone does not have much value, but with CP/AE it is very valuable. So much that Dario Celis reported that American Express was afraid that the airline would end up in the hands of the group backed by Banamex and lose its relationship with the clients.
The road starts here
Now that the airline is under the command of José Luis Barraza, will American Express’ fear materialize? Will the new management know how to approach and retain program customers and partners? How patient will the new administration be?
In the case that CP/AE clients are migrated to Banamex, will they be willing to change the method of payment recommended by Aeromexico? How many of them will end their relationship with the airline?
Only time will tell. Yet, we can be certain that Aeromexico, American Express and Banamex know what they can gain and lose in this new chapter and in the interesting battle in which the winner will not be defined by an opinion from the Federal Communications Commission, but by what they define as the continuous and recurring consumer preference. In other words, customer loyalty.
You can be in touch with us through: mailto:info@8ampersand.com
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